SMEs in Least Development Countries are not a risk – they’re an opportunity
The Fifth Union Nations Conference on Least Developed Countries (LDCs) happened between 5-9 March in Doha, Qatar. FCA Investments hosted a high-level event with the governments of Somalia and Finland, in partnership with Accenture and in cooperation with the UN Capital Development Fund.
“This is not charity we are talking about – often it is the entrepreneurs that are taking the largest risk, not the investors.”
So said the opening speaker, Somalia’s Minster of Finance, Dr. Elmi Nur at the panel, which looked at how to scale support to sustainable, growth-oriented small to medium-size enterprises (SMEs) in LDCs*.
He stressed the close partnership between Somalia and Finland, emphasising the need to realise SME potential to be an engine for LDC economies.
Following on with the event keynote, former President of Finland Tarja Halonen also highlighted the potential of a sustainable private sector to provide for greener growth, decent jobs and the opportunity represented by female entrepreneurs.
“Women’s economic empowerment boosts productivity and increases economic diversification and income equality. Economies with high women’s labour force participation rates are generally performing well,” she stated.
Businesswomen take the floor
Underlining Ms Halonen’s point, two businessowners – Rose Namayanja, CEO of Kande Poultry Farm in Uganda and Leila Omar, CEO of SolarLandAfrica – took the floor to share their personal experiences building and growing an SME.
Ms Omar, whose company builds large roof- and ground based photovoltaic solar/wind power plants and solar systems for remote homes in sub-Saharan Africa, related how difficult it is to find the specific skills needed for her SME. However, with targeted training and recruitment, her company has been able to advantage both the business and local people.
“The community welcomes us because we provide sustainable energy and we offer potential jobs and training for youth,” she shared.
Meanwhile, Ms Namayanja’s poultry farm has overcome the common SME problem of attracting investment by working hard to attain sustainability certifications and improving their financial and management processes.
“The challenges in Uganda and many LDCs is lack of affordable financing and the fact that agribusiness enterprises are looked at as risks. We’ve worked with FCA Investments for some time and been helped by service-backed loans,” she said.
FCA Investments aims to make funding and skills available for economically viable and environmentally and socially responsible companies, like Ms Namayanja’s enterprise.
A key bottleneck preventing the growth of sustainable SME-sector in LDCs is the shortage of investment-ready companies. FCA Investments act as an impact investor, offering management and capacity building services as well as financing options, such as Kande Poultry Farm’s service-based loan.
FCA Investments CEO Jukka-Pekka Kärkkäinen, recalled his experiences at the panel as an entrepreneur in Tanzania. He and fellow entrepreneurs often needed to be an expert in wide areas such as accounting, financial management or marketing. In contrast, in countries like Finland, these services can be efficiently purchased from service-providers.
“Increasing innovation and competitiveness is key. You want to focus on your ‘go to market’ strategy’ – that’s why looking to others for the transactional and administrational side of the side is a good idea.”
The promises made by SME-entrepreneurs, like Rose Namayanja and Leila Omar, can be significant to their countries. Their successes relate to job creation, environmental sustainability, transparency and paying of taxes. But more than that, they work towards the future of the youth, anti-corruption, renewable energy and food security, By assuming the greatest risk in developing their businesses, the entrepreneurs take the fulfillment of the promise on their own shoulders.
*The term “Least Developed Countries” is the only country group in the UN that has a legal status and countries must apply to be granted the status. Being an LDC entitles countries for benefits that other countries do not enjoy in development financing, multilateral trading system and technical assistance.
Finn Church Aid’s (FCA) investment company FCA Investments Ltd (FCAI) has committed a $1 million seed investment to Ugandan fintech Ensibuuko, which currently provides digital financial services to over 200,000 rural customers in Uganda. The commitment was announced on April 30 in Kampala.
The funding is going towards increasing financial inclusion in rural communities in Sub-Saharan Africa. Ensibuuko will also gain access to FCA Investments’ technical resources and a global network of partners allowing it to build internal capacity and to establish strategic relationships across the region.
Ensibuuko operates a proprietary microfinance platform developed for Africa’s credit unions (SACCOs) and savings groups.
“I commend Ensibuuko for its focus on growing customer value and commitment to facilitating last-mile financial services. Their vision of unlocking opportunities for communities is well-aligned with our values at FCA Investments,” says Emmanuel Obwori, the Chief Operating Officer of FCA Investments.
