We are currently running our first Mi-fi Module in Georgia, where we are collaborating together with the MFI Crystal. Two of our Mi-fi members, Noah and Stepanka are in and around Kutaisi, to work together with the local Microcredit provider. Our visit has two main goals – the first is to present some basic research and inputs on extension services and value chain finance. The second lies in an analysis and feedback on workflows and processes on the different products and services offered by Crystal.
What is a Value-Chain?
Mi-fi likes to talk about Value-Chain Finance and it is one of our goals here in Georgia to witness and document successful Value-Chain building. However, what is Value-Chain Finance and how can you build it? Moreover, why is it so crucial to the success of Microfinance?
According to the World Bank, an agricultural Value-Chain is “the full range of value adding activities required to bring a product through the different phases of production”. In other words, all the people, processes and businesses involved in bringing a product from the farm to the end consumer. The lack of functioning Value-Chains is a big problem in many developing countries. It is hard to create a business in an empty space that lacks suppliers and distributors, as well as channels to customers.
The good news is that, we do not have to passively wait for a Value-Chain to emerge. MFIs and other financial institutions can actively engage in Value-Chain building. Rabobank for example, does not only finance tulip farmers in Mexico but also the auction house where the final product – the flowers are being sold. [more on Value-Chains and Rabobank]
In case of agricultural Value-Chains, farmers benefit from advanced input channels, as well as increased distributive possibilities. This can generate more stable relationships between the different actors involved in the production process. Stability has a huge impact on the lives of people that do not have a daily income to count on. On the other side, this has also positive side effects for involved MFIs, as their clients default risk falls.
Svaneti – A Remote Region in Transition
We have found an example of a Value-Chain, creating new business opportunities in a very unlikely place. In the middle of the Georgian Caucasus, in the utmost north of the country, amid picturesque mountains and valleys, lays the remote region of Svaneti. According to mythology, Prometheus perished here, tied to the side of a mountain. The villages, among them Ushguli, one of Europe’s highest permanent settlements at 2’200 meters above sea-level, are guarded by dozens of the landmark watchtowers which have become a symbol for the region. Despite its remoteness, the region has become one of the centers of the growing tourism sector of Georgia. Its nature, culture and long white slopes attract an increasing number of tourists every year. The center of the industry is the regional capital of Mestia, a village of 2’600 inhabitants. Crystal operates a branch in Mestia, which has accompanied the transformation of the town during the last years. When Crystal arrived, there was almost no tourism in the area and people were still largely dependent on low yields from agriculture. Over the last decade, this has changed drastically, as hotels and hostels opened up all over the region.
New Business Opportunities
Most of the clients in Mestia are active in the tourism sector and a lot of them operate hotels or offer accommodation. Due to its remoteness, we were not able to visit clients in Svaneti ourselves, but the YouTube channel operated by Crystal provides some impressions. One of the clients is Valiko Zorzoliani, a hotel owner, who started his business with a microloan by Crystal nine years ago and now owns one of the largest local hotels. [example video] It is due to people like Mister Zorzoliani and his hotels that the local economy has come a long way.
Iuri Udesiani is a Svanetian carpenter producing traditional wooden furniture. His products bear the traditional Georgian sun-symbol or the dragon-slaying patron Saint George. He also carves traditional souvenirs. Merely ten years ago, Mister Udesiani’s business would have met little demand. Nowadays he delivers most of his products to the surrounding hotels and hostels who show a high demand for the traditionally carved chairs and tables to create an authentic atmosphere in their guest rooms and hallways. Not only the hotels, but also Mister Udesiani used credits issued by Crystal to initiate his business. The symbiotic relationship between the businesses of Mister Zorzoliani and Mister Udesiani serves as a simple, but clear example of Value-Chain building, even if not consciously created by the MFI.
Opportunities for Value-Chain Building
The tourism sector in Svaneti is not the only industry where Value-Chains can develop. Especially the agricultural sector has a high potential, as farming is still one of the most important sources of income among the population. Value-Chains have high potential to benefit clients as well as MFIs. If Value-Chain Finance allows new distribution channels to be opened, entirely new opportunities are created. We are curious, about which Value-Chains will be shaping the future of Georgian economy.