A1: The immediate response due to the COVID19 crisis has revealed how agile, flexible and innovative companies can be. Now, we need to approach the recovery phase with the same mindset, this is equally urgent.
No single company or government can do the job alone, at CEMEX we believe that ecosystem innovation partnerships are key.
Our focus areas for are:
• Revamp-up our economy.
• Accelerate Recovery
• Strengthen Resilience
1/4 We exclusively work with social businesses, who, of course, are only a small sub-segment of the MSME space.
But we do think that those companies can help to rebuild our economies in an inclusive and green way post-COVID. The good news is that we see the sector coming together like never before. We had the chance to co-initiate the COVID Alliance for Social Entrepreneurs with the World Economic Forum and almost 50 leading organizations in the impact-first space.
From MSME perspective there are macro and micro implications of covid pandemic.
Collaboration: it has become clear that MSME growth is a systemic challenge that requires the collaboration of diverse actors, including investors, governments, and large companies. Already, these actors are forming coalitions to support MSMEs jointly. This level of collaboration is an opportunity in and of itself, and keeping up the collaboration, moving from immediate response to long-term growth can be a real achievement of this crisis.
2/4 But COVID has amplified a lot of the structural issues that social businesses and the MSME segment is facing: Broad informality, data scarcity and inadequate access to capital just to name a few.
Even in European countries and the US, MSMEs continue to struggle with access to government support and stimuli packages. In developing countries, where we work, this is further amplified by the simple fact that those packages are either missing entirely or are inadequately funded. In many countries, especially in SSA, we are also facing inadequate ID system and large populations that are unbanked.
However, where financing does reach MSMEs, the crisis can jumpstart a so-far inefficient financial system for MSMEs. In India – a country with 63M unincorporated MSMEs, employing 110M people and making up 30% of the countries GDP – the scarce data about MSMEs that does exist is scattered across several databases. In an effort to disburse government funding or concessional loans more quickly, the crisis presents an opportunity to consolidate the data and use it to reach the last mile.
This also includes a push for financial innovation through FinTechs – from innovative retail banks, to credit scoring and more efficient loan portfolio management.
After the lock down period, the challenge now that will be faced by entrepreneurs around the world is the response of the market; if the service or product they are offering is still palatable to consumers.
Other challenges that they will be facing will be similar as before Covid-19, like need for business skills, access to working capital, digital tools to help them manage their business, another big opportunity is access to working capital and regulation that enables small business owners to participate more in the formal economy.
The pandemic has highlighted further challenges in our supply chains, the speed of response is an area that we will want to maintain. Being less perfect in the solutions and instead rolling out at speed, fixing finer problems later is an area where more opportunity lies.
3/4 At the same time, we need to innovate our funding approaches for high-risk ventures – especially in the impact space. Lending from Aunnie Patton Power: “Impact investing was created to revolutionize capital markets. Instead, we are replicating them.”
As we start rebuilding, we need to find alternative financing vehicles to support high-impact ventures. Instruments like forgivable loans, recoverable grants, revenue-based financing, or equity redemptions are now discussed more seriously as some of them are becoming the instrument-of-choice for government relief. Already today, we are supporting our portfolio with forgivable loans and concessional loans.
The greatest opportunity lies in shift to digital. Transactions volumes and amout of money in circulation through digital instruments has increased manifolds. However the response from financial institutions and government can be better.
The new generation of tech start ups will challenge the old schools SMEs and will surely take larger space in the market. Some incentive towards adoption of technology for old school manufacturing and agricultural SMEs could work.
Jorge - agrees that this provides an opportunity to leverage technology - leveraging technology can help maintain business relationships – MSMEs need to continue to communicate with markets, customers, employees. We can speed up the adoption of technology platforms – as simple as WhatsApp groups between traders, or as sophisticated as multi-functional digital platforms.
4/4 And yes, in the future this also includes innovative solutions in the pay-for-success space. As a fact, many of the covenants added to government funding during COVID-19, such as job preservation, are simple forms of pay for success.
We have developed the Social Success Note at Yunus Social Business. And there are many other exciting frameworks out there, like the SIINC by Roots of Impact.
