Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 Microfinance plus Inclusive Value Chain for Rural Farmers and Micro Entrepreneurs Shahadat Hossain This study proposes a new dimension in microfinance for micro entrepreneurs and small holders of developing countries to fight against environmental threats, inadequate socio-economic infrastructure and unfavorable changes in the global food chain and retail market. As microfinance only approach failed to address the small holders’ vulnerabilities, this paper argues for microfinance plus inclusive value chain approach where risky agro-borrowers and small holders enter into the well-organized market dynamics and add values to every actor before the product reaches to final condition and destination. We propose a properly articulated strategy to accommodating all the related and active players in the chain so that each party in the chain can be in ‘win-win’ situation in this ‘rule of game’ for a sustainable rural economy. Key Words: microfinance plus, value chain, sustainability. 1. Introduction About seventy five percent of the world’s people live in rural areas (World Bank, 2008). Majority of the people living in the rural areas of developing countries are dependent on agriculture and primary level of economic activities like small entrepreneurship, small and cottage industry etc. Economy of these countries is agro-based and dependent on a lot of external factors such as climatic condition, fragile concentration on segmented volatile market structure, and lack of access to complementary services (Bastiaensen & Marchetti, 2011). Moreover, recent world agro-food market is rapidly integrating, dominating and governing by a small number of concentrated players (Gonzalez-Vega et al., 2006; Vermeulen et al., 2008). The rapid changes in the super market chain with improved delivery channel, timing, processing, quality maintaining and environmental certification is now captured by multinational corporations (Ruben et al., 2006). Powerless poor and small producers remain trapped with unfavorable, small local chain (Roduner, 2004). These small producers in the market are exclusively at high risk and vulnerable position with unequal exchange facilities and low value additions in their hierarchical social practices. People in these countries are now facing increasing threat of food insecurity, job loss, social tension, and livelihood uncertainties. People in these countries are now facing the pressure of population growth, environmental degradation, and over-exploitation of natural resources. Poor producers and small entrepreneurs in these countries do not get the appropriate value for their products and services due to the inefficient match between production and demand. Despite microfinance is the approach to help these poor producers and small entrepreneurs with funding opportunities to escalate and support their economic activities, this is not a ‘miracle’ for these people to alleviate poverty (Banerjee et al., 2009) as their operations still have not adequately tailored to mitigate their vulnerabilities and socio-economic inequalities. Microfinance only approach failed to properly address market anomalies, poverty and ____________________________ Shahadat Hossain, Associate Professor, Department of Finance & Banking, University of Chittagong, Chittagong 4331, Bangladesh, E-mail: [email protected]; [email protected] Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 vulnerabilities as they are still fighting to be financially sustainable. Transaction cost for the MFIs is high due to inadequate market infrastructure, low population density, poor enforcement mechanism and lack of collateral (Bastiaensen & Marchetti, 2011). Some South Asian countries like Bangladesh, India, Nepal and majority of the African countries are at the frontline of such problems. Microfinance operation in this country is still inadequate to the needs of vulnerabilities of poor people addressing environmental threats and socio-economic inequalities. Several empirical findings argue that credit only approach is not often enough and sustainable solution to enable rural poor small entrepreneurs and producers to include in the mainstream development process and implement more substantial changes that are crucial for a more beneficial access and participation in the markets (Miller, 2013; Bastiaensen & Marchetti, 2011; World Bank, 2008). Against this backdrop, this paper is a small attempt to address such problems suggesting microfinance plus inclusive and transformative value chain approach for the rural entrepreneurs, small holders and poor farmers. To overcome such problems, we propose Microfinance Institutions (MFIs) to formulate microfinance plus inclusive and transformative value chain approach that is able to address such inequalities through an adequately articulated strategy accommodating all related and active players in the chain so that each party in the chain can be in ‘win-win’ situation in the ‘rule of game’ and the MFIs are operationally and financially sustainable. The next section of this paper discusses the causes of the failure of traditional microcredit only approach arguing the need for reshaping; section three discusses the facilitative model of value chain; section four elaborates how such value chain can be embedded with microfinance as ‘microfinance plus inclusive and transformative value chain’ to address the mentioned problems; section five proposes some strategic consideration for its effectiveness; and finally section six concludes the study. 