The Missing Link in the Value Chain - Financing for Rural Farmers and Microentrepreneurs

The Missing Link in the Value Chain - Financing for Rural Farmers and Microentrepreneurs

Pushing the frontiers of micro- and small-enterprise interventions to rural areas is the current focus of many organizations. These kinds of projects are attracting the
attention of donors and practitioners alike. In the microfinance field, innovations are being tested and replicated to increase the access of rural clients to financial
services on a sustainable basis. In the enterprise development/business development services (BDS) field, new approaches for facilitating market opportunities and
linkages for rural enterprises and farmers in weak markets are beginning to emerge.

This round of PLP grants responds to the growing interest in reaching rural markets from both a microfinance and enterprise development perspective. By drawing lessons and expertise from these two technical areas, the strategic alliance project will explore different methods for facilitating financing for rural farmers and microentrepreneurs in order to upgrade in different value chains for rural products.

The principal issue that the project will address is whether strategic alliances and partnerships between rural financial institutions, market development facilitators, service providers, value-chain actors and micro and small enterprises (MSEs) can increase access to financial services in rural areas. By facilitating such access, this PLP ultimately seeks to explore and document models that assist MSEs to take advantage of potential market opportunities to upgrade the value chains in which they operate.

The seven projects funded by PLP grants can be categorized into two groups. The first group is comprised of financial institutions that will form strategic alliances
with a service provider or value-chain actor(s). As a result of these alliances, the financial institution will directly provide financial services to rural MSEs and farmers. In some cases, the strategic alliance will enable a value-chain actor to provide better or improved financial services through established business relationships.

The second group of projects is comprised of market development facilitators that will assist other actors to improve rural access to financial services. In some cases, these facilitators will work with rural financial institutions and value-chain actors to jointly develop suitable financial products that can leverage the value chain of local rural products. In other projects, they will work to stimulate a service market that supports financial institutions in a commercial manner.

The organizing principle behind the learning framework for this project was to have the participants jointly identify the steps needed to facilitate rural access to financing. These steps are categorized into four project milestones: market assessment; selecting partners and structuring strategic alliances; implementing solutions; and exit strategy and replication. These milestones will serve as the basis for peer learning and guide the participants in documenting lessons and findings throughout the project.

The main purpose of this paper is to articulate the learning framework for the PLP project in greater detail. This project creates a space for practitioners to meet and share their knowledge. Using tested knowledge sharing and learning tools, it will begin to answer questions that are relevant to practitioners and the broader industries of microfinance and small and microenterprise development. By addressing the challenge of enhancing the access of rural farmers and microentrepreneurs to financial services, the project hopes to identify effective, replicable practices and innovations for upgrading the value chains of rural products. Equally important, the project also seeks to identify practitioner approaches that require adjustment, as well as mistakes that should be avoided in practice.