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Peruvian CUs pave way for agricultural lending
WASHINGTON (12/14/09)--As a development methodology, value chain financing has proved effective in helping credit unions in Peru reduce the risks of agricultural lending and expand access to affordable finance for rural populations, said the World Council of Credit Unions (WOCCU). WOCU has released the “WOCCU Value Chain Finance Implementation Manual: Increasing Profitability of Small Producers,” designed to help financial institutions, development finance organizations and donors better understand and implement the award-winning methodology developed in Peru. The manual was created in partnership with The SEEP Network, an international association for microenterprise practitioners. Often referred to as a supply chain, a value chain is a series of activities, including financing, that take a product or service from its conception to market. The WOCCU value chain finance methodology, developed in partnership with Federación Nacional de Cooperativas de Ahorro y Crédito del Perú (FENACREP), WOCCU's membership organization in Peru, is designed to assess and mitigate specific risks associated with financing existing rural value chains. The process also determines at which points along the value chain--from production to commercialization--financing can best support the different participants, particularly small farmers.
Click to view larger image Value chain finance can mitigate credit union risk while serving more members, Federación Nacional de Cooperativas de Ahorro y Crédito del Perú Manuel Rabines tells potential participants in Peru. (Photo provided by World Council of Credit Unions)
“Using this methodology, the credit unions can take into account the financial and market potential of the entire value chain, not just the creditworthiness of a single individual, as we have traditionally done,“ said Manuel Rabines, general manager and CEO of FENACREP and first vice chair on WOCCU’s board of directors. “With this shift in focus, the credit unions can more accurately measure and mitigate risk, opening the door to potential rural participants previously seen as too risky.“ The U.S. Agency for International Development (USAID), which funded the WOCCU/FENACREP Peru program, has lauded the effectiveness of the process. This past February, it awarded its first Innovations in Financing Value Chains award to WOCCU and FENACREP for the program. The award-winning methodology is outlined in the new manual, according to Anicca Jansen, senior technical advisor from USAID's Office for Microenterprise Development. “There is so much practical information in the manual to help a financial institution evaluate whether or not value chain finance is right for them and to actually start implementing it,” Jansen said. “This publication will add value to the development community.” To date, six Peruvian credit unions have used the methodology to finance 36 distinct value chains through 76 rounds of financing. In total, credit unions have disbursed $2.3 million through 1,573 loans to 4,686 rural producers, producer groups and other value chain participants. In addition to Peru, WOCCU is implementing USAID-funded agricultural and value chain finance programs in Haiti, and programs in Kenya and Sri Lanka funded by the U.S. Department of Agriculture. WOCCU also is testing financial applications through new technology solutions--including point-of-service devices and personal digital assistants--designed to enable credit unions to reach even more people in the rural areas and increase the efficiency of providing rural finance options. “Many rural poor face difficulties in increasing income and assets not only because of lack of access to financial markets, but also due to isolation from markets, lack of information about crop demand and product prices and lack of relationships between input suppliers and harvest buyers,“ said Brian Branch, WOCCU executive vice president and chief operating officer. “WOCCU’s value chain programs increase income generation and wealth accumulation for poor households through simultaneous improvements in access to financial services and value chain linkages,” he added.
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