1.1. Problem statement
Agriculture in developing countries is undergoing major
changes, including globalization and the transition from traditional low
production agriculture to modern high production agriculture. The result of
this process of profound changes has important consequences on poverty, risk
management and agricultural smallholders' income (Abid, Jie, Aslam, Batool,
& Lili, 2020). Smallholders face severe problems resulting from the
specificity of the production cycle. They have also to deal with climatic
factors such as extreme weather shocks and biological factors like insect
pests, crop, and livestock diseases (Fries & Akin, 2004). These production
risks are linked with price and market risks. Therefore, the variability of
production provokes high food price instability (Antonaci, Demeke, &
Vezzani, 2014). Due to this high risk, financial institutions are less
interested in financing the agricultural sector because of low profit and low
collateral (Herliana, Sutardi, Aina, Himmatul, & Lawiyah, 2018). Moreover,
Financial Institutions (FIs) consider micro-entrepreneurs as
"non-bankable», or not creditworthy because they have no previous credit
history or guarantee to offer (Yunus M. , 2007). On the other side, farmers
often face multiple challenges to access the finance they require, the outcome
is thus a financing gap that limits the potential of agriculture (UNCTAD,
2004). This financing gap which exists in the agricultural sector is estimated
at about $170 billion per year (ISF Advisors and Mastercard Foundation, 2019).
Development agencies, research institutes and donors have centered their
efforts on developing new approaches that allow different stakeholders, such as
agribusiness, and financial institutions to address this gap. The aim is to
provide innovative financial services to producers, processors and traders as
well as develop an economic and financial environment (IFAD and CPI, 2020).
Among these approaches, we can find Agricultural Value Chain
Finance (AVCF) which refers to leveraging the a value chain's connections and
social capital to improve financial flows and reduce the risks in the chain
(Miller & Jones, 2010). Whereas many of the value chain finance
transactions, instruments, and processes are not new (Robert, Chalmers, &
Grover, 2012),what is new is how AVCF is used by FIs and rural producers. What
is also innovative is the variation of the application and the different
organizations that offer finance in different innovative ways, as well as the
diversification, the intensification, and combination of mechanisms (Miller
& Jones, 2010). It also means linking financial institutions to the value
chain, providing financial services to support the flow of products, and
building on the relationships established at the chain level. This type of
financing offers alternatives to traditional requirements (KIT and IIRR, 2010).
This allows all value chain participants to benefit from it without collateral
requirements (Cuevas & Pagura, 2016). AVCF differs from other types
2
of financing in that it expands financing opportunities for
agriculture and improves repayment efficiency among chain participants. It is
not only that the nature of the funding is different, but also the motivations.
Nyoro (2007) mentions that `value chain actors are driven more by the desire to
expand markets than by the profitability of the finance' (Nyoro, 2007). The
solutions offered by AVCF can help to build a value chain, mitigate barriers,
or improve value chain operations, thereby increasing the competitiveness of
the chain (KIT and IIRR, 2010). The challenges that AVCF can face are legal
systems that enforce contracts and provide some type of ownership, lack of bank
penetration and institutions offering loans for investment in rural areas, high
transactions cost, lack of knowledge and developed infrastructure (Zander R. ,
2016).
| 