2. Failure of Microcredit Only Approach and the Need for Reshaping During the 1960s to 1980s, government and commercial banks and specialized financial institutions funded and patronized special agricultural extension and loan program providing agricultural credit to low income farmers (Morvant-Roux, 2011). However, due to the systematic and covariate risks and high operating costs particularly due to its higher transaction costs and risks, this ‘old rural finance paradigm’ failed to consider realities of the situation (Morvant-Roux, 2011). The program was not able to survive as the agricultural credit market is different from that of urban market (Zeller, 2003) in the absence of formal collateral (Miller, 2013). Moreover, subsidized credit failed to address the agro farmers’ need due to their ineffective credit mechanism, elite capture, political interference and vertical authoritarian policies. Rural poor farmers’ and small producers’ cash flows are dependent on diversity of agricultural activities, repayment capacities, covariate climatic risks, seasonal irregularities, and fragile market linkages (Miller & Jones, 2010; Henry, 2011; Bastiaensen & Marchetti, 2011). Microfinance institutions were mainly funded to serve the poor and financially excluded people. As agriculture is the main source of rural income and employment and the nations’ food security, addressing the agricultural needs of rural poor households fits Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 with MFIs’ mission (Miller, 2013). But MFIs have failed to address it mainly due to the typical nature of their operations such as women focus, short term loans, frequent and regular repayments, consumption smoothing and high interest rates and costs of their services (Morvant-Roux, 2011; Miller, 2013). MFIs tended to provide rural financial services mainly for non-agricultural purpose. It is characterized by weak institutional setting, problematic legal enforcement mechanisms, and inadequate strategies of embedding and integrating rural communities with specialized financial and nonfinancial services (Bastiaensen & Marchetti, 2011). Moreover, credit only approach in agricultural setting is exclusionary, patriarchy, male dominated and environmentally destructive; it failed to address market anomalies. Agricultural producers in environmentally critical areas have to face a lot of challenges created from environmental and climatic conditions, agricultural inputs and cultivation techniques etc. Farmers are marginal and majority is landless. Their cash flows are dependent on agricultural diversities, repayment capacities (Miller & Jones, 2010), covariate climatic conditions and seasonal irregularities (Henry, 2011). They require loan to bear huge expenditure for buying seeds, insecticides, fertilizer and chemicals, irrigation, and crop processing, storing at warehouse and marketing their products. Recognizing that majority of the poor people in developing countries live in rural areas and their livelihood mainly depend on agriculture, increased attention to global food insecurity, and increasing food prices improve the profitability of agriculture and return on investment in the sector create demand for agricultural financial services, which MFIs can cater designing full or part of their portfolio (Miller, 2013:232). In addition to increased food price and long term prospects, agriculture has been more commercial and experiencing a dramatic change in world agricultural markets (Bastiaensen & Marchetti, 2011; Miller, 2013). The markets are witnessing rapid integration to meet the increased consumer demand. But the small number of concentrated global players are governing and dominating the worldwide agro-food chain (Gonzalez-Vega et al., 2006; Ruben et al., 2006; Vermeulen et al., 2008). Dispersed and poorly linked rural agro farmers in developing countries are in a threatening position from big and concentrated players. They are gradually replaced due to their weak institutional setting and delivery channels limiting their bargaining power. Moreover, traditional method of agro farming and increased pressure of population growth push them to overexploitation of natural resources; degrade the environment and ecological imbalance making their livelihood more complicated and vulnerable. Small holders are unable to connect to new dynamic and concentrated chain under favorable conditions and remain trapped with less dominant spot market segments (Bastiaensen & Marchetti, 2011). Changes in the dimensions of information and communication technology enabled us to develop and strengthen the relationship between buyers, sellers and other participants in the agricultural value chain to improve efficiency, meet higher standards of agroindustries, and satisfy consumer needs for consistent quality, in time delivery and differentiated products. MFIs have improved communication and experience with rural and agricultural clients, and have the ability