The importance of supporting women was one of the main leitmotivs of the Africa Impact Investing Leaders Forum, held in London on 27 Oct, 2016. Delegates asserted that this historically disempowered group plays a pivotal and well-documented role in augmenting positive social, economic and environmental outcomes – particularly when impact investments find their way into microfinance, agriculture, renewable energy and infrastructure sectors.

Women are integral to social impact investing

Speaking from the podium, Suzanne Biegel, founder of Women Effect, urged all investors to use a “gender lens” when considering impact ventures. And to ask some salient, due diligence questions, such as: “Where are the women in this investment? Are they on the product design team if the product concept is for women? Do they have a formal leadership or decision-making role where the project in question is targeting women”?

Caroline Mulwa, Kenya country manager of social impact investor, Oikocredit, agrees wholeheartedly with this view. Referencing the smallholder agriculture sector, she says: “88% of Africa’s female population live in rural areas; 70% of agricultural labour is provided by women; 90% of all food is produced by women, but women own less than 2% of the land. Yet women have a significant, measurable, positive impact on small business ventures, local communities and families. And they have been proven to reduce investment risks”.

Mulwa highlights one of Oikocredit’s microfinance partners as “exemplary when it comes to considering the roles and needs of Kenyan women from every angle”. She continues: “KWFT – Banking on Women focus single-mindedly on the unapologetic financial support of women” – a phrase which Caroline says inspires her.

Led by women for women, KWFT has provided financial services to unbanked women in Kenya for over 30 years. With 800,000 clients now on their books, KWFT offer a unique product range spanning microloans, savings accounts, insurance loans and financial literacy training. Products are designed around the specific needs of women, such as planning for healthcare during pregnancy and childbirth; saving to ensure their own financial independence, and setting up small businesses. In-branch, KWFT provide footstools for teenage girls so that they can be on an “equal level” with bank tellers, as well as baby-changing and breast-feeding facilities for young mothers.

Across Africa, Asia, Latin America and central and eastern Europe, 86% of the end customers of Oikocredit’s microfinance partners are women, meaning that vital access to finance and other support is offered to around 39.5 million women worldwide. Scott Brown, president & CEO of VisionFund International likewise emphasises the importance of women in the impact investing space, highlighting that over 70% of the end clients of VisionFund’s microfinance partners are women.

Client Protection Principles (CPP) are critical to the due diligence strategies of both Oikocredit and VisionFund, and partners are required to demonstrate an ongoing commitment to eliminating any potential exploitation of end clients.

The impact investing potential within African agriculture

Agriculture, a sector in Africa which some say may be worth $1tn (£816m) by 2020, was also a lively theme during the forum. A panel, comprising leaders from Africa Agricultural Development Company, Alpha Mundi Group, ScopeInsight and Oikocredit, all highlighted how impact investing in smallholder supply chains can create one of the biggest impacts on reducing poverty – the UN’s sustainable development goal one.

Agriculture, however, is often characterised by extraneous economic, financial and other challenges such as the impact of extreme weather; changes in global commodity markets, particularly price and currency volatility; shifts in government policies and weaknesses in local infrastructure. In order for the sector to mature, panellists discussed the need for higher levels of professionalism (including stronger due diligence and governance) and more innovative, public-private partnerships for impact investments.

Applying her own experience of managing risks, Mulwa says, “It takes experience: taking risks, making mistakes, but learning from those mistakes”. She adds: “It also requires us to look beyond the obvious and take a long-term view. So, we first consider the social mission within our investment decision-making, thereafter weighing up the risks in the context of the longer-term potential. I’m referring here to “patient capital” and a willingness to consider a project that may not look promising in the short term, but might bear significant financial and social returns in the longer term”. Patient capital is an investing attitude which all panellists agreed is vital for successful impact investing.

Showcasing this approach in the context of Oikocredit partner, Githunguri Dairy Farmers’ Co-operative in Kenya, Mulwa explains how, at first glance, their request for €1.5m (£1.3m) investment – to set up a processing plant for 31 dairy farmers and 200 employees; producing 15,000 litres of milk and generating a €0 return – looked risky. Other investors backed off, but Oikocredit saw the long-term financial and social potential and went ahead. As with many so-called risky ventures which Oikocredit supports, Githunguri paid off. Today, the co-operative has 15,000 members and employs 8,000 people across their entire value chain. They produce 220,000 litres of milk each year and, in 2015, reported a turnover of €52m (£46m).

