There’s a bit of an investment gap when it comes to business in developing countries. Big projects can access capital because they can get attention from overseas investors, call on government support, or work with international institutions. At the opposite end of the scale, tiny cottage industries can draw funding because they can turn to micro-lenders. What’s missing is the middle section, the small and medium sized enterprises.
That’s a problem, because that’s where the heart of the economy lies, and where development starts to really move forward. Supporting household enterprises is all well and good, but it can still be a hand to mouth existence. It’s a whole lot better to have the stability of a job, and growing medium sized businesses are the best way to deliver rising incomes.
Creating those businesses requires a jump in funding – something in the order of £100,000 to a million. Many developing world entrepreneurs find it difficult to convince a bank that they’re worth the risk, which means very high interest rates if they can get a loan at all. And all of this is doubly difficult in rural areas, where bank branches and financial advisers are scarce.
So I was interested to see the launch of Access to Capital for Rural Enterprises (ACRE) last week, which seeks to bring together investors and promising businesses ready to expand. It’s a joint project from five agencies: Christian Aid, Traidcraft, Practical Action, business incubation specialists Twin, and Challenges Capital.
The NGOs and their partners will identify businesses that would fit the bill, and then work with them to draw up business plans. This is a rigorous process that sees an expert embedded in the organisation for up to three months, ensuring that investors can get involved with confidence. The participating businesses can then apply to a syndicate of impact investors who want to direct their money towards the ‘bottom of the pyramid’.
Participating businesses include solar energy in Mali, coffee in Brazil, poultry in Haiti and many more. To find out more about the scheme, check out the information brochure or view the little video below.