to handle multiple, customized credit, savings and payment products including point of sales transactions (Miller, 2013). Hence they have the scope to create microfinance plus transformative agricultural value chain to cater the needs of rural poor agro-farmers as a new area of investment. To overcome the above mentioned shortcomings, we need to address the key factors behind the previous state sponsored agro-based credit failure and then use microfinance in a more inclusive and proactive system of developing and reshaping Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 agricultural value chains for enhancing efficiency, social inclusion and gender justice through microfinance plus approach (Bastiaensen & Marchetti, 2011). Now, the key questions are how the global chains can be shaped up at local level linking the poor farmers (Roduner, 2004), and how the demand for agriculture credit can be linked with value chain for value addition to both MFIs, agro-farmers and all other players in the chain, and how the interests of different actors with unequal power at the local, national and international levels crafted for meeting their needs. 3. Microfinance plus Value Chain Approach 3.1. What is Value Chain? Microfinance plus inclusive and transformative value chain for the agro based rural small holders is a solution to these shortcomings. In agricultural value chain, the farmers, business and individuals are interdependent interlinked actors who participate in the transformation of agricultural products. Each of the actors adds value through their efforts to provide the final output to the end users who purchase it. Value chain is the connections and linkages among different economic actors that organize together to enhance productivity and add value to their activities, bringing benefits and improving their competitiveness (Goletti, 2004). It is a path that a product follows from raw materials to consumers, from input supplier to producers, involving various actors that take ownership of the product before it arrives at its final destination (Miller, 2013: 235). Generally, agricultural value chains are poorly organized fragmented and lack transparent pricing. Sometimes market is distorted by stakeholders treating it as a social problem rather than economic activity. The attention for the financial components has been weak from the side of the value chain analysis (Meyer, 2007). To overcome such problems, managers need to formulate an inclusive and transformative value chain approach for enhancing efficiency, ensure social mission, gender justice and environmental sustainability. In this new ‘rule of game’ of microfinance plus strategic value chain, risky agro-borrowers enter into the market dynamics, interact with other actors, partly overcome price and production fluctuations, ensure competitiveness and certain their cash flows in their market dynamics (Miller, 2013). 3. 2. Dimensions of Value Chain: Financing agricultural value chain may be either internal or external. For example, a dealer can supply input on credit or a buyer can make advance payment to producer to purchase raw materials. Internal financing are often embedded with trade credit or supplier credit for input, or marketing company credit. Bank or any provider can lend to the producer against warehouse receipt as collateral, which we can treat as external finance. Interaction between the value chain and the financial market strengthen both, helps the actors in the value chain to overcome problems and support smooth functioning of it reducing risks to lender. Based on the nature of the product, cash flow dynamics, the key drivers and types of relationship, value chain model may be producer driven, buyer driven, facilitated or integrated (Miller, 2013). In producer driven model, producer organization is the main driver and key decision maker. It requires greater productive and managerial capacity Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 and market knowledge for success, which is beyond the capacity of the small holders in the rural areas of developing countries. Hence, this model is not suitable for poor small farmers in the rural areas. In buyer driven model, contract farming is facilitated by the key buyers to supply the products by offering the producers direct or indirect credit to ensure consistent delivery. In this model, the rural producers have low bargaining power; hence it is not suitable for them. Similarly in integrated model, lead agrobusiness firm has complete control over the chain where the small agricultural producers and agro-entrepreneurs have little capacity to include in the chain. Large conglomerate agro-business firm tries to lower the financing and business risks by dominating in the chain. Hence, this model is also not suitable for rural small producers. 