If you are interested in investing in the Oikocredit International Share Foundation*, please contact our UK office. Alternatively, if you are a mid-stage inclusive finance, agriculture, renewable energy or infrastructure venture looking for equity or debt financing in Africa, please contact our east Africa or west Africa teams.

*Capital at risk. Terms and conditions apply. 

By

Monica Middleton

national director, Oikocredit UK & Ireland

Join these organisations to scale impact and discover new opportunities at the next edition of the Africa Impact Investing Leaders Forum in 2017 by Registering your interest as a partner, delegate or speaker. >> http://aiilf.com/register-your-interest/ 

Trickle-down has no effect

There was a time when ‘trickle down’ was the favourite word in the lexicon of economists worldwide. According to this theory, as long as an economy is growing, the benefits will eventually make their way through the system.

For the proponents of trickle-down economics, the belief was that rising incomes at the top end of the spectrum would lead to more jobs, less poverty and higher incomes at the lower end – much like a rising tide lifts all boats. However, over time, it has proven to be a fallacy, just like any other belief in equitable wealth distribution as a natural course of events.

The Global Experience: The Rich get Richer

Indeed, a research study published by the IMF in June 2015 has decisively debunked the theory at a global level. The report titled ‘Causes and Consequences of Income Inequality’ in fact goes on to prove that a rise in incomes at the top can actually adversely impact overall growth, poverty and employment.

Looking at data from 159 countries from 1980 to 2012, researchers found that when the wealthiest 20% see their share of income rise by one per cent, the economy grows 0.1 percentage points slower over the next five years. Conversely, raising the income of the poorest 20% by a single percentage point raises annual growth by 0.4% over the same period.

While it lasted, the misplaced faith in the trickle-down theory appears to have exacerbated inequalities globally. A 2016 report by Oxfam has revealed that the richest 1% have now accumulated more wealth than the rest of the world put together. Meanwhile, the World Economic Forum notes in a 2016 article that the wealth owned by the bottom half of humanity has fallen by a trillion dollars in the past five years.

The African Experience: The Poor stay Poor

In Africa, this woeful absence of a trickle-down effect is borne out by the successive experiences of individual economies that have experienced stellar economic growth, such as Nigeria and Kenya.

Even as Nigeria recently became Africa’s largest economy with growth averaging over 6% each year from 2005 to 2014, the reality remains that most Nigerians still live on less than US$ 2 a day, while the country lags behind in key development indicators such as health.

On the eve of the country rebasing its GDP to factor in the contribution of new sectors to the economy, the then Finance Minister Ngozi Okonjo-Iweala, a former World Bank managing director, confirmed to the country’s business leaders that:

“It is clear that the top five to 10% is capturing most of whatever growth there is and people at the bottom are being left behind.”

Similarly, Kenya woke up to economic disparities with the government publishing a ‘Socio-Economic Atlas of Kenya’ at the close of 2014. The report exposed significant disparities in poverty levels across the country. Just before the government survey of income inequalities was released in November 2014, in autumn came news from theWorld Bank that Kenya had seen its economy grow 25% after statistical revision and is now officially a “middle-income country”.

As Nigeria and Kenya, the pin-up economies for Western and Eastern Africa respectively, wake up to trickle down woes, it is clear that the experiences of other African economies that are emulating their wealthier neighbours is likely to be no different.

Development Infrastructure to bridge the divide

Lately, a survey by Afrobarometer of 35 African countries released in January 2016, struggled to find any correlation between the reduction in poverty seen in 22 countries in the survey and the recent rates of economic growth.

Instead, it found that there was a high correlation between creation of development infrastructure and improvement in the lives of the people at large.

“ While growing economies are undoubtedly important, what appears to be more important in improving the lives of ordinary people is the extent to which national governments and their donor partners put in place the type of development infrastructure that enables people to build better lives,” the report noted.

Then, rather than pushing ahead with a blinkered focus on high GDP growth that is clearly not translating into employment security, poverty reduction or inclusive growth, the solution lies in concertedly creating a conducive environment for businesses that create jobs and empower persons at the base-of-the-pyramid.

