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.

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

Zimbabwe: Rand Set to Prop Up Zim Dollar

The crisis in Zimbabwe is very depressing and shameful. Zimbabwe used to be the bread basket of South Africa. I just read this article on how the Southern African Development Community (SADC) will use the RAND to curb the high inflation rate in Zimbabwe.

However, President Robert Mugabe would first have to agree to fundamental political reforms in talks with the opposition Movement for Democratic Change (MDC) which are due to start near Pretoria tomorrow.

Read more from All Africa.

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.