4. How Value Chain Model can be embedded with Microfinance for Rural Agro-Entrepreneurs and Poor Farmers: The most appropriate and inclusive value chain for rural farmers and small agroentrepreneurs are facilitated value chain where outside support agencies (such as development agencies and MFIs) act as facilitator to build capacity and partnership among the actors in the chain. Here they try to ensure and strengthen the rights and responsibilities of every actor that help in reducing costs and risks involved in the chain. In this model, the MFI, acting as the facilitator may not need to directly engage in the product flows or transactions in the chain to ensure the maximum benefits for the producers and other market participants. Figure 1 shows the framework of such a value chain where microfinance institutions mainly frame the relationship and interaction among the different actors in the value chain based on their activities and is embedded with support services organized by the MFIs to complete their dependency and effectiveness through which they can maximize their values and minimize risks by eliminating the obstacles by applying appropriate strategy. Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 Figure 1: Typical Model of Facilitated Microfinance plus Inclusive Value Chain Actors in Value Chain Exporters/ Wholesalers Financial Institutions MFIs, Banks, Cooperatives, Local Community Processors Local traders/ processors Support Services Technical & Business related, Specialized Service, Grading Govt. Certificate Agro-Farmers Input Suppliers Financial Flow Product Flow Product Flow Proponents argue that, the weakness can be removed if the agricultural value chain is linked with microfinance where MFIs can play a significant role in properly articulating and strategically formulating the chain (Bastiaensen& Marchetti, 2011; Gonzalez-Vega et al, 2006; Meyer, 2007; World Bank, 2009). The value chain shapes an understanding of the production, value addition, and marketing processes to determine financial needs. Involvement of MFIs helps in interaction and balances the powers and interests of the actors providing financing to those who need it and who are involved in the chain, particularly the small crafts men, entrepreneurs and the agro farmers. Strength of the chain depends on the understanding of business, risks and competitiveness in the value chain (Miller, 2013). Under such model, MFI work as the facilitator in establishing the relationship along the value chain among the buyers at different stage from local traders or collection centers to exporters or international chain shops and the retailers (or suppliers) of firm inputs through a dedicated transaction platform and fully integrated finance, production, delivery and payment process. Use of information and communication technologies across the platform make the process efficient, up to date, cost effective and transparent providing the rural agro-farmers latest information about the price, supply of and demand for their products. Contract and embeddedness with the MFIs allows the Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 farmers to not only obtain credit for financing their production process in need, but also help them to obtain firm inputs from certified retailers at reasonable prices without worrying about payment at regular intervals before harvest when they do not have sufficient cash to repay. At the harvest, the contracted produce is collected, gathered, graded and certified by the appropriate authorities, than sale or supply it easily to international food chain market through designated collection points. Under such system, the transaction successfully settled through MFI and/or banking channel. The bank or MFI work as the intermediary in the settlement of the payment ensuring that the credit is paid before finally transferring the net earnings to the producers’ accounts. By working in partnership with the input suppliers and buyers, MFIs can provide financial services with less market risks and greater efficiency where loans are repaid at the point of sales through coordination with the warehouse managers and processors (Miller, 2013). Stable supply of agro-based credit at low interest rate and including a properly articulated broader dynamics of additional services can help in ensuring long term relationship with their clients where MFI can charge fees for services. For instance, agricultural productivity is dependent on covariate climatic conditions for which index based insurance can be a safeguard for the clients to financially cover their losses. MFIs can offer such product to their clients by making alliance or partnership with insurance providers. The essential condition in this case is strong contract culture. It has to be according to Sen’s (1999) enjoyment of individual freedom where human agency critically dependent upon embedding and enrolling other human beings in projects that can match his own project (Long, 2001). Mutual enrollment in the exchange market entails ownership, information exchange, personal and group identity that shapes ways to interact individual strategies with collective actions by accommodation, manipulation and contesting development initiatives (Bastiaensen & Marchetti, 2011). Integration of developmental focused microfinance with properly articulated agricultural value chain enables transactions using available infrastructure in a broader institutional environment by sharing in the rule of game among poor producers, microfinance, and value chain entrepreneurs (Gibson et al., 2004; Rankin, 2008). Risky agro-borrowers enter into the market dynamics, interact with other actors, partly overcome price and