Impact Investing to build the infrastructure

It is here that impact investing, with a focussed agenda to grow businesses that have significant socio-economic impact, can make a real difference to the lives of those at the base-of-the-pyramid, instead of trusting to trickle-down economics that has so far only seen the top 5-10% push their economic agendas through at the expense of the majority.

Impact investors seek to start at the roots and build a strong foundation for those pioneering entrepreneurs that are seeking to provide basic amenities such as shelter, food, water and education in a sustainable and viable manner, rather than simply choosing an investment that boosts their financial returns and is regarded as a conventionally ‘bankable’ business.

As a specialist SME financier in Sub-Saharan Africa and MENA, GroFin is one such impact investor that is making a difference to the lives of entire communities in its locations of operation. With a concerted focus on investing in small and growing businesses in priority sectors such as Education, Health, Food Security, Energy, Manufacturing and Water/ Sanitation, GroFin is helping local entrepreneurs tackle key community issues such as health, nutrition, education, electricity, water and sanitation.

So far, over 16 years of applying its SME finance and business support solution, GroFin has made a difference to 7,000 entrepreneurs, sustained over 62,450 jobs and changed the lives of more than 312,270 family beneficiaries through its investments.

Support impact investors such as GroFin and others in Africa with your efforts as an entrepreneur or funding partner. Remember, the fate of an entire continent could rest in your hands.

 This article was originally published by GroFin. 

But perhaps of even more significance is the demographic transformation that Africa is experiencing, and will continue to experience over the next several decades. Now home to 1.1 billion people, by 2050 the United Nations estimates that Africa’s population will reach 2.48 billion; by 2100, 4.39 billion people, a majority of whom will be youth.

When the slow pace at which Africa is developing is combined with the demographic transformation, contrary to the sentiments of many optimists, the future does not look bright. But it can.

Disruptive Innovations Targeted at Non-Consumption

Through the course of my research with Harvard Business School Professor, Clayton Christensen, we have learned that no country has developed in sustainably without investments in disruptive innovations. There are two types of disruptive innovations, low-end disruptive innovation and new-market disruptive innovation. I write about the new-market disruptive innovations, which are targeted at non-consumption, a circumstance where a majority of people in a society are unable to afford a particular product due to cost, time, or skill constraints. These innovations transform the existing complicated and expensive products to simple to use, more affordable products, thereby making them more accessible to a larger set of people in society, such as M-PESA, the mobile money platform in Kenya. They serve as the engine of economic development in a society.

Can Africa Spur Disruptive Innovations

It is tempting to discount the possibility of executing disruptive innovations in Africa because of the many obstacles to innovation on the continent, including poor infrastructure, the difficulty of doing business, and the very low incomes on the continent. But when these obstacles are framed as opportunities, innovators can build truly disruptive companies.

In fact, it is precisely because these obstacles exist that disruptive innovations can thrive in Africa.

Nollywood and Noodles

Nollywood, Nigeria’s film industry, has taken many in the world by storm. While Hollywood’s revenues dwarf Nollywood, it is difficult to overlook Nollywood’s impact in Nigeria. The industry, according to a UN report, is now worth approximately $5 billion, employs more than one million people, and generates around $800 million annually. Nollywood has been able to thrive precisely because it is a disruptive innovation targeted at the average Nigerian citizen unable to purchase, watch, and perhaps relate to Hollywood movies. The innovators in Nollywood have keyed into the vast non-consumption of movies in Nigeria, and Africa, and have created relevant and relatable movies that have given birth to a booming industry.

When Haresh Aswani decided to start importing Indomie Noodles into Nigeria in 1988, the decks were stacked against his company, Tolaram. Nigeria was ruled by a military government, GDP per capita was only $256, and 78% of people lived on less than $2 per day. But Aswani began importing noodles into Nigeria and since then, has built 11 factories that manufacture many of the inputs for the noodles. The company directly employs approximately 10,000 people and hundreds of thousands indirectly. A packet of Indomie Noodles costs roughly 18 cents, a product affordable by the majority of Nigerians. Tolaram has begun expansion plans into other African countries. Where many see obstacles, the company sees opportunity.

