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African entrepreneurs side step finance gap
2006-06-18 08:41:00
By Simon Kivamwo
Could the GroFin East Africa SME Finance Facility finally help bridge the finance gap for Africa’s unserved entrepreneurs?
We won’t know yet but the Shell Foundation, its partners and investors are confident that this is more than just an experiment in financial innovation. This is also good business.
GroFin is a UK-based institute dedicated to meeting the needs of small-scale entrepreneurs in Africa
A finance gap in Africa has occupied the brightest minds of the development community for decades.
Indeed, a recent report focusing on Africa’s entrepreneurship and business opportunities a copy of which was availed to this column underlined the scale of the problem. ’’Limited access to finance is a major obstacle to private sector development,’’ the report said.
’’A multi-pronged approach is needed, dealing with the major existing impediments, including a poor business environment, lack of financial tools, weak entrepreneurial capacity and the absence of strong linkages with existing large enterprises.’’
The GroFin East Africa SME Finance Facility intends to rise to these challenges. Launched on 1 July last year by British Prime Minister Tony Blair, the Fund model breaks new ground as the first time that international and local financiers have come together with a charity - the Shell Foundation - to address the lack of finance and business skills for small African businesses.
As Mr Blair said at the time:
’’The prospects of an entire continent rest on meeting the needs of African entrepreneurs, and it is for this reason I offer my support.’’
Blueprint for change Targeted at small enterprises, with fewer than 50 employees, the fund will help overcome the lack of business skills, collateral and documented trading history that prevents many small businesses from accessing local finance.
Under the scheme, entrepreneurs will work with GroFin advisers to develop their business and management skills. For those who qualify for financing, the amounts will typically be between $50,000 and $1 million - and therefore bridge much of the gap between microcredit and commercial finance.
The goal of our partnership is to act as a pioneering force in the development of the local enterprise sector, and thereby generate wealth, employment, economic growth and social development.
Based on the Shell Foundation and GroFin’s highly successful pilot programmes in South Africa and Uganda, the fund is expected to improve the livelihoods of thousands of Africans. In just two years, the pilot programmes helped hundreds of enterprises, created 5,000 sustainable livelihoods, and are on track to generate commercial rates of return for local African banks.
The full roll out has already begun in Kenya and Uganda. Over the next 12 months, the East Africa Fund will be extended to other sub-Saharan African countries with a focus on energy enterprises.
Chris West, Deputy Director of the Shell Foundation, said: ’’This active partnership means we can offer Africa’s entrepreneurs a unique new service to overcome the barriers faced by start-up and early stage growth enterprises.
The goal of our partnership is to act as a pioneering force in the development of the local enterprise sector, and thereby generate wealth, employment, economic growth and social development.’’
It is an innovative way to further our strategy of generating wealth, particularly in the poorest countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.
The financial model that underpins the Fund represents a significant step forward. Jurie Willemse, Managing Director of GroFin, explained: ’’Previously everyone looked at the social aspects, but did not bolt on the economic side of the equation which is what makes a business sustainable.’’
He added: ’’Unlike other donors who just provide money, our relationship with the Shell Foundation is a partnership. The Foundation will also leverage its ties with the Shell group and other companies for deal flow.’’
The strength of the model is reflected in its success in attracting local banks and leading international development financiers.
The fund has already reached $23 million with investments by the British government’s development finance arm, Capital for Development (CDC); the Netherlands Development Finance Company (FMO), Uganda’s DFCU bank and the Commercial Bank of Africa (CBA) in Kenya.
For Rod Evison, Portfolio Manager for CDC, investing in the East Africa Fund was a strategic step. ’’It is an innovative way to further our strategy of generating wealth, particularly in the poorest countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.’’
Guido Boysen, FMO Investment Officer for Africa, added: ”What is new and interesting about this model is that, where possible, investor’s funds are leveraged with local bank financing and supported by business development assistance. For us at FMO, the role of local banks is critical. Part of our mission is to make emerging markets more hospitable to the private sector.
’’For local banks, the Fund minimises risk and cost. Sally Gitonga, Head of Business Banking at CBA, said: ’’This programme makes investing worth the risk because we are dealing with a partner who is already a specialist in this area. The returns are also expected to be good in relation to the risk.’’
Colin McCormack, Managing Director of DFCU, added: ’’This initiative has the potential to be the most important breakthrough in development thinking since the advent of microcredit. Anything that you do where you push the boundary and see that it is ok, we are still here, still profitable, will encourage you to push the boundaries even further.’’
And pushing the boundaries is something the Shell Foundation is keen to pursue. Chris explained: ’’By mid 2008 we hope to have $150 million under management across Africa from the four hubs of South Africa, Kenya, Egypt and Nigeria. Initially, we will focus on a pan African model, but there is no doubt that we can take this approach elsewhere.’’
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