Opportunities for Scaling Up Value Chain Finance

The value chain finance (VCF) models explored in ISF’s latest research show clear potential: they work at scale, they’re often more affordable for smallholders, and they’re anchored in aligned incentives.

But the next challenge is clear — how do we scale these models further?

Part 3 of our series explores the enabling conditions, capital needs, and strategic levers that can unlock broader uptake of VCF, especially by local and regional offtakers.

Why market structures matter: profiling the conditions that support or hinder lending

First, it’s important to acknowledge a hard truth: VCF doesn’t work in every market. For embedded finance models to take hold, certain conditions must exist — including functioning value chains, aggregation points, predictable offtaker relationships, and a minimum level of coordination or trust.

“In some countries we studied, the right conditions were already in place — organized, commercial farmers, organized offtakers, suppliers, processors, in higher value commodity markets with a certain degree of competition for sourcing. In those markets there is clear incentive for lending and the model could scale relatively easily,” says Clara Colina, Associate Director at ISF Advisors.

“In others, the market was too fragmented or the supply chain lacked sufficient structure. You can’t plug in VCF when the foundations aren’t there.”

Matt Shakhovskoy, Director at ISF agrees: “The viability of VCF is shaped by how developed the market is, not just in terms of finance, but in terms of relationships, infrastructure, and coordination. That’s why market profiling is essential. It helps you understand where you can realistically expect these models to take off.”

Introducing a three-tiered framework for scaling VCF

To navigate these varying market conditions, ISF’s research identified three levels of intervention needed to scale value chain finance.

Clara explains, “At Level 1, it’s about strengthening offtakers by directly addressing their key viability constraints. At Level 2, it’s enabling finance to flow by improving the underlying market conditions. And at Level 3, it’s shifting the market structure itself — using policy or systemic levers to reshape what’s possible.”

Matt adds: “The magic happens when these levels align. You can’t just pump capital into a weak market and expect it to work. You need to strengthen offtakers, improve the enabling environment, and shift the system in tandem — that’s when real scale becomes possible.”

Capital as a primary unlock

One of the clearest findings from the research is this: capital is a primary bottleneck. Many offtakers already know how to finance farmers, have deep sourcing networks, and operate lean. But they’re constrained by the cost and availability of capital.

“These are businesses that have been doing this for years,” says Clara. “They’re not looking for new tools, they’re looking for cheaper capital so they can do more.”

Matt adds: “You’re dealing with actors who are tying up 30–40% of their balance sheets just to stay operational. The demand is there. The models work. But unless you lower their cost of capital, they can’t expand.”

This is particularly true for regional offtakers using financial products, mostly commercial debt designed for trading, that don’t align with agricultural production cycles. Addressing this mismatch through concessional capital, patient debt, or blended finance is one of the most immediate and high-impact levers available.

Growing markets and enabling environments as important factors

While affordable capital is essential, it’s only one piece of the puzzle. For VCF to scale, the broader enabling environment must also support embedded finance models.

In some markets, that means improving contract enforcement to reduce side-selling. In others, it’s about strengthening infrastructure, improving aggregation, or increasing price transparency.

Key questions that continue to exist

While ISF’s research provides a strong foundation, important questions remain. What’s the right role for donors and DFIs in catalyzing these models? How can development partners support offtakers without distorting incentives? And what blend of capital, technical support, and policy action is most likely to unlock scalable, sustainable VCF?

“These are questions we’re continuing to explore,” Clara says. “We’ve seen what works — now it’s about understanding how to apply those lessons in different markets and structures.”

Matt agrees: “We know local and regional offtakers are key. The challenge now is helping them go further, faster — without losing what makes their models effective in the first place.”

Scaling value chain finance is one of the most under-leveraged opportunities in agri-finance. With the right capital, enabling conditions, and actor support, it could reshape how smallholders access the finance they need to thrive.

Read more from our Value Chain Finance series:
Blog 1: Understanding the Value Chain Finance Landscape for Smallholder Farmers
Blog 2: The Unit Economics of VCF