Meso Finance: the next area of financing for SME's in Africa

There's been a lot of talk on micro-finance and it's impact with the base of pyramid market (BOP). Dr. Muhammad Yunus's non-profit Grameen bank was the first to commercialize micro-finance in Bangladesh, now everyone from Latin America, India and Africa are copying this model. Micro-finance works well and helps the improvished and especially women sustain a living.

However, there is a flaw is micro-finance. Micro-finance as the name suggest, is about utilizing small amounts of financing usually $50 to $500 or start a small business. But what if your a farmer in rural Mali, Sudan, Zambia, or Kenya who has hundreds of plots of land and you need heavy machinery to till, or sow your land? Where do you get financing to purchase a Kubota, John Deere, or Caterpillar equipment? Micro-financing is simply not the solution in this case, farming equipment on average costs about $30,000 to $500,000.

The type of financing needed in most developing markets is in the small medium enterprise space (SME), another name for this type of financing is called Meso-Financing. Meso finance is above micro-finance and below traditional finance like; bank loans, and venture capital. Meso means middle and most aspiring SME's fall into this category. There is now a small movement under foot to harvest funds to finance and help the SME market.

I belong to the DC chapter of International Private Enterprise Group (IPEG), and we had our monthly event Aug 2 at the World Resource Institute (WRI) about meso financing. Ricardo Teran and Ben Powell spoke about how their non-profit Agora Partnerships helps entreprenuers in Latin America with Meso-financing. They are so successful that entrepreneurs are making money, hiring more workers and changing the mind-set of doing business in Latin America.

I myself, am involved with starting a Meso finance fund for Africa. In the next few months I will give you an update on what the fund will be doing and who I'm working with in establishing this fund.

Infrastructure investment opportunities in Africa

Many in development ask themselves, "how can Africa grow", or "how do we alleviate poverty in Africa"? The quick answer to all that is investment in some form of loans, aid and so on, and so forth. However, let's remember that great civilizations such as; Roman Empire, Greeks, Egyptians, and Incas grew by infrastructure. Infrastructure is key in linking people, places, things, and most important commerce. Commerce is the lifeblood in any civilization, this lifeblood enables farmers to grow crops and be able to transport their produce thousands of miles. Kenya is a good example of this, farmers are transporting flowers to be sold in the European market.

What Africa needs right now is multi-billion dollar investment in the following infrastructure: railways, and roads. I didn't mention telecom, because to have fiber optics you need roads to build the fiber network. This fiber is what is needed if Africa is going to take that leap in Information Technology Enabled Services (think Outsourcing/BPO - ITES).

People reading this post will ask, "how can Africa afford all this". I wrote two months ago about how the Chinese use a process called full-cost recovery to recoup the cost of any public works project. When a highway is built, the Chinese levy tolls to recoup the costs of the road. Tolls pay for the cost of the roads faster, then raising public taxes to build and maintain the road. Read this post I wrote in June.

China's infrastructure investment could have a very positive spin-off in lowering transaction costs and assisting African governments to address social calamities such as poor health services, energy crisis, and skills development among others.

China: Africa’s Friend or Foe?

Why China is making headway in Africa

Africa has suffered under the structural adjustment programs forced upon it. Aid and trade have been increasingly conditional. The US and World Bank claim to be fighting poverty in Africa, but after two decades of structural adjustment, the conditions of the African poor have worsened, with indices of exploitation and deprivation increasing by geometric proportions. According to one estimate, at the present pace of investment in Africa from the West, it will require more than one hundred years to realise the Millennium Development Goals. Chinese investment potentially provides an alternative for African leaders and entrepreneurs, while providing long term potential for the development of African economies.

Read more from African Executive

End trade barriers, says Cameron

Reposted from BBC Africa

Tory leader David Cameron has called for an end to trade barriers that put developing countries at an "unfair disadvantage", during a trip to Rwanda.

He said all rich countries should end trade tariffs unilaterally and British aid spending should be speeded up.

Launching a policy group's report on global poverty, he said trade rules were "immoral".

