Seems like the absolute worst problem for entrepreneurs in Benin is getting contracts enforced, according to Doing Business. Is that what your colleagues have found, Paul?
Hi import duties and limitation of export of funds are important constraints. Sometimes larger business do not face teh same constraints as they access priviliged services from the givernment agencies. We have also tried to support franchising as a model to support proven business models SMEs in Africa. With internatinal franchise models the lack of ability to repatriate funds (profits, fees) abroad can also be a real constraint.
On the import side, representative agencies may need to make a voice towards givernments to reduce import duties on goods needed to run their business.. It takes a long breath though..
Matthew, I think that the point you are making is a very imnportnat one. Customs, culture and other local social dynamics need to be considered when the enterprise development serivce is design, not only in finance but also in advisory, mentoring or access to markets.
There are a number of exciting innovations!
These include an increased SME client service approach FIs are taking. This helps them maintain close relationships with their SME clients AND enables them to offer a more appropriate combination of products.
Speaking of products, leasing and other asset based financing products are also becoming part of banks’ portfolios. But SMEs also need other products like insurance for health, crops, or other business activities.
yes, you're right, and clearly laws on foreign direct investment could be improved, from what you say.
Georgia Taylor from WISE Development contributing.
Mobile phone solutions were cited for BDS. This and mobile user customer credit ratings are being piloted by Every1Mobile in Africa. Direct access to information on financial management, marketing etc - and also cross user credit ratings have a big potential. they have a good audience of young users, so potential to reach MSMEs that other pogrammes can't reach. But the barrier is often that many women and especially young women, don't have mobile phones of their own (especially in places like Northern Nigeria). Why can't programmes start improving access to mobile phones for women, and also stimulating SIM card markets - good opportunity for women, better than soap making and tailoring in some saturated markets???
what's most exciting for me centers around moving payments from cash to electronic channels, and using that payments information to lower costs to know, and costs to serve SMEs...
Mobile banking and branchless banking offer opportunities to reach out to larger MSME communities as well. Financial institutions also require support to reduce the risk of financing SMEs. Various guarantee mechanisms now exist to support financial institutions. This helps. Value chain financing and franchising as a business model are other examples of financing whereby financial institutions may or may not play a role, but which facilitate access to finance for SMEs. Of course SME quasi equity funds have come up to select ‘winners’, and recently a number of impact investment funds have been established. SME competitions with the winners getting financial and other support. There are a lot of tested but also untapped opportunities in all of these areas.
Yes, Laura is right. We've seen banks taking the SME opportunity much more seriously.
Absolutely agree that insurance products are a key need for agriculture -
Being able to correctly assess the risk of the agriculture activity for smallholders, mitigate these risks (e.g. climatic events) through appropriate programme interventions and insurance products would greatly facilitate the linkage between rural entrepreneurs and Formal Financial Institutions.
I can't see my other comment yet, but George gives a great example of how the new electronic footprint opens all sorts of doors!
It's also exciting to see that the first couple of microfinance institutions in India have won licences to accept deposits and provide a fuller suite of services to clients
vehicle financing and broader leasing - maybe not as "innovative" as mobile banking but very impactful
yes, though I don't like the term "mobile banking" as it's not just about the mobile phone...cards and internet also open new channels...and the most exciting and fast moving supply chain examples are the ones using electronic means both for payment and for vital market/commodity information.
Alex, I'd be interested to know your views on the best ways to support SMEs in the water and sanitation sector. Based on what you said this is a catch 22. You need these services in place (which mostly they are not) and actually the SMEs that are trying to provide these services are not even on the radar of lending institutions. How do we (advocates in this space) help the financial sector see these SMEs and start having more linkages and break this vicious cycle?
Alternative finance market for SMEs is growing especially in the developed world. According to the research done by Nesta in conjuction with University of Cambridge and Berkeley peer to peer and peer to business lending models have developed radiely and funded £482 million and £276 million respectively. Alternative finance market (AFM) covers a variety of forms such as invoice trading, crowd funding (equity and rewards based).Total funds raised in the Uk is close to £1.7Bn between 2011-213.
asset backed financing in all its forms is very important for SMEs
this includes factoring (financing based on invoices), too.
I agree - recent research we've done with commercial banks suggest that they see the fight for market share among SMEs as key to their future - but they're struggling to come up with products at low enough cost
almost everything can be leased. and is a good way to support SMEs without taking undue risk. Although some countries have limitations on recuperating the asset in case the SME doesnt pay which again becomes a constraint for financial institutions to lease.