Today at the SAM (Semaine Africaine de la Microfinance) conference, Laura Foschi of ADA addressed the question of “how to support enterprises as they make the transition from micro- to small and medium-sized.”
Rebecca Rouse of Innovations for Poverty Action (IPA), described how randomized controlled trials can help determine “how can we best create value, spaces and opportunities for small and medium-sized enterprises (SMEs) and SME growth.” For example, evaluating the effectiveness of a business training program is much more enlightening when the outcomes of the graduates can be compared to those of a control group. If the graduates were to experience a 10-percent contraction of their businesses, it would be very helpful to know that difficult economic conditions resulted in a 20-contraction among the control group.
In her work, Ms Rouse has identified improved managerial practices and more favorable contract terms as key needs of SMEs. Meanwhile, IPA has measured significant impact from interventions such as business plan competitions, facilitating the initiation of exports and replacing cash support with the provision of in-kind services.
Matthew Gamser of the SME Finance Forum, which is managed by the International Finance Corporation, argued that the biggest changes in SME finance are happening with data. As SMEs shift away from cash and start to engage with suppliers digitally, they leave data trails that help lenders evaluate their creditworthiness. The improvements include both more timely information than was previously available as well as the ability to easily monitor the health of the borrowing firm after loan disbursal. 2017 is the first year during which there is more such data available from emerging markets than from rich countries. As fintech (financial technology) firms rise, Mr Gamser views most as potential partners to existing financial institutions rather than competition. “The real power is in combining fintech and financial institutions,” he said.
Kimanthi Mutua of the K-Rep Group cited the importance of movable collateral registries and government financial inclusion policies and goals. As challenges, he cited corruption as well as competition from low-cost imported goods. He also cited a shift in focus from microenterprise lending to consumer lending. To stay relevant as well as focused on their social mission, he envisions more microfinance institutions lending for water and sanitation, clean energy, and agricultural processing.
This feature is part of a sponsored series on the third SAM, which began on October 9 in Addis Ababa. It is organized by ADA, an NGO based in Luxembourg, with the support of Luxembourg’s Ministry for Development Cooperation and Humanitarian Affairs, in partnership with Microfinance African Institutions Network (MAIN), African Rural & Agricultural Credit Association (AFRACA), African Microfinance Transparency (AMT), the Association of Ethiopian Microfinance Institutions (AEMFI) and Kenya’s Association for Micro-finance Institutions. MicroCapital has been engaged to report on-site from the event.
Sources and Additional Resources
2017 SAM Conference
Coverage of the 2017 SAM in Addis Ababa and the 2015 SAM in Dakar by MicroCapital