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5.7 Meeting the needs of the entrepreneur: Enterprise solutions to poverty
Simply making finance available in the $10,000 to
$500,000 deal size was crucial to attracting the
interest of Ugandan and South African SMEs since
it had never been available before. But other
features were also designed into the model to
provide tailor-made support to entrepreneurs.
First, finance is offered in local currency rather than
US dollars – a feature of other SME funds that in
effect puts them out of reach of most SMEs.
Second, we try to offer finance in a form that suits
the particular needs of the SME client. Third,
collateral requirements are kept low by the ability
of the fund managers to lend against the business
plan as opposed to only lending to the value of the
assets the entrepreneur can pledge as security.
All together now: finance, business
support and risk assessment
But perhaps the most important and innovative
feature of the Foundation’s SME investment funds
is that appropriate finance and BDA are jointly
provided to clients via the fund manager.
Elsewhere, these are provided separately with
entrepreneurs picking up business advice where
they can from people usually not experienced in
business and in a form that is not useful to their
specific needs and interests.
The concept embedded in our funds, is that the
managers work first with the entrepreneur to
develop a robust business plan. During this, the
managers develop an understanding not just of
the competence of the entrepreneur but of the
particular package of finance and ongoing
technical and BDA that will be required to ensure
the profitable operation of the enterprise.
So the manager, while applying rigorous financial
criteria, can base his risk assessment not just on the
value of the collateral but on empirical insight into
the prospects for success of the business. So in
effect, lending decisions are based on the business
plan rather than the value of recoverable assets. And
once the deal is completed this means there is a
plan of ongoing assistance, tailored to the needs of
the entrepreneur as he/she enters the most difficult
stage of any business – start-up and early operation.
As our results show, this aspect of the model –
though it has had to undergo adaptation to get it
‘right’ – lowers risk considerably in the portfolio,
imparts valuable training even to those SMEs that
don’t get offered finance, and provides a useful
vehicle for local banks to learn about the SME
sector, thus changing their own perception of risk
regarding the sector.
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6.3 Come Together: Enterprise solutions to poverty
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