Financial and technical support to inclusive and innovative companies
This is an article published in the 2017 edition of the Netherlands-African Business Council (NABC) magazine, examining the ‘Innovations Against Poverty’ Fund managed by SNV.
Dutch NGO SNV manages the ‘Innovations Against Poverty’ Fund from 2016 to 2020. Entrepreneurs in Uganda, Ethiopia, Zambia and Cambodia can apply for grants in case they have a promising and inclusive business model, but lack funds to start the business.
SNV, one of the most experienced and well-known nongovernmental organisations in the Netherlands, is very excited about this program, which is in cooperation with the Swedish International Development Cooperation Agency, Sida. Javier Ayala, the energetic, Cambodia-based fund manager sat down with NABC during a brief visit to The Hague to discuss his hopes and expectations for the program. “The companies we want to invest in should have innovative business ideas with a strong focus on social impact,” Ayala emphasized. “But at the same time, they should also be fully commercial and highly profitable, so that these solutions are sustainable in the long run.”
SNV is aware of the risks involved with innovative inclusive business initiatives. “This is indeed unknown territory for the entrepreneurs. But that is why we are a challenge fund; so that we share the risks embedded in these initiatives by providing a mix of financial and technical support. Companies we support should focus on one of the four target sectors: Agribusiness & Food, Energy, ICT or WASH.”
When asked why SNV has decided to become a bank, Ayala laughed. “No, we are not becoming a bank. We are still an NGO and we still have the same goals we want to accomplish. However, we see that the private sector can be a vehicle to reach our goals. Therefore, we believe in market-based solutions as an effective approach to development.”
Cooperation with Financial Access
Innovations Against Poverty (IAP) is not the first funding mechanism SNV operates. SNV is also involved in a program called hortIMPACT which co-invests in business plans of Dutch and local enterprises that strengthen the horticulture sector in Kenya. For programs like this, SNV usually cooperates with companies that have a lot of experience in the finance sector. In East-Africa, SNV has teamed up with Financial Access, a specialist in financing businesses in Africa and Asia.
Difficulties with financing innovations are a worldwide phenomenon, according to Jan Cherim, Managing Partner of Financial Access. “If you enter a bank with a wild idea and a business plan, chances are high that you won’t find the loan you are looking for. Innovative plans have always struggled to secure loans because traditional banks simply find the risks of start-ups or untied approaches too high. That is where Venture Capital (high-risk capital) comes in. So programmes like IAP are very important as an enabler for innovative businesses,” he said.
SNV and Financial Access cooperate in Uganda, having previously joined forces during a programme in Indonesia. “For us, this is a fruitful cooperation. SNV, as an NGO, helps co-operatives and small farmers to improve their organisation and farming practices. Professionalising their approaches makes it easier for us to finance them. This cooperation makes both of us stronger,” Cherim said.
The Innovations Against Poverty (IAP) program has been operational since 2010, but was previously managed by a private company. Innovative enterprises like a food company in Madagascar, a water bottle project in Tanzania, a mushroom farm in Uganda, and an edible insects breeding industry in Kenya have been financed. SNV’s Javier Ayala has gained quite some experience dealing with experimental inclusive business initiatives in several markets. “We managed to support a company to start producing LED-lights that were affordable enough for low income customers; nowadays they serve millions of low income people with these products” Ayala said. “I am convinced that this would not have happened without the initial investment we supported them with.”
The new IAP program will run in four countries: Uganda, Ethiopia, Zambia, and Cambodia. That is what it is all about, Ayala stresses. “Certain innovations would also have come up without our help. However, I think it is good to support the ‘first movers’ in certain fields. Otherwise these innovations would come to the market much later. Or, for example, it would only be targeting the high-end users, leaving the poor behind. It is all about the business and social impact, after all.”
The first call for concept notes for Innovations Against Poverty is expected in February, during a 4-month window. Funds vary between €50,000 and €200,000, where at least 50% of the investment should come from the private sector.
This article was initially published in the 2017 Netherlands-African Business Council (NABC) magazine.