Opening the doors to finance for SMEs

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Hosted on African soil for the first time, one of EMRC's Africa Finance and Investment Forum themes was to explore alternative options of financing for budding African businesses - particularly in the agriculture, health, infrastructure and energy sectors.

Impact investment - what is it?

The first round of discussions revolved around impact investment and its potential in the African market.

According to Tomas Sales, special advisor, Private Sector Unit: United Nations Development Programme (UNDP) Regional Services Centre for Africa, "Impact investments are those that generate measurable social and environmental impact alongside financial returns, and by definition it lies somewhere between philanthropy and socially responsible investment."

Historically, African governments have supplemented their social development programmes with funds from aid agencies, but the 2008 financial crisis put this relationship on rocky ground and exposed their vulnerability to unpredictable global influences, creating a need for innovative funding.

UNDP believes that the only way sustainable development goals will be met is through cooperation between government, agencies and the private sector.

From the entrepreneur's perspective

Social entrepreneur, Zakheni Ngubo, says, "One of the biggest challenges entrepreneurs face is securing seed funding to get into the market. They often don't have corporate governance structures in place that financial institutions require to secure funding."

Ngubo is the senior managing partner of Siyafunda, a social enterprise that provides innovative learning solutions through mobile technology. His business stems from his own school experience, where, despite not having a maths teacher, he still attained excellent matric results, but this was not enough to get him into university.

This inspired him to find a solution to address the shortage of maths and science teachers by creating a platform for maths and science content.

Innovative solutions on access to finance in Africa

"The importance of access to finance is second only to electricity supply for micro, small and medium enterprises," says Tor Jansson, principal investment officer: International Finance Corporation (IFC).

Yet many traditional banks struggle to transition to meet the needs of SMEs, therefore the IFC is focusing on building SME lending through microfinance banks. We start with microenterprise lending and simple deposits and gradually introduce SME lending and a broader range of services," he says.

Microbanks start from certain strengths, for instance: they have onsite knowledge of clients, they are more cash flow-based and less collateral-based, they have a faster lending process and a better reach in populations.

"The next step is we are working with Mastercard to scale up the microfinance focus through branchless banking. We aim to develop a channel for products and deposits through agents in the communities. The challenges include brand management and the liquidity of agents," Jansson explains.

Keeping it in the family

Another interesting financing model is family funding. Here family businesses that have made it to the top of their industry invest in entrepreneurs through a private family capital fund.

Hendrik Jordaan, president and CEO of One Thousand and One Voices (1K1V), cites American brewery - Coors - as one of well-established family businesses that has a stake in 1K1V.

"Families are uniquely positioned to help portfolio companies grow by drawing on their insights and relationships with operating companies. We invest R300m in companies in Africa, and are looking to grow," says Jordaan.

One such investment is in RedSun, a privately-owned processor and distributor of high-quality raisins in the Northern Cape. 1K1V will help RedSun to expand its reach and market share in the rapidly growing dried fruit and nut market, which continues to grow as global food demand increases.

The Africa Finance and Investment Forum is currently underway at the Lord Charles Hotel in Somerset West from 24-26 November 2015. for more information, go to www.emrc.be.