production fluctuations, ensure competitiveness and certain their cash flows in this dynamism (Miller, 2013). Interaction among each of the interdependent actors from producer to consumers adds value through their efforts in this hybrid chain before it reach final condition and destination (Miller, 2013). It covers Porter’s (1985) vertical stream for firm competitiveness, value creation and profitability; and horizontal clusters among firms, and even competitors. The connection and linkage provide effective collective action, knowledge sharing, common vision and motivation to ensure their survival and competitiveness (Parrilli, 2007; Bastiaensen & Marchetti, 2011). To ensure their survival and competitiveness and for effective collective action, knowledge sharing, common vision and motivation, it must need to include small producers, wage earners, development partners, social and political actors and market players by promoting and maintaining strong relationship among the actors (Parrilli, 2007; Van Hecken et al., 2010). It requires a good institutional framework where institutions are the ‘rules of the game’ in the society with norms, convictions, and rights and contracts (Amha, 2000) with efficient approach and innovation (Shimwaayi et al., 1997; Morvant-Roux, 2011). Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 5. Strategic Considerations for an Effective ‘Micro finance Plus-Value Chain’ Approach: An integrative strategy for an inclusive rural development pathway is strong alliance and networking of the actors in the consciously governed value chain through active participation of poor and excluded actors in a mutually beneficial way. Microfinance Institutions shall not act as the fund supplier to the small entrepreneurs and producers. Microfinance must be embedded with strategies of other relevant actors and livelihood diversities by tailoring and articulating to a broader knowledge and support systems mix of networks with horizontal cluster and vertical chain of institutional entrepreneurship negotiated by institutional social realm characterized by contractual relationships to overcome transaction cost problems. MFIs, in this setting, can be an active actor in promoting both investment and institutional innovations to create and transform agricultural value for the benefits of excluded rural people (Bastiaensen & Marchetti, 2011: 480). Using this approach microfinance creates synergy for the every actor in the chain through ‘socio-financial technology’. To alleviate rural poverty and socio-economic inequality, the approach must have to include small peasants, wage earners, development partners, social and political actors and the market players by promoting and maintaining strong relationship with the actors (Van Hecken et al., 2010; Bastiaensen & Marchetti, 2005, 2007 & 2011). It will make MFI as good institutional citizen ensuring financial sustainability and social mission. It will also help to maximize clients’ return, environmental sustainability and optimal use of resources for the future generation. Success in this game depends on how effectively the chain is established and different actors are embedded in formulating its strategies and action plans. The following are some important points to keep in mind in formation of such value chain. a. The role of the MFI should be proactive rather than passive in making and reshaping the value chain for enhancing efficiency, rural producers’ inclusion, social justice and gender equality. The model follows microfinance plus approach through stable supply of agricultural credit at reasonable interest rate through adequately articulated broader dynamics and complementary services in the underlying social change process. Managers can create social value by taking initiatives to improve the life of the poor focusing on social issues in program intervention. Appropriate targeting and designing the product tailoring the needs of the poor and excluded people is important in this case. For example, in rural and agro-based economy, managers need to arrange both long term and short term loans. Stable supply of agro-based credit at low interest rate and including a properly articulated broader dynamics of additional services can help in ensuring long term relationship with their clients where MFI can charge fees for services. For instance, agricultural productivity is dependent on covariate climatic conditions for which index based insurance can be a safeguard for the clients to financially cover their losses. MFIs can offer such product to their clients by making alliance or partnership with insurance providers. b. Ensure social embeddedness at the bottom of the pyramid focusing attention to rural women, small holders, and economically active entrepreneurs in aligning actors and designing the chain and microfinance products. For example, introduce small agro and industrial based investment for rural women (such as for homestead Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 c. d. e. f. vegetable, fruits, poultry and livestock and food processing activities). Managers can focus on clients’ needs in developing such approach, design products and target new client segments in the market. Managers can introduce incentive based mechanism for