Financing the Future of Asia: Innovations in Sustainable Finance
by Johan Thuard, Harvey Koh, Anand Agarwal and Riya Garg

This report lays out initial recommendations for how a range of different actors could engage across sustainable finance intervention. FSG's hope is many more investors and financial services providers will seize the opportunity to shape this emerging sector and move toward a future in which all of finance is turned toward building a better world.

Read full report here. 

Artificial Intelligence: Practical Superpowers
The Case for AI in Financial Services in Africa
FIBR, MasterCard Foundation, BFA

While admittedly often overshadowed by hype, Artificial Intelligence (AI) today offers real opportunities for financial sector players to access new and augmented business abilities. Wielded well, AI can unlock data to reveal insights about customers, operations and businesses to inform key decisions. Sensors in smartphones also open up a whole new world of data as captured through images, text, sound and location, which AI can translate into information in real-time and with high fidelity. These kinds of advancements in the field are especially exciting for financial sector players in Africa, with real-use applications in the informal retail sector, and for businesses that rely on last-mile distribution networks, such as pay-as-you-go (PAYGo) providers,1 to reach their customers. Grounded in creating a practical and compelling case for financial services providers (FSPs) in Africa, we present an overview of AI and its benefits to businesses -- lowering costs, increasing revenue and competing in a changing market -- that could ultimately enable a more customer-centric financial ecosystem.

Read the full report here.

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. 

How to IPO Successfully and Responsibly:
Lessons from Indian Financial Inclusion Institutions

by Grassroots Capital Management PBC and sponsored by Financial Inclusion Equity Council (FIEC)

This paper examines the 2016 IPOs of two Indian micro-lenders – Equitas Holdings and Ujjivan Financial Services – and how they “hardwired” their missions to prioritize their clients, setting them apart and driving their success. The experience of these two companies suggests how a responsible financial services company can position itself to go public while maintaining its social mission. 

Download the case study here.

New Perspectives on Financing Small Cap SME's in Emerging Markets:
The Case for Mezzanine Finance

by the Dutch Good Growth Fund (DGGF)/Investment funds local SME

 In search for new models to provide risk capital, mezzanine finance, which blends elements from traditional Private Equity (PE) and debt financing into a unique product, provides an additional offer in the SME finance ecosystem for missing middle entrepreneurs.

As a relatively young and rather complex segment in the impact investing space, the commissioned study 'Publication of new perspectives on financing small cap SMEs in emerging markets: the case for mezzanine finance' provides an understanding of the specificities, diversity (and complexities) of it, critical to spur innovative thinking on both the fund managers and investors sides so products may be improved and models may be more scalable.

This study is the first of its kind and represents a first step into building small cap SME mezzanine finance as an asset class on its own.