The group's proposals, which may or may not be adopted as Tory policy, include making aid spending more "transparent".

In a speech in Kigali, Mr Cameron called for an immediate end to trade barriers, saying: "Forget the endless tortuous negotiations about getting something in return.

"Just do it. We can afford it, Africa needs it, and we will all benefit from it."

Read More Here

Does the BOP address wealth creation?

C.K. Prahalad's book, Fortune at the Bottom of the Pyramid, The: Eradicating Poverty Through Profits is a great book with many opportunities for global companies who are trying to reach the 4 billion humans living on less than a dollar a day. The BOP (Bottom of the Pyramid or Base of the Pyramid) has enabled a new thinking among people in the development field, and has business schools re-writing their curriculum to adopt some practices from Mr. Prahalad.

As great as the BOP is, the current theory about the BOP is a little flawed in that it does not really address the most important issue in development - how can the poor make a sustainable living in emerging markets? I was discussing this issue with a colleague of mine, Dr. Reuben Abraham. Reuben is with the Cornell University’s Center for Sustainable Global Enterprise at the Johnson School of Management and a visiting faculty at the Indian School of Business (ISB) in Hyderabad. Speaking with Reuben we both agreed the theory behind BOP is great for companies who are trying to reach a underserved market, it is also good for the 4 billion at the bottom of the market to buy smaller quantities of a product they normally couldn't buy. However, how can we enable the poor to generate income and make it a sustainable revenue stream?

In CK's book he does give some examples of how Proctor & Gamble and Coke help entrepreneurs with making a living. In one example in the book, Coke supplied refrigerators to vendors as long as they use Coke products and P&G helps with logistics in India. Reuben even told me that the best selling product made for the BOP market in India is a skin-bleaching cream. This cream is so popular for this consumer-products multinational it is marketing this product and people are lining up to buy it. When I heard this I thought of my own country of Ghana...people to this day, try to bleach their skin and don't know the health implications of such actions.

Speaking with Reuben, we came to the conclusion the best way to help the world's poor is through investment and micro-financing. Reuben is a Cheetah that is doing some great things; he serves on the global board of directors of George Soros’ Economic Development Fund, a $140 million fund which is involved in catalyzing growth in emerging markets. He founded and runs the International Private Enterprise Group (IPEG), a New York based network of professionals, which promotes the role of the private sector, capital markets and technology in catalyzing economic development in emerging markets.

When you get a chance check out his blog: ZooStation

George Ayittey conversation about a Cheetah sustainable fund

George Ayittey & Bono

I had a wonderful conversation with George Ayittey last friday about the recent TED conference in Arusha, Tanzania. I have profound respect for George because he is a old-school pragmatic thinker. Dr. Ayittey is trained as an Economist, but he doesn't talk like most Economists who talk about Africa such as Jeffrey Sachs or others.

During our 30 minute conversation about the TED conference, George asked, "so Nii how do we get you TED Cheetah's to contribute to African development"? I thought about it for a second and said, "I would be nice if TED sponsored fellows to their respective countries to use their professional work experience to help a business for a month or so. I heard a pause, and George said, "well that is nice, but what about a fund, called a Cheetah Fund that is sustainable was set-up to help TED fellows or other African Cheetahs with funding for their respective businesses".

Wow, I said to myself, how come I didn't think about this before. African chiefs have been using this system for centuries before colonialism, we just have to go back to some of our indigenous roots. George mentioned that the fund would be sustainable by having the Cheetah's repay the fund the amount giving to him or her, this way the fund would be sustainable.

In Africa, before there was European colonialism, African tribes taxed each other to fund small-scale businesses. If a business would fail that tribe would pull it's resources together to help that particular business. African countries had these types of systems in place years before any Wall Street Hedge Fund, or a Silicon Valley venture capitalist like, Kleiner Perkins Caufield & Byers (KPCB) were around.

We as Africans have to be progressive with our future and start addressing African opportunities. This Cheetah Fund is a good start to address African opportunities.