Gayle Tzemach Lemmon
Gayle Tzemach Lemmon is author of the New York Times best-seller The Dressmaker of Khair Khana, which tells the true story of a girl whose business supported her family under the Taliban. A fellow at the Council on Foreign Relations, she is a graduate of the Harvard Business School. Find her on Twitter at @gaylelemmon.
Entrepreneurship seems to have become the silver bullet for a job-scarce, unemployment-saddled global economy still struggling to shake off recession. Around the world, leaders talk about how start-ups can create new jobs and lift regions out of poverty. But many entrepreneurs — particularly those in the world’s toughest economies — are still battling to secure the cash they need to launch and run their businesses.
In low-income countries, according to World Bank data in a recent paper by the consultancy Dalberg, 43% of businesses with between 20 and 99 employees say that access to finance is a major constraint. The White House has called this gap between the demand and supply of finance for small and medium enterprises a “market failure…[and] a serious constraint on efforts to promote strong and sustainable global recovery.”
This finance crunch means that many businesses can’t access the capital critical to expanding and creating the jobs that policymakers so desperately seek. This is particularly true for women entrepreneurs, who rarely hold land in their own names and often have a shorter history in business than men, both of which make them even greater risks in the eyes of most banks, despite the fact that there is no notable gap between men’s and women’s productivity when all other factors are equal. This funding deficit results in lost productivity and potential as businesses that have the customers to grow find they have few dollars to invest in the equipment or the talent that expansion requires.
Yet new breeds of solutions are emerging, with private and public players joining hands to find innovative answers.
Standing before a brown swathe of land cut up into rectangular ditches for a World Bank-funded project just outside Liberia’s capital city of Monrovia, George Howard is a beneficiary of one such innovation.
“For me, it has been a problem of finance until LEDFC,” he says, referring to the Liberian Enterprise Development Finance Corporation that offers Liberian-owned firms desperately needed small business loans. OPIC has pledged $20 million over five years for SME funding through LEDFC, with the Robert L. Johnson Foundation contributing $3 million to the facility. The effort got off to a rocky start, with few firms taking up the loans, but has since begun to offer more support services for entrepreneurs alongside slightly less stringent lending standards. These changes have led to entrepreneurs like Howard receiving the cash they need to achieve their dreams.
“I don’t care how much is in your head, if there is no money in your pocket and your bank account is empty, nothing will go anywhere,” Howard says. “For now, my business is much better, but it all boils down to finance.”
In December Goldman Sachs, whose “10,000 Women” program trains women entrepreneurs around the world, announced a partnership with the Danish government to provide loan guarantees to qualified program graduates through Tanzania’s CRDB Bank. The goal is “to develop sustainable banking products which are more accessible for qualified candidates and women in general.” The program is expected to expand from Tanzania to other countries later this year.
And at Harvard, the Kennedy School of Government’s Entrepreneurial Finance Lab is examining whether psychometric screening tools that judge for “entrepreneurial ability” and “honesty” could, when paired with sales contracts, convince more banks to lend to entrepreneurs. Further research is underway now.
Even non-governmental organizations, hardly usual allies for the private sector, are joining the wave of support for small business. In January, Oxfam announced it would team with the asset manager Symbiotics to launch the Small Enterprise Impact Investment Fund (SEIFF), based in Luxembourg. The goal is to raise id=”mce_marker”00 million over three years from development banks, commercial banks, and high net worth investors. Oxfam says it will put the money into local banks that will then lend the dollars on to small businesses that will in turn create “good quality jobs.” The focus at the outset will be on agriculture and women’s empowerment, with Kenya, Uganda, Tanzania and francophone West Africa part of the early pipeline.
“We wanted to do this because we recognize that small enterprises are a very significant engine for development; they create employment, which tends to be more sustainable and better paid than you would find in the more informal microfinance sector,” says Oxfam’s Nicholas Colloff.
A decade ago, Oxfam never would have dreamed of raising money from wealthy donors to create its own fund. But times have changed. Supporting small business — now more than ever before — is seen as a development imperative.
“Private finance or a blend of private and public finance has a role to play — a very clear role in social development — and if we can channel some of that money to what we call ‘impact investing’ that is a very good thing to do,” says Coloff.
Some microfinance organizations are also moving out of the purely micro and toward larger lending. The non-profit Kiva.org, which allows individuals to make microloans as small as $25, is talking to partner microfinance institutions about supporting their SME growth and exploring ways to back agricultural cooperatives seeking bigger dollars. The personal micro-lending site even plans to begin crowdsourcing SME loans in the range of $50,000 this spring. The goal, say Kiva leaders, is to offer SME owners even greater amounts of support — as high as $200,000 — once they have a sense of lenders’ reactions.
“Moving into the SME space represents an incredible opportunity to help channel capital to businesses that are creating new jobs, building communities, and invigorating local economies,” says Kiva’s vice president for marketing, Beth Kuenstler.
And for entrepreneurs like Howard — the millions of women and men in developing and emerging economies — that opportunity can’t be seized soon enough.
