Purchase Order Finance in Bolivia: Innovations in Financing Value Chains
This case study details the methodology and experience of Chemonics and Crimson Capital in Bolivia in implementing the USAID-funded Rural Competitiveness Activity (ARCo). ARCo developed an innovative arrangement called purchase order finance to address barriers and increase access to financial services for small-scale producers in Chapare and Yungas regions in Bolivia.Purchase order finance takes all the actors in the value chain into consideration, leveraging existing relationships among them to guarantee loans without physical collateral requirements. Several important lessons emerged from the ARCo model with respect to reducing risk and building trust and sustainable incentives in the coffee industry. These include:
- Creating an accounts-receivable mechanism reduces risks for financial institutions;
- Targeted subsidies help lower costs of entering the market and encourage long-term sustainable interventions by financial institutions;
- Increased information sharing, collaboration, and understanding of each party's constraints improves trust among buyers, sellers, and financial intermediaries.
Finally, training the financial institution's staff in marketing skills plays an important role in project success because purchase order finance loans are driven by supply. It is also important to design an exit strategy to avoid creating dependency.