The Rebirth of an Old Idea

Investing in disruptive innovations is not a new strategy for creating prosperity. The United States, many European countries, the Four Asian Tigers, and many other rich countries followed this strategy with great success. The returns from their investments were then invested in infrastructure, education, healthcare, and in building institutions. It is tempting to spend billions of dollars on infrastructure, institution building, education, healthcare, and other development indicators that are correlated with prosperity. But a closer look at rich countries today shows that investments in disruptive innovations came first. Africa should thus follow suit.

Governments should support entrepreneurs whose business models are targeted at non-consumption. By doing this, they will inevitably create jobs for many people, as was the case with Nollywood and Indomie Noodles. This, our research suggests, will ultimately lead to unfettered prosperity in Africa.

By Efosa Ojomo

Drive economic development and inclusive growth by supporting innovation and encouraging entrepreneurs. 

Entrepreneurs: Submit your projects for funding (Apply) | Investors: Find scalable projects with both financial returns and social impact. Click image.

SoFi

The financial market has been going though many changes thanks to the growth of the digital economy and availability of app-based mobile devices. Mobile payments are one obvious area in which the financial industry is evolving. Square is a clear leader in the U.S., Canada, Japan and Australia, while companies, such as Ezetap in India, are cornering the market in developing nations.

Another emerging sector turning traditional banking on its head is online financing. San Francisco-based SoFi (which stands for Social Finance) is set to disrupt the banking sector through its unique approach to lending and wealth management. What launched in 2011 as a financial services company to refinance student loans has expanded to mortgages, mortgage refinancing, personal loans and wealth management. The company touts its proprietary technology, customer service and products, while marketing itself as a “non-bank.” Instead of going to a local bank branch to obtain a loan, SoFi allows members to apply online or over a mobile device—making it particularly appealing to Millennials.

What Sets SoFi Apart? There are other companies that offer online financing and wealth management, but SoFi’s management team and their ability to partner with major financial institutions give them strength and credibility. Japan-based SoftBank Group was so impressed with SoFi that they provided $1 billion in funding to help the company charge lower rates on student, personal and home loans, as well as help fund plans to expand into wealth management and deposits.

23andMe

I recently went to my doctor for a yearly physical. As part of the process, I underwent several blood tests and had a heart stress test. What if, in addition to these tests, my doctor could also analyze my DNA to better understand my genetic mix and its relationship with my health? He might be able to predict and help prevent certain hereditary diseases. That is the potential behind 23andMe.

For the last ten years, the company has been developing a suite of genetics tests to provide customers information on health, ancestry and traits. The company claims more than 1 million customers and says it has built one of the world’s largest databases of individual genetic information. Though not currently cleared to use genetic information to predict the likelihood of a disease, the potential is there and investors have taken note. The potential revenue of an FDA-approved test for diseases is so significant, the company could be well on its way to an IPO.

What Sets 23andMe Apart? The company’s success is tied to the persistency of founder and CEO, Anne Wojcicki, who spent a decade in healthcare investing, primarily in biotechnology companies, before co-founding 23andMe. She understands the market and has been able to navigate some major hurdles, including gaining FDA approval for the company’s direct-to-consumer genetic testing business. Though the company had to regroup a bit, 23andMe relaunched in early 2015 with guns blazing—and hasn’t looked back since.

Udacity 

Online education is making it easier for many people to learn new things or brush up on skills to help advance their careers. While many e-learning platforms, such as Courseraand Khan Academy, offer courses across a wide variety of topics, Udacity is focused on technology. Its mission is to “bring accessible, affordable, engaging and highly effective higher education to the world.”

Udacity was created almost by accident. Co-founder, Chairman and President, Sebastian Thrun, and Peter Norvig (currently the Director of Research at Google Inc.) offered an “Introduction to Artificial Intelligence” course online to anyone, for free. Some 160,000 students from more than 190 countries enrolled. Not long afterward Udacity was born.

Today the company focuses on teaching skills that industry employers need and delivering credentials endorsed by these employers—at a fraction of the cost of most traditional schools. One of those employers is Google. The company recently announced a partnership with Udacity to offer a Google Android Basics Nanodegree designed for people with no programming experience.

What Sets Udacity Apart? The Co-founder, Chairman and President, Sebastian Thrun, recognized the opportunity to monetize courses teaching the skills employers are looking for—and he seized it. He brought in the right team to make it work, including CEO Vish Makhijani who has years of executive leadership experience working with companies including Zynga and Yahoo. The market has taken notice. Udacity has received funding from major investors, including Bertelsmann, Charles River Venturesand Andreessen Horowitz. It is currently valued at $1.1 billion and is set to become a leading provider of educations services.

