Innovative Investment Structures for MSMEs in Sub-Saharan

Africa

Introduction
Context: An overview of the financing challenges faced by MSMEs.

Main argument: One of the most crucial challenges faced by MSMEs

in Sub-Saharan Africa is lack of access to adequate funding, with
conventional lending platforms like banks being apprehensive about
lending to businesses in the MSME sector. An effective solution to
this situation is to explore innovative financing solutions that do not
keep these businesses in a vicious lending cycle, while at the same
time providing value for the lenders who invest in these financing
solutions.

Brief Summary: A quick overview of the solutions that will be offered

in the article.

Body
Solution #1:
 Overview:
1. Benefit for MSME businesses.
2. Benefit for financier.

Solution #2:
 Overview:
1. Benefit for MSME business.
2. Benefit for financier.

Solution #3:
 Overview:
1. Benefit for MSME business.
2. Benefits for financier.

Solution #4:
 Overview:
1. Benefit for MSME business.
2. Benefit for financier.

Conclusion
Recap: A brief summary of the main points.
Success Story: A case where one or more of the solutions discussed in
the article have been successfully implemented [preferably an
African or Asian country].

Projections: Identify and point to how financing and growth of the

MSME sector will facilitate economic development and improve GDP
in sub-Saharan Africa.

NOTES

Suggested ideas for the development of MSME in sub-Saharan Africa.

These are based on the identified requirements/needs for that segment of
the economic environment which when cured will have tremendous impact
on economic development and growth of many African countries. It will
also change positively the poverty level which currently stands at more
than 40% for most of the African countries.
As stated, financing MSME requires the understanding of their structure
and needs. Most of them are unstructured, undeveloped, rudimentary, little
or no skills, lack governance and financial structure, etc.

Hence, a financier must identify the challenges of MSMEs and what they
need or require to succeed.
1. There is usually the Incubation stage in most of these businesses

2. Operators/players have been mostly peasants whose focus had been

for subsistence in farming, artisan, small services, small producers,
traders, etc.

3. They need basic infrastructure of roads, water, power, etc.

4. They require training and hand holding (teaching) – Capacity

building, Succession Plan

5. They need structure for operations, governance and finance

6. They need to acquire technical skills and or skills improvement in
operations, financial understanding, technology etc.

7. They need access to information, innovation and encouragement to

“think outside the Box” to understand and deploy new ideas and
ways to enhance the quality and delivery of products and services.
8. They need supportive legal framework and policies from
governments that will encourage production and minimize losses
and challenges that sometimes serve as discouragement.

9. It is not a ‘One cap fits all” situation. Each have peculiar challenges
by reason of nature and type of the business, location, demography
and culture (age, sex, etc.)

10.FINANCE

a. Suitable and easy to access finance – government, banks and

other FIs, Special or dedicated funds, donor agencies and
grants, public private collaboration, etc.

b. Low Interest rate

c. Flexible structure that allows for extended period of

repayment

11. MSME is perceived as high risk for both the players and financiers
this has hindered willingness of financiers to make funds available.
Therefore the need to reduce the inherent transaction risks that
affects MSME businesses – in production, sales, costs and
operations.
SOLUTIONS
A. Appropriate and supportive Legal/Regulatory framework

B. Strengthening financial information

C. Infrastructure development

D. Effective government support mechanism

E. Broaden the range and rich of financing instruments – not hinged on

collateral and stringent condition

F. Equity Funding – Financier becomes a stakeholder and part of

decision making, playing supervisory and advisory roles. Shares in
the risk and reward.

G. Pool funding/Crowd funding including Bonds arrangement

H. Capacity Building

I. Cooperative Financing
 J. Apprenticeship/Seed Capital arrangement – Traditional Igbo
economic business development structure

K. Corporate governance, structure and reach – Social investment to

alleviate the suffering of the people and free their income for more
productive ventures and business. – TraderMoni, etc.
L. Technology deployment.

The above solutions could be grouped in Direct and Indirect Financing

arrangements

Direct Financing Indirect Financing

Excluding Seed capital from savings, family and friends Incentives that reduces borrowing pressure or loss of borrowed
funds

 Direct Borrowing from The business is  Infrastructure Provision This will reduce the cost
banks and financial weighed down by – Roads, Electricity, incurred by the business
institutions cost of borrowing Water, Security, in providing such
and commercial transportation infrastructure for itself.
terms including short
tenors and short term For some business
expectation for categories, they could be
returns set up in Clusters

 Direct borrowing from Most times the funds  Technology and Helping the MSMEs
Government agencies does not reach the Information access latest technology
and specialized banks intended target. and information that
and institutions could lead to innovative
Some of the ideas and processes in
programs have little production, packaging,
impact on the sales, etc.
MSME business as
the funds are This creates a better
pressured for use in background for
meeting other needs increased output than
of the business only cash funding
owner.

 Lending to Cooperatives They are  Training and Capacity Helping the business to
for on lending to MSME individually and Building build the necessary
collectively held structures and
accountable but capacities/skills that will
could be affected by help sustain their
the terms from the business. Technical and
lending organization. financial skills,
management skills, etc.
 Equity Participation Share in the risk and  Legal Framework and The Compensatory or
reward. Partake in Government Policies Guaranteed Pricing
managing, providing and programs. serves as an assurance
advisory and that MSMEs will receive
supervisory inputs. It Public Private compensation for any
makes the MSME to collaboration where loss incurred as a result
focus with minimal Companies are made to of drop in the market
pressure for contribute 1% of Gross price of its products.
repayment. Profit to a pool. The will
be used for support The guaranteed off
Compensatory or takers is using buying
Guaranteed Pricing. agencies to mop up
outputs. This will help in
Guaranteed Off Takers the drive to set up new
businesses for further
processing and or
marketing of the outputs
of the MSMEs.