Value Chain Approach Of Microfinance Economics Essay

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Value concatenation refers to all the scope of activities and services required to convey a merchandise from its construct to sale in its concluding markets ( PlaNet Finance, 2010 ) . “ Traditionally, each company performed selling, planning, distribution, fabrication and buying activities independently, optimising their ain functional aims. Supply concatenation direction is a process-oriented attack to organizing these procedures across all organisations and all maps involved in the value bringing procedure ” ( Viswanadham and Raghavan,2000 ) . Harmonizing to Mitchell, Keane and Christopher Coles ( 2009 ) “ Value concatenation analysis is good suited to understanding how hapless people in rural countries of developing states can prosecute, or better their footings of battle with, domestic, regional or international trade ” . Access to adequate and seasonably fiscal services for all histrions in the concatenation has proven a cardinal component for success ( KIT and IIRR. 2010 ) . Peoples who are prosecuting with value ironss at different degrees of the concatenation, as workers and consumers every bit good as manufacturers ( micro, little, or medium graduated table manufacturers ) needs to entree to fiscal services to do optimum usage of value add-on and income coevals. Microfinance has evolved as an economic development attack to profit low income work forces and adult females ( Ledgerwood, 2000 ) . Harmonizing to the microfinance gateway, in the sense of assisting to the hapless people, microfinance refers as supplying really little loans ( micro recognition ) to assist them prosecute in productive activities or grows their bantam concerns. Over the clip, microfinance includes a broader scope of services such as recognition, nest eggs, insurance, renting etc. as realized that the hapless people require a assortment of fiscal merchandises other than the micro recognition. Micro finance loans are little loans granted to the basic sectors, on the footing of the borrower ‘s hard currency flow and other loans granted to the hapless and low income families for their micro endeavors and little concerns to enable them to raise their income degrees and better their life criterions. Harmonizing to Pollinger, Outhwaite, and Guzman ( 2007 ) , Micro enterprisers have troubles of accessing capital from main-stream fiscal establishments because of costs of information and high degree hazard associated with borrowers. MF is a practical attack towards back uping specific mark groups to entree peculiar value ironss.

KIT and IIRR ( 2010 ) stated that the fiscal services are non ever available, and the value concatenation histrions prosecuting in agricultural and rural value ironss on a regular basis complain about a deficiency of entree to fiscal services. Commercial Bankss and other fiscal establishments are loath to supply rural fiscal services therefore the higher degree of dealing costs and hazard associated with borrowers ( Pollinger, Outhwaite, and Guzman, 2007 ) . Potential loaners may besides see high hazards because they lack understanding of the rural sector, and have no manner to measure the hazards in agricultural value ironss ( Quiros, 2006 ) . As a supplier of banking services, the MFI is capable to inauspicious choice and moral jeopardy from recognition clients with small or no collateral ( Armendariz de Aghion and Morduch, 2005 ) , bank does non hold adequate information to distinguish between good and bad hazards ( Stiglitz and Weiss,1981 ) , clients frequently have a short or no recognition history ( Mersland and StrOm,2007 ) . Moral jeopardy is the job that the borrower will non exercise necessary attempt to refund the loan, when the bank is unable to supervise.

Value concatenation finance aims to turn to sensed restraints and hazards by supplying advanced ways of presenting fiscal services to rural manufacturers, small- and average sized agricultures who remain under-served ( KIT and IIRR, 2010 ) . In reply to this spread in finance, research worker seeks to happen out the deductions for suppliers of “ Microfinance ” in prosecuting value concatenation attack as a scheme, analysis the efficiency, economic, societal, and environmental impacts of VC attack, place the demands & A ; restraints of histrions and support service suppliers of VC to play their function in the optimized supply concatenation, and suggest a model to understand how hapless people in rural countries can progress their place within a scope of local, regional and planetary value ironss.

In developing states, more than 50 % of the population lives in rural countries, where the highest poorness indexes are recorded. Therefore, microfinance as a poorness relief tool should step in in precedence in rural countries in order to offer fiscal services to micro enterprisers involved in income generating activities, particularly in agribusiness. These activities, which are upstream of the value concatenation, are characterized by: low added-value, low profitableness and variable incomes. Microfinance establishments in rural countries, hence, bear of import hazards since the bulk of their portfolio finances these activities. For microfinance establishments, what is at interest in being interested in the value concatenation is therefore to better the quality of their portfolio and so to guarantee their sustainability to the streamlining and the elevation of their clients ‘ incomes. Using the “ value concatenation ” attack in a rural microfinance plan, therefore, consists of analyzing the whole concatenation in order to place its restraints and to develop solutions to optimise it ( PlaNetFinance, 2010 ) .