Lastly, we can build on data gathering initiatives that have sprung up during this crisis to better understand the social business and MSME sector. For example, the Center for Financial Inclusion just announced a survey together with Mastercard amongst MSMEs in Latin America, Sub-Saharan Africa and Asis. This monthly survey – running for 12 months – will shed light on MSME’s access to capital, financial health and ability to rebuild post-COVID.
Similarly, our alliance partner Duke University has set up the COVIDCAP dashboard, listing thousands of opportunities for financial support for businesses – and starting this week also for non-financial support.
Trust is a key reason for the disconnect between MSMEs and the stakeholders that support them. In emerging market economies such as Kenya and Uganda, there is an atmosphere of low trust between MSMEs and other ecosystem actors such as local/national governments, tax authorities, financiers and corporate partners. Use COVID related support measures to build trust through transparency on available support and the processes, offering concessionary interest rates/ repayment holidays in the short term, relaxing stringent supply chain rules etc.
Agree with this two tier approach. Country or region specific facilities can link MSMEs to corporates, technology and financing, while a global platform can bundle some of these opportunities to access larger scale capital and offtakers. We are doing this now with agroforestry and forest regeneration
Hi Lilian - It’s great that you have joined us. In our new guide we identify Invest in Africa as a great example of a platform that brings different players together to support MSMEs. It would be great if you could share how you see your role in helping MSMEs rebuild post C-19.
Agreed. Corporate value chains can play an important role. In our case Engro Polymer is helping its cusotmers, mostly SMEs, to convert to digital payments, self order management and shipment scheduling. This will permanently improve the value chain and make it more efficient.
New secured credit instruments are also being encouraged to provide liquidity to some of customers who have their investments stuck in not so liquid investments.
Hi, all, we had some technical difficulties on our end. I am posting on behalf of Willy Foote and we are happy to join you today. Willy is the founder and CEO of Root Capital, a nonprofit social enterprise that offers farmers around the world a path to prosperity by investing in the small and growing agricultural businesses that serve as engines of impact in their communities. Root Capital provides these businesses with the capital, training, and access to markets they need in order to grow, thrive, and create opportunities for thousands of farmers at a time. Since our founding in 1999, Root Capital has provided more than $1.4 billion in loans to 725 agricultural businesses in Africa, Asia, and Latin America. Together, these businesses have paid $4.8 billion directly to the 1.5 million smallholder farmers whose crops they collect and market.
A1: Root Capital is framing our support to small and growing agricultural enterprises through a four-stage approach: Understand, Withstand, Recover and Reimagine. We began by surveying more than half of our clients to learn what challenges they were facing immediately, and what they saw down the road. Their responses included uncertainty about the future of markets, demand, and contracts; concern about farmer and employee health; and worry about their capacity to adapt to remote work and new health and safety regulations. In the short term, we saw that these businesses need flexible funding to meet cash liquidity crunches, whether to address food insecurity, provide soap or personal protective equipment, or enable paid sick leave. Underlying these urgent actions is the need to build long-term resilience.
We view the pandemic as an unwanted dress rehearsal for climate change–we will not “waste the crisis,” and will use this opportunity to build systems and capacities that businesses can use to meet future shocks. Root Capital is dialing up our mobile and digital capabilities in Advisory Services, so that via remote and virtual trainings, our trainer network can help businesses implement new processes, policies, and best practices required to weather this storm and plan for the future – these include crisis management and emergency operations, financial management and analysis, and digital data collection and analysis. As we do so, we are applying a gender lens to this work, to ensure that pre-existing barriers to women’s access to digital technologies are not further disadvantaging them during this time.
@jorgeortega agree with your observation: this crisis has given a big push to digitalisation of the MSME sector. Digitizing business processes and payment streams means greater transparency for all players, again facilitating collaboration. One example: keeping records of orders can not only enhance a credit profile, as in the case of Jaza Duka, but also enable insurance, which in turn allows MSMEs to invest more.
This is one of the key issues that if dealt with correctly can catapult the growth of MSME’s. Too much activity is happening in isolation - hampering growth efforts.