5.3 Case Study 3: Enterprise solutions to poverty
5.3 Case Study 3: Enterprise solutions to poverty
in southern India via the social
merchant bank model
The Small Scale Sustainable Development Infrastructure
Fund (S3IDF)43 is another innovative
financing initiative operating in south India in
which the Shell Foundation is involved – and
which demonstrates the value of applying business
thinking and business principles to tackling even
more extreme poverty contexts. S3IDF targets very
small enterprises that require access to small
amounts of capital ($1000 to $10,000) so they can
offer energy, water and other basic infrastructure
services to very poor customers. Typical projects
are small community electrification schemes using
renewable energy (solar, hydro, biomass).
The context in which S3IDF is operating is
generic across developing countries and there is not
an absence of technology, business ideas, or the
willingness of even very poor customers to pay
(energy expenditure of poor households can be
between 15% and 30% of total income). The key
problems are the lack of availability of finance and
appropriate business development assistance
(BDA) to support the growth of these enterprises,
and the lack of experienced intermediary agents
who can help bring these projects and their lead
entrepreneurs to market.
Commercial banks and equipment suppliers won’t
lend to what are inevitably inexperienced
entrepreneurs without collateral and little business
experience (including experience in how to access
start-up finance). The banks have no experience of
these nearly invisible markets or of the particular
needs of these enterprises. So all in all, it’s just too
risky. There are better, safer ways to earn a return.
For similar and other reasons, these types of deals
are simply off the radar screen of most pro-poor
development agencies and development finance
institutions.
So S3IDF brings to small scale, pro-poor
infrastructure business opportunities, the
innovative financial, institutional and technical
engineering that is common in large infrastructure
deals. To do this, S3IDF operates as a ‘social
merchant bank’ targeting very small enterprises.
S3IDF applies business criteria and best practice
financial engineering skills45 in assessing, selecting
and structuring its deals, and delivers the flexible
mix of finance and specialised BDA its ‘clients’
need but which is not available elsewhere. And
S3IDF works closely with select partners from the
for-profit and not-for-profit sectors who can
provide skills and assets to the deal engineering
process that it cannot.
S3IDF addresses its scale-up aspirations by always
ensuring the involvement of local capital sources
in its deals on a learning-by-doing basis. This is so
commercial banks will see there is a return to be
made and thus make more of their own capital
available in future to finance very small pro-poor
enterprises.
S3IDF now has a portfolio and pipeline of 80+
projects. Almost 20 are in operation;4930+ are
under detailed pre-investment analysis and/or at
the final deal-structuring stage. All but one live
project is producing returns as expected (albeit
still below market rates). The evolving S3IDF
portfolio/pipeline is in effect verifying its business
model and this process is helping it to line up the
ingredients needed for a partially self-financing
scale up over the course of the next 12–18 months.
Of course, it’s early days for S3IDF as its portfolio
includes some high-risk projects and very
considerable subsidy for project preparation. This
raises questions as to whether such a fund could
(or indeed should) ever be fully commercial.
But S3IDF, operating like a merchant bank in an
extremely impoverished market yet successfully
catalysing enterprise-based solutions to poverty
and doing it in a scalable fashion, deserves
commendation and attention.
53 Case Study 3 Enterprise solutions to poverty - To learn more about this author, visit Shell Foundation's Website.
Like this article? Share it with your friends
Nurturing pro-poor small enterprise
in southern India via the social
merchant bank model
The Small Scale Sustainable Development Infrastructure
Fund (S3IDF)43 is another innovative
financing initiative operating in south India in
which the Shell Foundation is involved – and
which demonstrates the value of applying business
thinking and business principles to tackling even
more extreme poverty contexts. S3IDF targets very
small enterprises that require access to small
amounts of capital ($1000 to $10,000) so they can
offer energy, water and other basic infrastructure
services to very poor customers. Typical projects
are small community electrification schemes using
renewable energy (solar, hydro, biomass).
The context in which S3IDF is operating is
generic across developing countries and there is not
an absence of technology, business ideas, or the
willingness of even very poor customers to pay
(energy expenditure of poor households can be
between 15% and 30% of total income). The key
problems are the lack of availability of finance and
appropriate business development assistance
(BDA) to support the growth of these enterprises,
and the lack of experienced intermediary agents
who can help bring these projects and their lead
entrepreneurs to market.
Commercial banks and equipment suppliers won’t
lend to what are inevitably inexperienced
entrepreneurs without collateral and little business
experience (including experience in how to access
start-up finance). The banks have no experience of
these nearly invisible markets or of the particular
needs of these enterprises. So all in all, it’s just too
risky. There are better, safer ways to earn a return.
For similar and other reasons, these types of deals
are simply off the radar screen of most pro-poor
development agencies and development finance
institutions.
So S3IDF brings to small scale, pro-poor
infrastructure business opportunities, the
innovative financial, institutional and technical
engineering that is common in large infrastructure
deals. To do this, S3IDF operates as a ‘social
merchant bank’ targeting very small enterprises.
S3IDF applies business criteria and best practice
financial engineering skills45 in assessing, selecting
and structuring its deals, and delivers the flexible
mix of finance and specialised BDA its ‘clients’
need but which is not available elsewhere. And
S3IDF works closely with select partners from the
for-profit and not-for-profit sectors who can
provide skills and assets to the deal engineering
process that it cannot.
S3IDF addresses its scale-up aspirations by always
ensuring the involvement of local capital sources
in its deals on a learning-by-doing basis. This is so
commercial banks will see there is a return to be
made and thus make more of their own capital
available in future to finance very small pro-poor
enterprises.
S3IDF now has a portfolio and pipeline of 80+
projects. Almost 20 are in operation;4930+ are
under detailed pre-investment analysis and/or at
the final deal-structuring stage. All but one live
project is producing returns as expected (albeit
still below market rates). The evolving S3IDF
portfolio/pipeline is in effect verifying its business
model and this process is helping it to line up the
ingredients needed for a partially self-financing
scale up over the course of the next 12–18 months.
Of course, it’s early days for S3IDF as its portfolio
includes some high-risk projects and very
considerable subsidy for project preparation. This
raises questions as to whether such a fund could
(or indeed should) ever be fully commercial.
But S3IDF, operating like a merchant bank in an
extremely impoverished market yet successfully
catalysing enterprise-based solutions to poverty
and doing it in a scalable fashion, deserves
commendation and attention.
53 Case Study 3 Enterprise solutions to poverty - To learn more about this author, visit Shell Foundation's Website.
Like this article? Share it with your friends
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 6.0 Propositions and conclusion: Enterprise solutions to poverty
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| We have argued throughout that the expansion of
enterprise, particularly SMEs, is critical to economic
and poverty reduction. This is hardly a new or
revolutionary argument. It has been advanced by
many others s... |
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6.3 Come Together: Enterprise solutions to poverty
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| an invitation to
invest in proving and positioning
enterprise as a key part of the
solution to poverty |
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2.0 Introduction: Enterprise solutions to poverty
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| This paper has two objectives. The first is to
introduce the Shell Foundation and its way of
working. The second is to offer up insights drawn
from our experience as a contribution to the wider
debate on how the... |
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1.15 Building an employment agenda: Working Out of Poverty
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| Employment, and the promotion of enterprise that creates it, remains
the most effective route to poverty eradication. The objective of full employment
is essential – an issue on which the European Union has given ... |
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1.9 Building local development through cooperatives: Working Out of Poverty
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| Participation and inclusion are central to a new approach to poverty reduction. |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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