Finance in Value Chain Analysis: A Synthesis Paper

This paper presents a systematic approach to incorporating finance in value chain analysis (VCA). Understanding financial structures both within and between firms in the value chain is necessary for developing upgrading strategies that effectively increase competitiveness. The paper synthesizes pertinent literature on the topic, and presents key insights gained from case studies completed under USAID's Accelerated Microfinance Advancement Project (AMAP) Financial Services Knowledge Generation (FSKG) project. Findings include:

• VCA examines end-market opportunities, value chain structure and dynamics, and the operating environment in order to identify key leverage points;
• Building an understanding of the current cash flows and credit structures in the value chain should be an integral part of analyzing value chain structure;
• Various financial aspects in the value chain can be organized in three groups, intra-firm finance, financial services provision in the value chain, and inter-firm finance;
• Finance analysis must examine whether upgrading is profitable, financier has sector know-how, actor has finance know-how, and finance is in the right form or location.