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The Value Chain Framework and Rural Finance

An exploration of the suitability of value chain financing for rural areas
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This presentation discusses the importance of the value chain framework in rural finance. It discusses areas where the value chain framework is useful, actors in a value chain, distinctions between value chain and financial sector approaches, and financial services that are important in rural financing.

The presentation identifies barriers that financial service providers face in entering the rural market and describes examples of value chain financing. It states that the value chain framework helps to expand financial services and develop enterprises. It recommends that financial institutions should engage with value chain actors to develop new products and reach new markets. Key points include:

  • Value chain includes sector specific and cross cutting providers, as well as financial providers;
  • Main difference between value chain and financial sector approaches occurs at the core levels of clients and retail providers;
  • Demand and supply are important considerations when assessing markets with a value chain approach;
  • Financial service providers face various barriers to entering the rural market, such as dispersed market, costly infrastructure, seasonality, production and price risks, historic subsidies, and limited collateral;
  • Trader credit, contract farming, and warehouse receipts are examples of value chain finance.