geo/africa
It takes more than one organization to advance development. That’s why Multilateral Development Banks are joining forces to support and strengthen private sector investments in developing countries across the globe.
Minerva Kotei, Financial Sector Specialist for the SME Finance Forum, attended the 2017 Africa Day in Berlin co-hosted by the EIB, Afrika-Verein der deutschen Wirtschaft and the German Federal Ministry for Economic Cooperation and Development. During a roundtable discussion, Kotei's comments focused on how digitalization can help to expand access to finance for small and medium-sized businesses, including women entrepreneurs.
Sub-Saharan Africa has played host to almost half of all mobile money deployments worldwide, as well as almost half of all countries where mobile money is available. Earlier this year GSMA published the decade edition of the State of the Industry Report on Mobile Money and a two-part blog series specifically focuses on Sub-Saharan Africa.
The tools demonstrate how consumers in the region are increasing use of mobile money and the financial inclusion that has come of it.
The Research Meets Africa conference aims to promote research and innovation in financial inclusion in Africa. It encourages collaboration between researchers and practitioners of the financial inclusion sector, with participation from universities in Africa and around the world. This year's conference explores the critical question: What current or alternative solutions will respond to the needs of SMEs in Africa and lead to economic growth on the continent?
The African Guarantee Fund’s (AGF) chief executive Felix Bikpo talks about their strategy to assist SMEs. Stating the main problem for SMEs as access to finance, Bikpo says their guarantee facility assists financial institutions in covering the risks often associated with SMEs financing. AGF’s activities have improved the SME sector in recent years. Today, AFG is in nearly 40 African countries through almost 100 financial institutions. The percentage of loans to SMEs has significantly improved as well.
MicroSave, in partnership with The MasterCard Foundation, today launched a new program to develop tailored training courses in digital financial services (DFS) in francophone markets of Africa. The program is expected to benefit over 250 DFS providers and will focus on the WAEMU region, the Democratic Republic of the Congo, and Madagascar. Additionally, a DFS knowledge portal in French will be launched as the “go-to” place for information on digital financial services.
Earlier in 2016, DFID-funded FSD Africa partnered with the Cambridge Centre for Alternative Finance (CCAF) and Anjarwalla & Khanna to conduct a regulatory review of different crowdfunding models across Kenya, Tanzania, Uganda and Rwanda.
The name of the Grand Global Hotel suggests no want of ambition. But the project ran into financial problems before building work had even finished, says its owner, Emmanuel Tugume. His bank raised interest rates, and would not make allowances for delays in construction. Mr Tugume eventually got a loan from GroFin, a specialist business lender, and now his hotel is thriving. But his experience with Uganda’s banks still rankles. “They do not adjust to people like us,” he says. “They look after the big-time clients.”
In the past 10 years crowdfunding – raising monetary contributions from a large number of people, typically online, to fund a project or venture – has evolved into a $16 billion market. It is growing around 300 percent per year and is concentrated in North America and Europe. The purpose of this paper is to capture lessons learned from East African entrepreneurs who were some of crowdfunding’s first adopters. Their experiences can serve as a practical guide for entrepreneurs looking to more effectively utilize crowdfunding across all emerging markets.
Between 2010 and 2011, our fledgling startup was turned down by somewhere between 100 and 150 different investors. In lieu of formal financing, we turned to selling personal assets, delaying payments, and borrowing from friends and family to keep afloat. We committed all of our energies to finding investors and, in the process, almost forgot to spend any time building our business.
Three years and 15,000 kilometers later, we found ourselves serving thousands of small and medium enterprises (SMEs) in Kenya that faced a similar, though significantly more difficult, reality: No one would invest in them – no debt, no equity, no factoring, nothing. In turn, they spent countless hours looking for money instead of building their businesses.
We were familiar with the concept of the “missing middle” in SME finance, but this felt personal. We wondered: What is it, exactly, that’s making investors turn our customers down? Being a software company, we started by focusing on the absence of structured, verifiable data. Specifically, we noticed that most of our SME customers had virtually no electronic records whatsoever, which might otherwise be imported, parsed, and analyzed to determine their creditworthiness. They were, effectively, blank inputs in a risk model – vacant cells waiting for… something, anything to convince an investor that their businesses were more than a crapshoot.
We then put ourselves in the investors’ shoes. If we had limited capital, limited time, and a minimum expected return on assets, how would we respond to a scarcity of data? Easy! Just dial down our risk tolerance, dial up our collateral requirements, focus on larger ticket sizes, and increase the interest rate to adjust for default. Happy bosses, happy shareholders, no problems.
So we empathized with our SME customers, but echoed the uncertainties of their would-be investors. We were willing, on the one hand, to vouch for our customers’ integrity, but, on the other, understood that investors were just making the best of a bad situation.
We think that’s emblematic of a market failure: We were willing to invest in our customers, but couldn’t, while investors weren’t willing to invest in our customers, but could. Were we just naïve, or did we have something the investors didn’t?
It just so happens it might have been the latter, but that’s for a subsequent post.
This is Part One of a three-part series on how alternative data can help bridge the “missing middle” to extend financial services to millions of SMEs in emerging markets. In Part Two, we’ll explore what “alternative data” means, where it comes from, and why it could offer ground-breaking visibility into a sizeable chunk of the global economy.