the staff based on both financial and socio-environmental performance. Ensure environmental sustainability in product design with some other support services, use cross-subsidization to appreciate environmentally sustainable farming and off-firming activities. Operating cost for the MFIs is higher as they work in informal economy. Introducing environmental issues in their third bottom line makes it more challenging. But microfinance managers have to balance and consolidate among financial, social and environmental issues together with creativity and priority to ensure a sustainable world. MFIs can introduce environmental friendly products considering the contexts specific of the region. More young, women, disadvantaged group and unemployed people can be involved in the project through appropriate targeting. Necessary technical support and demonstration project can attract more clients and ensure its wide expansion. Partnership or alliance with local research organization, horticultural companies, funding NGOs and local government, and considering the risk management issues like insurance coverage to reduce producers’ vulnerabilities from unfavorable climatic conditions to ensure sustainable production. Complement and introduce technical efficiency, commercial support, training and actively link with commercial chain. Create alliance with non-financial service providers; accommodate a variety of social and associated normative and conjugative frameworks. To ensure their survival and competitiveness and for effective collective action, knowledge sharing, common vision and motivation, it must need to include small producers, wage earners, development partners, social and political actors and market players by promoting and maintaining strong relationship among the actors (Parrilli, 2007; Van Hecken et al., 2010; Bastiaensen & Marchetti, 2011). The MFIs have to be active to associate other local actors like cooperatives, local authorities, environmental agencies and NGOs in the process towards the creation of territorial development views. Agricultural producers in environmentally critical areas have to face a lot of challenges created from environmental and climatic conditions, agricultural inputs and cultivation techniques etc. Farmers are marginal and majority is landless. Their cash flows are dependent on agricultural diversities and repayment capacities, covariate climatic risks and seasonal irregularities (Miller & Jones, 2010; Henry, 2011). They require loan to bear huge expenditure for buying seeds, insecticides, fertilizer and chemicals, irrigation, and crop processing, storing at warehouse and marketing their products. A portion of the loan must be for long term for land renovation and buying agricultural equipments like tractors. This is particularly important for environmentally stewardship projects such as for orchard, or any fruit plant or for cultivation of coffee, tea etc. In addition to this, short term loan provision can help them to buy fertilizers, insecticides, chemicals etc. Hence, MFIs must have to design loan products as per farmers’ demands considering their repayment capacities and timing. Agricultural sector in the rural setting is considered less profitable and also require embedded services in the value chain process than the urban operation of the MFIs. MFIs can charge the above average interest rate to urban borrowers and Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 cross subsidize it in rural agro based financing charging the rural poor farmers less than the average interest rate. For this, they have to lower operating costs in rural operations. The key to lower operating costs and risks of arrears is designing long term financial products for investment and short term loans for working capital for the same client. The repayment will be settled through their value chain through banking or MFI channel. MFIs must have to design loan products as per their demands considering their repayment capacities and timing. g. To reduce social vulnerability and to complement environmental conservation, try to link up the system with development partners for subsidization when it is impossible to support from internal sources. Emphasis should be given to find out appropriate ways to jointly develop strategic projects particularly for the rural poor farmers, excluded sectors, self employed, wage earners and let their voice be honored and take due attention to include them in the local development process. Overcome the difficulties from the lessons of previous state failure of agricultural subsidies. h. Adjust this approach with the requirements of different vulnerable groups and regions with agrarian reformation strategies to reduce hardships and losses, and to ensure ‘win-win’ situation for all the players. Try to introduce social safety net programs like health care, sanitation and pure water supply in partnership with NGOs or government programs avoiding state/political influence. Introduce ‘green project’ with subsidized credit, develop agro-forestry (Rahman et al., 2007) for local households to mitigate food shortage and to protect environment. In Middle East, MENA and North African regions, where desertification, food shortage and life insecurity are the main