A value chain is a vertical alliance between a number of independent enterprises, collaborating to achieve a more rewarding position in the market. Coordination of these supplying, producing, processing, trading and related functions by the various enterprises in the value chain ensures an efficient product flow that meets the requirements of a specific market segment. It implies that enterprises invest in establishing longer term business relationships, focusing on chain optimisation and adding value. Enterprises in a value chain are therefore, interdependent and share necessary business information.

Value chain finance makes use of the business relation between the value chain enterprises that are interdependent and share business information, thus reducing operational, market and credit risks. Value chain finance in the scope of the microfinance industry, is about creating access to finance for actors developing value chains that will grow to include and develop, promising productive structures stimulating sustainable economic growth. If access to finance cannot be facilitated, development of the chain will often not succeed. Smallholders just like micro-enterprises need access to all kinds of finance to operate and develop their businesses. By leveraging relationships with their suppliers and buyers, smallholders can increase their access and credibility towards financial institutions. This can lead to development of new financial services matched with the needs of millions of smallholders and micro-enterprises within a value chain.