Oscar 

If you are confused about your health insurance policy and bills, you aren’t alone. The insurance market in U.S. is not working well, especially when compared to most other developed nations. We pay huge premiums and still have expensive medical bills—and that’s just for the insured.

Enter Oscar Health Insurance. The company was created in 2012 partially because co-founder Josh Kushner was frustrated over trying to make sense of a health insurance bill. He and fellow co-founders, Mario Schosser and Kevin Nazemi, wanted to use technology to improve how customers find health care. According to its website, Oscar is “reinventing how to manage care, process medical claims, control healthcare costs and provide transparency. With all the complexity hidden behind an easy experience for our members.”

What Sets Oscar Apart? Oscar is changing a broken industry by offering a common sense solution to health insurance. It uses sophisticated technology to make it easy for customers to find information and be able to make decisions. Though currently only offering plans in parts of New York, New Jersey, California and Texas, the company is growing rapidly. It currently has more than 145,000 customers and is valued at $2.7 billion. Investors include Khosla Ventures, General Catalyst Partners and Goldman Sachs.

WeWork

Great ideas don’t have to be all about technology, but they should be about the market and customer needs. If you can identify and solve a market challenge, you can win.Adam Neumann and Miguel McKelvey did just that when they founded WeWork back in 2010. Both were independently employed and were working out of a partially vacant office building. They convinced the landlord to let them rent out the empty parts as shared workspace—and WeWork was born.

Today the New York City-based company fills the need among entrepreneurs for a work space that won’t cost an arm and a leg. It currently serves close to 50,000 people in cities across the U.S. and around the globe. Part of the appeal of WeWork is that it doesn’t just provide an empty desk. Membership includes access to a number of perks, from free coffee and craft beer on tap to Wi-Fi, printing and even meeting rooms with ping pong tables. Just the type of hip appeal that many of today’s entrepreneurs and independently employed persons are looking for.

What Sets WeWork Apart? The company recognized that technology is not always the path to success – marketing is. It’s not just enough to offer office space for rent—it has to appeal to the mindset of the self-employed generation. Though this startup is not tech-based and has a pure and simple business plan, it’s attracted the attention of Benchmark, Goldman Sachs, Fidelity and T. Rowe Price, who have funneled $1.4 billion into the company—putting it at a valuation of $10.2 billion.

These five companies have all approached business a little differently and, in so doing, have made their way into the “billion dollar club.” One size does not fit all when it comes to building a company, but studying the approach of these success cases is a good way to find inspiration for your own business plan. Strong partnerships, a good leadership team, persistency, common sense solutions and a solid marketing plan can make the difference between an average company and one that takes the market by storm.

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Africa’s power sector needs far exceed most countries’ already stretched public finances, making it crucial for governments to attract greater levels of private investment to scale up generation capacity. To reach the scale required, governments must provide a sound investment climate and enabling environment, the report finds.

 “Independent Power Projects in Sub-Saharan Africa – Lessons from Five Key Countries” draws on case studies carried out in Kenya, Nigeria, South Africa, Tanzania and Uganda – countries that have the most experience with IPPs in the region.

“Independent power projects now constitute the primary vehicle for private investment in the African power sector,” said Makhtar Diop, the World Bank’s Vice President for Africa. “The objective of this report is to identify key lessons that can help African countries attract more and better private investment.”

Currently, there are 126 IPPs in 18 Sub-Saharan countries, accounting for an installed capacity of 11 GW and $25.6 billion in investments. But to benefit more countries the report recommends these IPPs should be much larger and spread across the region.

Enabling factors for attracting more and better IPPs include:

1. More competitive procurement efforts from countries in Sub-Saharan Africa, which includes encouraging long-term contracts through a competitive bidding process. This can help secure reduced prices and help avert other issues, such as the possibility of a problematic contract. If direct negotiations are conducted, they should be done transparently.
2. Clear and conducive energy sector policies, structures and regulatory environment.
3. Systematic and dynamic power sector planning, including the ability to accurately project future electricity demand, determine best supply or demand management options and anticipate how long it will take to procure, finance, and build the required electricity generation capacity.
4. Financial viability of the public utilities is vital as they remain the principal off-takers of power produced by IPPs. Given the high-risk environment of most countries in Sub-Saharan Africa, it will be important to provide proper mitigation through financial guarantees and security measures to attract new investors.

