> Posted by Dan Norell, Senior Technical Advisor, World Vision
Financial services and enterprise development practitioners often exist in their own separate silos—yet very poor producers need both increased access to markets and financial services in order to increase resilience and economic well-being. Financial inclusion advocates are missing the boat if they focus only on services to individuals and businesses without looking at the need for financing up and down the value chain.
Within the agricultural industry, a value chain approach means that very poor producers are able to increase their scope of economic efforts through improving commercial relationships with buyers, suppliers, and financial services providers—topics which are discussed in detail in SEEP Network sponsored webinars (see here and here). For example, small-scale producers may choose to form producer groups with others in their area. This allows them to aggregate supply with others, ensuring a higher price due to greater bargaining power. These linkages provide producers with other beneficial externalities.
One example is described in the Productive Safety Net Program Plus case studies found in the Integrating Very Poor Producers into Value Chains Field Guide. In this project, CARE Ethiopia established production marketing associations and trained recipients of government food aid in production skills; group organization and management; governance and transparency; and business, market, and financial literacy. These extremely poor households also received a productive asset and accessed loans from microfinance institutions for agricultural inputs. This holistic approach addressed challenges faced by the beneficiaries at all levels of the value chain.
Through savings groups and savings accounts in MFIs, banks, and credit unions, very poor producers can build cash balances to use for purchasing agricultural inputs such as seeds and equipment. Likewise, very poor producers may need credit to access inputs or operating capital. Weather index insurance and other insurance products provide very poor farmers with protection against weather and other shocks that could jeopardize their financial viability. Further, credit groups can ensure that women and other marginalized groups are empowered in their relationships with buyers, suppliers, and financial services providers. One of the case studies explored in the Integrating Very Poor Producers Field Guide is an Angola value chain project. In this project World Vision formed voluntary women-only credit groups. As a result of this project, women were financially empowered to grow their microenterprises and become output market buyers of potatoes, carrots, and beans in the value chain.
There is demand for financing at all points along the value chain. According to the Food and Agriculture Organization, a value chain approach is more holistic than providing credit to individual market actors as it focuses on “any or all of the financial services, products and support services flowing to and/or through a value chain to address the needs and constraints of those involved in that chain.” With a value chain approach, microfinance and enterprise development practitioners can increase the financial strength of the whole value chain. In the ACDI/VOCA-led PAGE consortium in Sierra Leone, the project organized a national level cocoa summit. The Cocoa Summit concluded that “more effort is needed at multiple levels to connect financial institutions with cocoa producers and traders to develop the sector.”
Increasing the economic potential of the very poor is a complex and lengthy process. It is our belief that by integrating methods to meet the needs of the very poor into a more cohesive program, we as development practitioners can be more effective in our work.
Dan Norell works as a Senior Technical Advisor in Economic Development for World Vision, Inc. providing technical services to grant acquisition for USG and Foundation funding in microfinance, enterprise development, economic strengthening, economic recovery, and other economic development interventions. He provides technical services to World Vision National Offices in economic development programming. He also provides technical services to VisionFund International in microfinance. Mr. Norell holds a Masters Degree in Business Administration and a Masters Degree in Social Work. He has seven years overseas experience and 15 years in head office providing technical backstopping to World Vision Economic Development projects.
Image credit: Angola Blog
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