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Finding financing for West African entrepreneurs


Access to finance is often the No. 1 obstacle to success for entrepreneurs in developing countries, where high interest rates and uninterested bankers meet firms that don't know how to meet the information demands of financing institutions.

Fonio, a West African staple, is increasingly demanded by US and European consumers. But without pre-processing finance, a fonio entrepreneur had no way to fill her export orders.Fonio, a West African staple, is increasingly demanded by US and European consumers. But without pre-processing finance, a fonio entrepreneur had no way to fill her export orders.Last year, Mariko Fadima Siby of Mali ran straight into this barrier. Companies in Europe and the U.S. wanted lots of her company’s fonio – a nutritious and tasty small grain. But without any way to pay for the raw material, she couldn't fill their orders.
This spring, a successful application to Root Capital allowed UCODAL, Siby’s company, to obtain pre-processing financing for up to US$75,000 at a time from Root Capital, a fund that seeks to achieve social impact through investment.

“Above all, this is a profitable business, it’s well managed and the finances are under control of the owner who has more than 20 years experience in this domain,” said Bamba Fall of Root Capital. “The company also has a huge impact on the women’s groups it works with.”

The application was facilitated by CATEK Groupe, one of three financial services firms subcontracted by USAID's West Africa Trade Hub to help entrepreneurs hurdle this obstacle. The firms work closely with selected businesses to prepare their proposals for review, including business plans and budgets -- a model that has worked well through the Macedonia Competitiveness Project's Financial Platform.

The timing is right. Overarching forces--rapid urbanization, increased consumerism and an increase in the number of working-age people in a larger middle class--are driving demand for expanded financial services, said bankers and financial experts at the 2nd annual African Banking and Financial Institutions Conference in Accra, Ghana, April 27-28.
The conference’s 40 participants included representatives from IFC, the African Development bank, the Bank of Ghana, Fitch Ratings, Standard & Poor’s, Ecobank Private Equity, Prudential Bank, CAL Bank, the Ghana Ministry of Finance, private equity and microfinance institutions, international consultants and other service providers in the finance sector.

Africa is the new frontier for investments. Benin, Cote d’Ivoire, Gabon, Ghana, Liberia, and Togo are finalizing membership and Nigeria, Senegal and Sierra Leone are in discussions to join the African Trade Insurance. The added security of ATI insurance for investments and trade transactions will boost assess to finance, said George Otieno, ATI’s CEO.
Non-bank sources of financing, such as private equity firms, are making important impacts where banks are not, financiers at the conference said.
Private equity firms can step in and take up stakes in businesses to free up capital for growth. The firms are highly sought after and receive many applications from businesses. Given that dynamic, it is up to exporting companies to make their cases, financiers said.
The USAID Trade Hub works with alternative financiers like Root Capital and Grassroots Business Fund to provide the financing that is missing from commercial banks and private equity firms.

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Published May 2011