Page 36 - Banking Finance July 2020

ARTICLE

products for the market. Agricultural Value Chain (AVC) Scope of value chain finance
identifies the set of actors (private, public, including service Agricultural Value Chain Finance (AVCF) is thus, the flows of
providers) and a set of activities that bring a basic funds to and among the various links within the AVC in terms
agricultural product from production in the field to final of financial services and products and support services that
consumption, where at each stage value is added to the flow to and/or through VC to address and alleviate constraints,
product. It may include production, processing, packaging, and fulfil the needs of those involved in that chain, be it a
storage, transport and distribution. Stages of Value Chain need for finance, a need to secure sales, procure products,
given below in fig-1
reduce risk and/or improve efficiency within the chain and
thereby enhance the growth of the chain. Finance flows
within the value chain given below fig-2

Enabling business & financial environment
Farm
Input Supply Assembly Processing Distribution
Production FINANCIAL AND INFORMATION FLOWS

Inputs Production Processing Distribution Consumption

PHYSICAL FLOWS

Finance and supporting services

Fig-1- Stages of Value Chain Fig: 2 Finance flows within the value chain
Instruments under Value Chain finance

The various financial instruments which are often used in AVCF can be classified according to Three Categories shown
below:
Category Instrument
A. Product financing Trader credit: Traders advance funds to producers to be repaid, usually in
kind, at harvest time.
Input supplier finance: An input supplier advances agricultural inputs to farmers
(or others in the value chain) for repayment at harvest or other agreed time.
Marketing company credit: A marketing company, processor or other
company provides credit in cash or in kind to farmers, local traders or other
value chain actors.
B. Receivables financing Trade receivables finance: A bank or other financier advances working capital
to agribusiness (supplier, processor, marketing and export) companies against
accounts receivable or confirmed orders to producers.
Factoring: Factoring speeds turnover of working capital and provides credit-
risk protection, accounts-receivable bookkeeping and bill collection services.
Forfeiting: A specialized forfeiter agency purchases an exporter's receivables
of freely negotiable instruments (such as unconditionally guaranteed letters
of credit and to order bills of exchange) at a discount, improving exporter
cash flow, and takes on all the risks involved with the receivables.
C. Physical asset collateralization Warehouse receipts finance: Farmers or other value chain enterprises
receive a receipt from a certified warehouse that can be used as collateral
to access a loan from third-party financial institutions against the security of
goods in an independently controlled warehouse.

36 | 2020 | JULY | BANKING FINANCE