Agricultural value chain finance innovations and lessons: Case studies in Africa – Second edition
Agricultural value chain (AVC) financing innovations and lessons: Case studies in Africa presents a series of different case studies and examples of agricultural value chain finance (AVCF) in sub-Sahara Africa. Agricultural VCs and AVCF have become commonly used terms but often without a basic understanding of their roles. An effective learning method is to study experience-based examples, review the results and consider how to apply the concepts in a local context. The African cases have therefore been designed as training tools to inform and stimulate innovation and application for readers and participants.
The case studies are descriptive and highlight real-life scenarios, rather than present an in-depth analysis. This is because they are intended to facilitate training on the subject as well as to inform readers interested in innovative applications of diverse models and tools of AVCF as well as related issues and challenges. Taken together, the case studies span the whole VC. They highlight, among other aspects, distinct business models, financial instruments, partnership arrangements, technology applications and risk mitigation strategies.
The document is based on first hand research prepared for the African Rural and Agricultural Credit Association (AFRACA) and the Food and Agriculture Organization of the United Nations (FAO) in late 2017 to early 2018, and updated throughout 2018. The document includes 22 case experiences. These include four in-depth highlight case studies on more complex models of AVCF. Thirteen shorter cases studies are presented to depict different innovative and best-practice applications and approaches to addressing key areas affecting agricultural VCs and financing. Five short case examples are also included, each of which illustrates at least one important model and finance issue. Questions follow each of the 22 cases and examples, and these are intended to facilitate workshop or classroom discussion, and/or to stimulate reader reflection. Choosing cases of different types and lengths facilitates their use in diverse training and learning contexts. For example, depending on the topic, a trainer can select from the 13 short cases for breakout group discussions, and case examples can be used to highlight a presentation. The highlight cases, while quite long for a workshop, can be used in academic settings and in workshops where there is sufficient time for pre-discussion preparation.
The case studies are grouped according to their focus. The agricultural VC business model and strategy are fundamentally important to financial sustainability and profitability in all AVCF applications and therefore over one third of the cases focus on this topic. The business model case studies were selected owing to their levels of innovation and lessons learned. All of these business model examples involved partnerships and linkages and many of the interventions required some support to help build capacity or provide financial or risk-sharing incentives to facilitate the inception of the innovation or reach new target groups. Most of these cases have contractual agreements between two or more parties, although some of these are informal working agreements. Cashless financial transactions between some of the VC parties are used to varying degrees in the cases documented. The use of in-kind loans, triangular arrangements of buyers, producers and sellers, mobile money for transfers, point of sale payments and cashless transactions are common. In many cases, mobile-based communication is used to facilitate finance, input purchasing and marketing
Some of the case studies and examples have been chosen to depict various AVCF instruments, including those designed to mitigate risks. These include private- and public-implemented as well as policy-led initiatives. Among the instruments highlighted in the cases are applications of trader finance, input supply finance, contract farming, warehouse receipt financing, insurance, guarantee funds and forward contracts. Two of the case studies portray innovative new technologies that offer high benefits to VC partners and financing organizations.
One case focuses on a women-producer driven agricultural VC and cashless financing. One example describes agribusiness micro- and small-business finance and development for youth. Two cases highlight the challenges small agribusinesses face in securing financing for their operations and their VC partners. One example shows the challenges facing a microfinance institution (MFI) expanding into agricultural finance as it works to adjust its mode of operation to introduce an AVCF approach for its smallholder clients’ needs. Finally, another case looks at the successes and challenges of seven leading agricultural impact investment funds as they strive to provide financing to African agricultural VCs.
The case studies provide lessons on the design, innovation, successes and challenges of a variety of agricultural VC models and financing tools, and in doing so highlight the importance of sound business strategies, mutually beneficial partnerships and the use of innovation and technology.