problems that cause food shortage, affects peoples’ lives, MFIs can introduce ‘green revolution’ project with agricultural loan and support services to increase agricultural production and ensure environmental protection for their better living. Managers can introduce environmental friendly products considering the contexts specific of the region. Necessary technical support and demonstration project can attract more clients and ensure its wide expansion. MFIs can change their way of farming and land use, develop priority sector in credit allocation, and can careful in minimizing adverse impact and reducing number of grazing animals (Sarker, 2014). They can endorse and ensure renewable resource use, bio-diversity conservation and ecological balance by reducing carbon emission through renewable (i.e. solar) energy use minimizing fossil fuel dependency. Ensuring social mission require some additional costs. Introducing environmental issues at their third bottom line makes it more challenging. But microfinance managers have to balance and consolidate among financial, social and environmental issues together with creativity and priority using a ‘holistic approach’ to ensure a sustainable world. They may be puzzled in taking strategic decision and may fail if they take one objective: financial or social and/or environmental. The first priority for the managers is to ensure sufficient profit for financial sustainability to cover cost of non-financial and socioenvironmental services. The business model can create synergy and long term success through appropriate strategy. Proper targeting and designing the product tailoring the needs of the poor and excluded people is important in this case. Profitable and strategic relationship with agricultural farmers in the long term can help them in efficient use of their resources and ensure long term business return for the MFI. For this, it is essential to involve all the stakeholders through locally embedded appropriate ‘contract culture’ and facilitate increased participation of smallholders through enhanced management and democratization (Gonzalez-Vega et al., 2006). Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 6. Conclusion: This study proposes microfinance plus inclusive and transformative value chain for micro entrepreneurs and small holders in developing countries particularly when they are in vulnerable position due to both environmental threat and rapid change in global food chain and retail market where small producers are losing their capabilities to interact. As microfinance only approach failed to address the small holders’ vulnerabilities, this paper argues for a more inclusive and transformative microfinance plus value chain approach where risky agro-borrowers and small holders enters into the well-arranged market dynamics, interact with other actors, partly overcome price and production fluctuations, ensure competitiveness and certain their cash flows. Actors in this hybrid chain take their ownership of the product; add values before it reach final condition and destination (Miller, 2013). Such a value chain can increase efficiency and equality of all the parties involved, and ensures a sustainable world for future generation. It can create synergy among financial and non-financial services of the MFIs and among the actors. It is essential to ensure local institutional transformation, empowerment and emancipation of rural poor producers and to ensure economic governance. To ensure its effectiveness, it is essential to develop innovative institutional platform of locally embedded contract culture to reduce transaction costs. MFIs can develop institutional entrepreneurship and market citizenship through their value chain activities. Balancing and consolidating financial objectives with socio-environmental objectives through an appropriate business model should be the main task for the MFIs. For this, proper targeting, innovative product design tailored to clients’ needs, targeting new market segments, putting mission and objectives into policies and actions are important. Innovative, visionary and dynamic leadership, staff efficiency, strong monitoring and positive mind set are important to ensure positive result. However, small producers’ value chain is very fragile if there is inequality in strategic vision and power, limited technical assistance or lack of social and environmental embeddedness. It must have to follow local democratization, inclusion of related actors, even government and donors for strong support if the managers of microfinance organizations want to make a real sense of positive impact. Misleading alliance, weak strategic and governance structure and weak planning and control may work in opposite direction (Kavanamur, 2002). Expert formulation of strategies and training of all the staffs is important. To ensure a better and sustainable earth and to make a real transformation, microfinance managers have to be very careful in formulating strategic alliance and in developing the process. References: Amha, W. (2000). Networking Microfinance Activities in Ethiopia: Challenges and Prospects. Occasional Paper No- 1, Association of Ethiopian Microfinance Institutions (AEMFI). Banerjee, A.; Duflo, E.; Glennerster, R. & Kinnan, C. (2009). The miracle of microfinance? Evidence from a randomised evaluation. Available at: http://econwww.mit.edu/files/4162. Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 Bastiaensen J. and Marchetti, P. (2007). A critical review of CGAP-IADB policies inspired by the Fondo de desarrollo Local, Nicaragua. Enterprise Development and Microfinance, 18(2/3), pp. 143-157 Bastiaensen, J. and Marchetti, P. (2011). Rural Microfinance and Agricultural Value Chains: Strategies and Perspectives of the Fondo de Desarrollo Local in Nicaragua. In Armendariz, B. and Labie, M. (eds.). The Handbook of Microfinance, 461-500. Singapore: The World Scientific Publishing. Bastiaensen, J., De Herdt, T. & D’Exelles, B. (2005). Poverty Reduction as a Local Institutional Process. World Development, 33(6): 979-993. Gibson, A.; Scott, H. & Ferrand, D. (2004). Making Markets Work for the Poor. An Objective and an Approach for Governments and Development Agencies. Woodmead: ComMark Trust. Goletti, F (2004). The Participation of the Poor in Agricultural Value Chains. A draft Research Program Proposal. Ha Noi, Vietnam, Agrifood Consulting International for Making Markets Work Better for the Poor Project, Asian Development Bank. Gonzalez-Vega, C, G Chalmers, R Quiros and J Rodriguez-Meza (2006). Hortifruti in Central America. A case study about the influence of supermarkets on the development and evolution of creditworthiness of small and medium agricultural producers. Micro REPORT No. 57, USAID, Rural and Agricultural Finance Program. Heney, J. (2011). Loan Appraisal: Agricultural Lending; Self-Study Guide for Loan Officers. Rural Finance Learning Center, Rome: FAO. Kavanamur, D. (2002). Strategic alliance issues in microfinance management. Development Bulletin, 60, 87-90. Long, N. (2001). Development Sociology: Actor Perspectives. London: Routledge. Meyer, RL (2007). Analyzing and financing value chains: Cutting edge development in value chain analysis. Presentation at the 3rd African Microfinance Conference: New Options for Rural and Urban Africa. Kampala, Uganda. Miller, C. & Jones, L. (2010). Agricultural Value Chain Finance. Rugby: FAO and Practical Action Publishing. Miller, C. (2013). Agricultural Finance. In Legerwood, J. earno, J, & Nelson, C. (eds.), The New Handbook of Microfinance, 231-248. Washington DC: The World Bank. Morvant-Roux, S. (2011). Is Microfinance the Adequate Tool to Finance Agriculture? In Armendariz, B. and Labie, M. (eds.). The Handbook of Microfinance, 461-500. Singapore: The World Scientific Publishing. Parrilli, M. D. (2007). SME Cluster Development: A Dynamic View of Survival Clusters in Developing Countries. Basingstoke and New York: Palgrave-Macmillan. Porter, M. E. (1985). Competitive Advantage. New York: Free Press. Rahman, A. A., Alam, M. S, Alam, S, Rabi-Uzzaman, M., Rashid, M. and Rabbani, G. (2007). Risks, Vulnerability and Adaptation in Bangladesh, Human Development Report, UNDP. Rankin, K. N. (2008). Manufacturing rural finance in Asia: Institutional assemblages, market societies, entrepreneurial subjects. Geo forum, 39: 1965–1977. Roduner, D. (2004). Report on Value Chains. Analysis of existing theories, methodologies and discussions of value chain approaches in the development cooperation sector. Bern, LBL, Draft mimeograph. Proceedings of 11th Asian Business Research Conference 26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9 Ruben, R., Slingerland, M. & Nijhoff, H. (2006). Agro-food chains and networks for development. Issues, approaches and strategies. In Agro-Food Chains and Networks for Development, 1–28. Dordrecht: Springer Verlag. Sarker, D. (2014). Developing ‘Microfinance plus’ Approach for Farmers in MENA Regions: Managerial Challenges, African Microfinance Network. Available at: http://www.afminetwork.org/en/news/891/developing-microfinance-plusapproach-for-farmers-in-mena-regions.html. Sen, A. (1999). Development as Freedom. Oxford: Oxford University Press. Shimwaayi, M., Coates, J., Steel, W., & Amuan, A. (1997). Action research: building networks for improved delivery of financial services to the poor. The Africa Region's Action Research Team on Sustainable Microfinance Institutions in Africa. Van Hecken G.; Bastiaensen, J.; Vásquez, W. F. (2010). Institutional embeddedness of local willingness to pay for environmental services: evidence from Matiguás, Nicaragua. Antwerp: UA, Institute of Development Policy and Management, 2010. (IDPM-UA discussion paper: 4) http://anet.ua.ac.be/docman/irua/c04f74/1445.pdf Vermeulen, S.; Woodhill, J. F.; Proctor, J. & Delnoye, R. (2008). Chain-wide learning for inclusive Agri food market development: A guide to multi-stakeholder processes for linking- small-scale producers with modern markets. International Institute for Environment and Development, London, UK, and Wageningen University and Research Centre, Wageningen, the Netherlands. World Bank (2008). World Development Report 2008: Agriculture for Development. Washington DC. World Bank (2009). Moving Out of Poverty. Success from the Bottom-Up. Washington DC. Zeller (2003). Models of Rural Financial Institutions. Paper Presented at Paving the Way Forward for Rural Finance: An International Conference on Best Practices in Rural Finance, 2-4 June, Washington DC.