Kenya BDS Program
Experience in Value Chain Facilitation
by
Kenneth Marangu
Presentation Agenda
I.
Background on Kenya BDS and the Approach to
Value Chain Facilitation
II.
Example of Specific Value Chain Financing
Intervention – Agrochemical Loan Product
III. Key Messages
Kenya BDS Program Overview
1. The Kenya BDS Program is a 6-year USAID funded activity
implemented by the Emerging Markets Group (EMG)
2. The objective is to increase growth and incomes among rural
micro- and small-enterprises through increased access to
business services
3. The main areas of focus are:
– Tree-fruits (passion, mango, avocado)
– Lake Victoria Fish (Nile Perch, Tilapia, Omena)
Kenya BDS – Facilitation Steps
1. Select Target Industry
2. Conduct Value Chain Analysis
3. Identify and Prioritize Constraints
4. Design Interventions
5. Tender Among Local Facilitators
6. Award, Support, and Monitor
Tree-Fruits Value Chain – Constraints & Services
Targeted
Value Chain
Retailing
Constraint
Poor Image of Kenyan
Fruit
Intervention / Service Required
Conversion to High Value Varieties,
Branding, Fair Trade Certification
Exporting
Wholesaling
Processing
Assembly
Under-Developed Local
Processing Industry
High Cost of Product
Assembly
Horizontal Linkages Between Lead Firms,
Processing Technologies
Producer Group Formation,
Clustering, Business Linkages
Grading
Production
Input Supply
Lack of Market
Information
Daily market price points, commodityspecific quantity and quality requirements
High Cost and Lack of
Access to Inputs
Financial Services.to overcome high cost
and low availability of inputs
Extension
R&D
Low Knowledge and Skills
in Crop Husbandry
Quality control such as extension,
certification, grades and standards
From Analysis to Intervention – Example of a
Targeted VC Financing Intervention
Input Supply
High Cost and
Lack of Access
to Inputs
Agrochemical
Loan Product
Why Product is Needed
• The combination of proper crop husbandry and spray
services can increase grade 1 yields.
• Farmers cannot gain access to or afford high cost
(upfront) of agrochemicals, spray equipment, and labor.
• Increasingly rigid production standards in Europe
(EurepGap) require appropriate use of specified
pesticides.
• Loan program is a joint venture between Equity bank,
KBDs -Market linkage/ group management companies
and export market.
Approach to Development of an Agrochemical
Loan Product
• Identify and develop independent agrochemical spray service
providers.
• Sensitize farmers educated on need for IPM and
agrochemical spray services.
• Approach financier to extend credit facility to farmer groups
for agrochemical spray services, backed by strength of
supply contract with exporter.
• Establish check off system where the exporter pays farmers
through the bank, who deducts scheduled loan payment
before releasing net proceeds to the farmer group.
• Agrochemical spray service providers consolidate service
receipts on a monthly basis for payment from bank.
Loan Process Mapping
1.
Supply contract in place between farmers and
exporter
2.
Group farmers complete loan application form and
chattel agreement for Equity (for overall season)
3.
Application forms consolidated at group level and
submitted to bank
4.
Bank approves loan for season
– Assumption that spray season is July - February
– Assumption that repayment period is March June
Loan Process Mapping (cont’d)
5. Farmer loan is activated on first day of spraying.
6. Group officials issue an in-house check to service
provider.
7. Farmers sell fruits to exporter.
8. Exporter remits sales proceeds to Bank (with detail
breaking down payment by group).
9. Bank pays farmer groups, less 20% deduction for
loan repayment until cleared (must be cleared by
June).
Successes and Challenges
•
3 Equity Branches approved loans for 130 groups, reaching 3,055 farmers
and 23,916 trees on full commercial terms.
•
40 commercial sprayers developed applying exporter (and EU)-approved
pesticide regimes.
•
Program is fully commercial and backed upon the strength of smallholder
supply contracts. Over 90% repayment during first pilot year of product.
•
Complications at branch level in managing new product. Complications at
group level in reconciling both financial as well as spray records.
•
Poor harvesting season due to record floods lowers margins for farmers.
•
Side selling
Key Messages
1. Value Chains are dynamic and complex. A facilitator must
carefully prioritize interventions at key leverage points
throughout the chain.
2. Facilitators must stay out of the supply chain and avoid
direct provision of financial services or subsidizing the
cost of business. Such actions distort commercial signals.
3. Marketing Marketing Marketing.
4. Identify the link of Financial intervention need in the
context of the whole value chain.
AHSANTENI
QUESTIONS ?