Microfinance Practice: [MFP] SMDP Tanzania November 11-22 A Deep Dive into M4P and ProPoor Value Chain Development

SMDP Tanzania November 11-22 A Deep Dive into M4P and ProPoor Value Chain Development

A Conversation about the Value Chain Development and Agricultural Finance Track at the SMDP Tanzania with facilitators Ann Gordon and Richard Pelrine

http://carseyinstitute.unh.edu/smdp/tanzania

SMDP Coordinator Bill Maddocks recently sat down with Ann Gordon, MEDA Senior Consultant/Project Manager, Private Sector Development – Agriculture and Richard Pelrine, Technical Director for INSPIRED International who will be facilitating the Value Chain Development and Agricultural Finance Track at the SMDP Tanzania to talk about what students will be learning in the two week track.

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Bill:

Ann, MEDA has been involved in helping small holder farmers develop more productive farms and get their products to markets for several years. Can you talk about how that approach has matured over the past several years and how questions of scale and sustainability have influenced the way MEDA approaches this work?

Ann:

We partner with the private sector, small farmers, donors and investors to design and deploy scalable, replicable business solutions that enable small farmers to profitably and sustainably supply their good to buyers in local, regional and global markets. MEDA operates in over 50 countries, has 300 staff worldwide and the impact of our work reached 43 million families, last year alone.

Bill:

Ann, there at least a couple different approaches to this work which MEDA calls Pro-Poor Value Chain and Enterprise Development. There is what is known as the Value Chain Approach and also the M4P (Making Markets Work for the Poor) approach. In the up-coming Pro-Poor Enterprise and Value Chain Development (PPEVCD) course we are jointly offering in Arusha you will explore both of these approaches. Can you briefly describe the differences between these two approaches and what participants will learn about them in your course in Tanzania?

Ann:

The main area of difference between these two approaches is in the focus which M4P places on change attributions within institutions and market systems – especially when looking at the other sectors and influences that are affecting the targeted value chain. Therefore the frameworks used to analyze and design programs are different, yet the methods used in market research and facilitation, as well as, ultimate goals can be quite similar. The course in Tanzania will primarily concentrate on the tools and frameworks used in the value chain approach, which in the pro-poor context does take into account a broader scope in the market system including: enterprise/farm performance; horizontal and vertical relationships; enabling environment for business (cultural, social, policy, regulatory, macro & micro economic forces); leadership and entrepreneurship; and support products and services. The M4P orientation will be very basic and is intended to be introductory in order to create an awareness of these comparative approaches in the industry. Some methods presented and practiced during the course are quite transferable in both approaches, especially those that will be covered in the area of market systems research.

Bill:

Rich, you have several years of direct experience in agricultural finance. What seems to be the biggest constraint keeping potential lenders and investors from investing in smaller but promising and profitable and farmers?

Richard:

Good question. I would say that there are two, not one, major constraints--these are 1) ability to analyse and manage risk and 2) critical mass. First, lenders avoid lending to businesses they don't understand. Either training lenders to understand concepts such as value chain financing or presenting the lender with opportunities where the risk management is already carefully planned normally overcomes this reluctance. Even having a risk neutral loan opportunity, however, is not enough if the number of borrowers is few or the amount to be loaned is small. Entering a new market for a lender requires systems, trained human resources, policies and knowledge of the market. Few lenders will undertake this operational investment unless the number and value of loans justify it.

Bill:

Rich, while your agricultural financing work has not focused specifically on poverty alleviation what are the most useful concepts in the M4P approach that would appeal to the typical stakeholders that you work with to put together a financing deal.

Richard: Another good question. M4P is wonderfully comprehensive in its view toward enabling markets. It takes an active attitude of "crowding in" a private sector approach versus trying to replace the private sector with donor funded or public sector quick fixes. For a lender to analyse and manage risk, critical policies and tools must be available and functioning such as: enforceable contracts between buyers and sellers, rules for arbitration, collateral registration, etc., which are usually reserved for urban, high value markets. M4P can and does approach markets by identifying shortcomings and then by resolving them, enabling the private sector to treat any borrower the same. Further, funded M4P interventions frequently use "smart" subsidies such as making small grants for a percentage of the value of productive assets if the grantees use their own equity and borrow the balance from a lender. This and other smart subsidies can "crowd in" commercial players and form long term commercial relationships lasting long after the subsidy is forgotten.

Ann and Rich, we are offering a two week track that brings together fairly comprehensive approaches to assist small scale agricultural enterprises. If you think of the cross section of firms you have both worked with, who do you see as benefiting from what we are offering in the Arusha workshop and what one or two most important concepts do you expect participants to take away from your individual courses and the entire two week track?

Ann: Those who would benefit from my course include: project managers and coordinators, value chain or value chain finance officers, livelihoods specialists and agriculture development advisors who are involved in implementing or facilitating value chain and private-sector development, M4P projects, economic empowerment and growth programs that target poor producers and entrepreneurs. The most valuable concepts from Week One (PPEVCD) will be the market research techniques and value chain analysis, both of which have strong application in the value chain and M4P approaches.

Richard: Beginning with a strong basis of understanding commercial linkages along a value chain, which will certainly be realized through attending the first week, development practitioners and finance specialists will be well placed to take maximum advantage of a curriculum designed to drive out practical financing strategies that are proven to build private sector finance and help rural people move out of poverty.

http://carseyinstitute.unh.edu/smdp/tanzania

Registration Deadline:

October 11, 2013

MasterCard Foundation Microfinance Scholars Program Application Deadline:

October 4, 2013

SMDP Tanzania Marketing Partners, Sponsors and Funders

Agricultural Review Online

http://www.agriculturalreviewonline.com/

Savings Revolution.org

http://savings-revolution.org/

The MasterCard Foundation

http://www.mastercardfdn.org/Projects/the-mastercard-foundation-scholars-program