Proceedings of 11 Asian Business Research Conference

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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.
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