The report also finds that renewable energy IPPs are becoming more promising and can be viable if procured competitively.

The report concludes that all sources of investment need to be encouraged and for IPPs to flourish, countries in Sub-Saharan Africa need dynamic, least-cost planning linked to the timely, competitive procurement of new power generation capacity. This must be accompanied by effective regulations that encourage distribution utilities that purchase power to improve their performance and prospects for financial sustainability, thereby widening access to electricity.

By the World Bank

Click on image to submit your project on energy or other sectos for financing and scaling up.

The experience inspired Nyankamawu to create Volta, a company that builds solar power projects for health clinics, schools and farms across Ghana.

Volta’s customers pay for 25% of the capital costs upfront, and the rest via monthly payments over two years. None of Nyankamawu’s customers have ever missed a payment, Nyankamawu said.

“Our model works best when it’s a substitute for people who are already using diesel generators,” he added. “They’re saving up to 45% on their costs by switching to solar.”

I met Nyankamawu at the Clean Energy Ministerial in San Francisco earlier this month, an annual gathering of energy leaders from 23 countries and the European Union. The meeting marked the first time the ministers met since more than 170 countries signed the Paris climate agreement to limit the global temperature rise to under 2C, a goal that won’t be met without strong domestic policies that give the businesses incentives to invest in a low-carbon future.

I often hear criticisms that businesses, which account for most of the manmade emissions that are causing global warming, aren’t doing their part to keep the rising temperatures in check. Surveys and anecdotal evidence show that many corporate leaders don’t see their role in this global effort.

But that’s not what I have seen. A growing number of companies are turning to renewable energy to reduce their carbon footprint. I am impressed with entrepreneurs like Nyankamawu and other business leaders who work on making renewable energy affordable and accessible. And they represent progress. Putting money in renewable energy, whether through power purchase agreements with big solar and wind farms in the US, or tiny household-sized solar projects in Africa, was a rarity even just five years ago.

Many Fortune 500 companies recognize a direct connection between climate change and their financial wellbeing. Earlier this month, a half-dozen major companies, including TD Bank and Interface, joined RE100, a coalition of businesses that are switching to 100% renewable electricity. The shift has been especially strong in the US, where large corporate buyers contracted a record 3.2 gigawatts of renewable energy last year, nearly 20% of the 16.4 gigawatts of renewables added to the US electric grid overall. That means tens of thousands of workers rely on solar and wind power to do their jobs, and that number will only go up.

One of the most impressive efforts I heard at the San Francisco meeting came from Lisa Jackson, who leads Apple’s environmental and social initiatives. Jackson talked about the company’s effort to use solar and wind energy to run its own global operations and the factories in China that make its iPhones and iPads, including a plan to bring online 2,000 megawatts of green energy there. The company would work with its suppliers there to build those projects.

Some of the most compelling stories came from Africa. Home to the world’sfastest growing population, the continent is a key front in the Paris climate agreement’s quest. In Tanzania, Off-Grid Electric allows homes and small businesses to install solar systems and pay for them via mobile phone payments. Off-Grid says it’s currently installing more than 10,000 solar units every month in Tanzania and Rwanda, and recently raised $70m from San Francisco-based DBL Partners and other investors to help hire more staff and expand operations.

More businesses will switch to renewable energy if they are able to finance it. We saw a record $329bn in global clean energy investment last year, but that falls short of the estimated $1tn that will be needed every year through 2050 to help achieve the 2C goal. A major emission producing country such as India, which aims to install 175 gigawatts of wind and solar power by 2022, will need anestimated $200bn to reach that milestone. The country attracted $10.9bn in clean energy investments last year, according to Bloomberg New Energy Finance.

There is one group of investors who could help fill that gap, but they have yet to value renewable energy investments: institutional investors. They manage public pension, insurance and other funds that are worth trillions of dollars. These investors are dipping their toes in clean energy in US and Europe but remain on the sidelines in emerging markets, which they consider particularly risky.