Harmonizing to the South Asiatic Microfinance Network ( SAMN ) “ about 50 % of Sri Lankan families do non hold entree to recognition and this unmet demand for microfinance in Sri Lanka is estimated at Rs. 125 bn ” . Harmonizing to the Microfinance Industry Report 2010 Sri Lanka ‘s microfinance sector is served by Co-operative Rural Banks and other co-operatives, Thrift and Credit Co-operative Societies ( TCCSs/ Sanasa societies ) , Samurdhi Bank Societies ( SBSs ) , NGO-MFIs, Licensed specialised Bankss, and other fiscal establishments ( commercial Bankss, registered finance companies, etc, which offer some microfinance services ) . There are 9834 mercantile establishments offering MF services countrywide. Among them 89.4 % rural, 9.6 % urban, and 1 % estate mercantile establishments are runing to function the clients. Mid-year population of Sri Lanka in twelvemonth 2011 was 20.869 million with 4.2 % unemployment rate. Per capita GDP at market monetary values was 2836 USD and domestic nest eggs showed 15.4 % of GDP. Poverty Head Count Index in 2009/2010 is 8.9 and 32.9 % employed in agribusiness. Twenty-four accredited commercial Bankss with 5347 subdivisions and nine licensed specialised Bankss with 775 subdivisions were operated in twelvemonth 2011.

Nagarajan and Meyer ( 2005 ) emphasizes that “ fiscal establishments may profit from linkages with bargainers to spread out rural finance, particularly in hapless and distant countries ” . A good illustration is the state of affairs whereby a bargainer with a good repute ( known as a dependable purchaser ) can “ vouch for ” smaller manufacturers s/he trades with, doing them ipso facto attractive possible clients for fiscal services suppliers ( Charitonenko et al. , 2005 ) . A more effectual integrating of little and average manufacturers into quickly turning and overhauling value ironss contributes to their public assistance and the creative activity of wealth in hapless communities ( Downing, Field and Kula, 2005 ; Dunn, 2005 ) .

Research inquiries

What are the deductions for suppliers of “ Microfinance ” in prosecuting value concatenation attack as a scheme?

To what extent are the bing recognition restraints a barrier to entry for little and average agricultural manufacturers into high value-added ironss?

To what extent can fiscal intensifying facilitate the entry of larger Numberss of little manufacturers into these ironss?

To what extent can participation in new value ironss better the manufacturers ‘ overall entree to recognition?

What are specific channels through which the enlargement of entree to recognition takes topographic point?

How does development of the modern value ironss act upon entree to fiscal services other than recognition?

What are the economic, societal, and environmental impacts of VC attack?

Commercial Banks




Supplier ‘s perceptual experience of demands

Customer ‘s perceptual experience of demands

Customer ‘s /Supplier ‘s perceptual experience of demands


Supplier ‘s perceptual experience of public presentation


Customer ‘s /Supplier ‘s perceptual experience of public presentation


Customer ‘s /Supplier ‘s perceptual experience of demands


Customer ‘s /Supplier ‘s perceptual experience of public presentation


Customer ‘s perceptual experience of public presentation

Financial service suppliers

Chain histrions

Figure1: The concatenation of value concatenation finance ( based on KIT and IRR, 2010 and Viswanadham and Raghavan, 2000 )



As shown in the figure 1, there are mismatches among the service suppliers, concatenation histrions, and between service suppliers and concatenation histrions.

Research methodological analysis

Harmonizing to the Central Bank study 2011, there were 32.9 % employed in agribusiness sector in 2009/10. This research focuses on agribusiness sector value chains particular mention to the export oriented Agri-product of cinnamon and two taking microfinance establishments which are Samurdhi Bank Societies and Regional Development Banks which provides fiscal services. The sample of this survey is to be 200 histrions of cinnamon value concatenation. These 200 histrions are to be selected in the different topographic point of value concatenation and the random choice is to be used. Primary information is to be collected through structured questionnaire and interviews. Secondary informations will be collected through the fiscal records, books, articles, and cyberspace. The establishments have been selected based on the quality and extent of their informations. It is non representative of all microfinance establishments. They do, nevertheless, jointly serve a big fraction of microfinance clients. Since the sample contains informations across houses, cross sectional informations method is employed. It is said to be transverse sectional hence all of the observations are from the same point in clip and stand for different individuals/firms ( Studenmund, 2001 ) .The mix method ( quantitative and qualitative ) will be used in this research and SPSS and AMOS package are to be used for analysing informations. Financial and societal demands and restraints of histrions and support service suppliers, quality of service, market entree, concern orientation, accomplishments and experiences, relationships ( contracts ) , fiscal and societal public presentation of histrions and MFIs, handiness of fiscal services are to be used as variables in this survey and these concepts/ variables will be operationalized by the questionnaire. The pilot survey is to be used to place the spreads and to analyse the converjont and discriminant cogency of the inquiries.