SME FINANCE IN SUB-SAHARAN AFRICA: HOW DO WE ACHIEVE SIGNIFICANT SCALE AND REACH?

by Enclude, the Aspen Network of Development Entrepreneurs, and the Shell Foundation

Enclude, ANDE, and the Shell Foundation conducted this research in 2016 and 2017, with generous participation from leading providers of SME finance globally through roundtables, workshops, and interviews.  The study focuses on SMEs that are commercially viable with five to 250 employees and have significant potential and ambition for growth. Within this segment, our "Target Market" focus is on businesses in the “validate” and “prepare” stages seeking growth and working capital of between $250,000 and $1 million. 

State of the Market

 We estimate there are 9.4 million formal and informal SMEs in this Target Market with a financing gap upwards of $70 billion

Some financing models show solid commercial promise, but subsidy will be necessary for many years to come. Grant, sub-commercial, and quasi-commercial capital will all be required in greater proportions in order to leverage more commercial capital. DFIs will remain as the main investors, but will need to re-calibrate and re-frame their return expectations, and look to lead and be part of bridging solutions and systemic interventions. 

5 Promising Approaches to Move the Market

A material increase would require growth in the quantum of financing – targeting an additional $3 billion in financing by 2020-2022, led with funding from Development Finance Institutions, as well as donors, foundations, and corporations. Five of the most promising approaches to unlocking this capital, listed in order of absorptive capacity and investor appetite are: 

•  Commercial Bank with an SME Unit 
• Investment fund providing mezzanine financing
• Asset-backed financing
• Flexible debt instrument
• Tailored private equity fund 

4 Calls to Action 

• Build a robust data set that sharpens insights of size, distribution, trajectory, and returns
• Go deep in one country to demonstrate the viability of the five most promising approaches
• Unlock domestic capital markets, the only viable solution to foreign exchange issues 
• Support local talent required to sustain reliable support for target SMEs
  

Download the executive summary & call to action slides here.

For a narrative version, click here. 

INSIGHTS FROM THE IMPACT PROGRAMME: USING TECHNICAL ASSISTANCE TO BUILD IMPACTFUL BUSINESSES

by The Impact Programme 

This paper draws on the experience of the Impact Programme’s two investment vehicles, the Impact Fund and Impact Accelerator, and the programme’s Technical Assistance (TA) Facility which provides support to pipeline and portfolio companies of the funds. The funds and the TA facility are managed by CDC Group, the UK’s development finance institution. The programme is funded by UK Aid, and is managed by PwC’s Programme Coordination Unit. 

Download the report here.

Walmart and USAID: The Evolution of a Global Cross-Sector Partnership

by WDI Publishing

This case explores the evolution of the cross-sector relationship between Wal-Mart Stores, Inc., Walmart Foundation and the U.S. Agency for International Development (USAID) from 2000-2015. It focuses on partnerships that sought to build the capacity of smallholder farmers in the developing world. The case explores the ways in which this collaboration came about, how it was supported by the partners, and the level of success achieved as measured by the Wal-Mart Stores, Inc., Walmart Foundation, and USAID. The case dilemma is to identify learnings drawn from these partnerships and determine how they can be applied to a more ambitious approach to collaboration.

Download the report here.

#ClosingTheGap Guinea: Key Challenges for the Missing Middle

by Triple Jump

This report presents the results of a study conducted on behalf of the Dutch Good Growth Fund (DGGF). The study was commissioned to get a better understanding of the ‘missing middle’ in francophone West Africa, of which Guinea is one of the focus countries. The report describes the main factors that hamper growth of SMEs in Guinea and limit their access to growth finance, and suggests possible actions to increase their access to funding.

Download the report here.