Michael Liebreich, founder of Bloomberg New Energy Finance, likened the challenge of fighting climate change to climbing Mount Everest: “We’ve just reached base camp.”

No doubt, getting to the top of the mountain will require huge participation from the business community globally.

The window of time to summit is now – and they’ll need to move quickly.

By Peyton Fleming

The Finnish arm of Sweden’s Nordea Bank will be the first Nordic bank to offer businesses access to the crowdfunding market by launching a technology platform in the summer of 2016.

The technology will enable investors to provide capital for growing businesses through automated processes – a major change for a bank as it will not be providing the capital but enabling other organisations or individuals to do so.

Startup businesses are increasingly turning to crowds for financing – the European crowdfunding market topped €6bn in 2015.

“Digitisation is transforming the banking industry and we want to be part of that transformation,” Topi Manner, CEO of Nordea Bank Finland, told Computer Weekly. “We will offer startups and growth companies the chance to find funding through a digital platform and bring together investors and companies in need of financing.”

By Baker & McKenzie

Despite the internationally recognised importance of SMEs, African small businesses often have difficulties accessing financing from the formal financial sector. Almost 50 percent of African companies identify lack of access to finance as a major constraint to doing business. The cost of ?nance, including investment ?nance, is higher in Africa than any other part of the world, and the access for SMEs is particularly limited. Very few commercial banks do small-enterprise banking in Africa. Furthermore, SME financing is often considered by many financial sector players in Africa to be a risky activity as promoters quite more often than not, fail to come up with the collateral levels required to secure bank facilities.

Low-level financing
Studies done by the World Bank and other organisations have revealed very low levels of bank financing to SMEs in Africa when compared to other developing countries. It is also often noted that SMEs represent a ‘missing middle’ in African private sectors as these are dominated on the one hand, by (mostly informal) very small (micro) enterprises, and by large companies on the other.

The missing middle is particularly pronounced in sub-Saharan Africa, where the unmet need for credit by all micro, small, and medium-size enterprises (MSMES – enterprises that typically have fewer than 250 employees) is in the range of $140-170bn, approximately 70 percent do not use external financing from financial institutions, although they are in need for it.

These studies have attributed low levels of bank financing to SMEs in Africa to both supply and demand. While the lack of effective business plans and adequate skills within SMEs are a problem on the demand side, the supply is constrained by lack of capacity in the ?nancial sector to do business with smaller companies; inadequate information resulting in high-risk assessments; lack of collateral and collateral registries; poor protection of creditors; and lack of availability of longer term funds.

Rising to the challenge
It is in response to these challenges, the African Guarantee Fund for Small and Medium-sized Enterprises (AGF) was created in by the African Development Bank (AfDB), the Government of Denmark through the Danish International Development Agency (Danida), and the Government of Spain through the Spanish Agency for International Development Cooperation (AECID). AGF was imagined and designed primarily as a response to a development challenge as the need to foster innovation, growth companies and provide employment opportunities in all economies is essential to long-term and sustained growth.

Today, Africa is enjoying unprecedented growth and the world is awakening to the opportunities that the continent offers. AGF’s job is to be part of the effort to ensure that the benefits of that growth are fairly shared at all levels of the society.

Through its guarantee facility, AGF assists financial institutions partially cover the risks associated with SME financing and thus enable them increase their portfolio in that asset class. Its guarantee business also enables financial institutions to raise long-term resources for SMEs long-term needs. AGF also offers capacity development facility enable partners financial institutions enhance their SME financing capabilities and thus to execute their growth strategies in that sector with ease. A combination of AGF’s guarantee and capacity development facilities, allows partner financial institutions to bring their SME financing business to the required scale that would not only enable them bring down transaction costs significantly, but also increase returns on investment. AGF is the missing link that enables partner financial institutions execute their SME financing strategies effectively, while enabling SMEs to play their expected role in fostering African economic development.

Since its official launch in 2012, AGF has gained over $300m of financing to more than 300 SMEs in Africa. Through its partner financial institutions the company operates in more than 20 countries in Africa.

AGF anticipates in its strategic plan that it will guarantee approximately $2bn of new lending in the medium term and enable over 10,000 African SMEs to have access to finance. This would help to secure and create millions of productive and better jobs for the youth across the continent.

By Felix Adahi Bikpo, CEO, African Guarantee Fund