FCA Investments seeks to leverage the power of long-term finance to unlock opportunities for underserved communities and boost job creation in developing countries by investing in impactful and scalable Small and Medium-sized Enterprises.
The “impact-first” investment firm has already made several investments in high-growth, impact-driven businesses in Asia and Sub-Saharan Africa, including Uganda, and most recently in Somalia. Ensibuuko is the first fintech investment to join its portfolio.
With this new investment, Ensibuuko ups its competitive stance in Africa’s fintech space.
“We thank FCAI for this funding which will allow us to scale rapidly in Uganda and expand to other markets. This new raise brings total investments in Ensibuuko to $1.6 Million, having closed a pre-seed round in 2017 from a group of Canadian angel investors,” says Ensibuuko’s Founder & CEO, Gerald Otim.
Empowering rural communities through financial inclusions
FCA Investments and Ensibuuko have an ambitious target to increase financial inclusion by scaling rural banking infrastructure and digital financial services to millions of customers in Sub-Saharan Africa
Since its launch in 2014, Ensibuuko has developed digital products and services for SACCOs and savings groups and built the infrastructure that connects them to the wider ecosystem of financial service providers, including telecoms, insurance and banks.
The fintech deploys technology solutions to community-based savings and loans organizations, so they can efficiently reach and serve unbanked and most underserved communities in Africa with affordable and relevant financial services.
Their proprietary microfinance solutions help these organizations to automate data, process payments and become efficient and bankable.
Ensibuuko intends to make major improvements to its newer digital loan and micro-insurance products, which target rural customers. They envision a world where everyone has access to relevant and affordable financial products and services.
Ugandan Emmanuel Obwori, 40, has founded and run five different businesses during his lifetime, all of which have been successful. Now he has a job that no one in Finland had done before January 2019.
In the autumn of 2018, when Finn Church Aid became the first humanitarian organisation in Finland to found its own investment company, FCA Investments, taking the position of investment manager was a natural decision for Emmanuel Obwori.
Obwori has always had a knack for business.
Born and raised in Ugandan capital of Kampala, Obwori first became an entrepreneur at age 16 while on summer holiday from school.
”Back then, my father worked for Sony, and one day he brought home a computer. At the time, computers were still very rare in Uganda. At first, I used it to play games, but then it occurred to me that I could teach other people how to use it as well. I started giving computer lessons on my parents’ balcony for a small charge.”
Obwori used the money he made from the computer lessons to buy baking supplies and started baking sesame cakes.
”The neighbourhood children coming home from school were always looking for something to snack on. I made quite a lot of money selling the cakes. My parents ended up being angry with me because I focused more on my business ventures than I did on schoolwork,” Obwori laughs.
Later, Obwori became an assistant in a computer hall near his university. When the elderly man who owned the hall wanted to retire, Obwori persuaded him to sell the hall to him on credit, with Obwori paying him back once the business would become profitable.
”I soon noticed that children and young people were mainly interested in computer games, so my younger brother and I turned the hall into a gaming arcade. It was one of the first gaming arcades in Kampala and is currently the biggest in the city. My younger brother still runs it.”
Obwori sees a great deal of unexplored potential in combining traditional development cooperation and sustainable investment.
”Most people think of this as a zero-sum game; you either work for a non-governmental organisation or for the private sector. In fact, the two complement each other. Non-governmental organisations are good at providing emergency aid: delivering food, shelter and drinking water as well as offering education and immediate income support. But if we leave it there, the recipients of aid will depend on our support for the rest of their life.”
Finn Church Aid’s investment company invests in small and medium enterprises in developing countries in order to offer people work and an income even after aid organisations have left the country. As an investment manager, Obwori’s job is to seek out and assess potential enterprises.
”We choose the entrepreneurs and businesses that already have the biggest positive impact on their communities. We invest in these businesses to help them grow and employ more people. This way, these businesses lift the community out of poverty for good.”
Text: Elina Kostiainen
Translation: Leena Vuolteenaho
There is a desperate shortage of decent jobs in developing countries. Finn Church Aid’s (FCA) investment company responds to this need by introducing a new tool to Finland’s development policy.
Finland will invest EUR 16 million in small businesses that create jobs through FCA Investments Ltd, a new company established by FCA. The investment is made in a form of a loan and, according to the terms and conditions of the loan, assets will be paid back with interest to the State of Finland in 18 years with profits from investment activities.
At the initial stage, FCA Investments Ltd will invest in business activities in Asia and Africa through two funds. The company will also start to make direct investments.
“The lack of moderately priced financing in developing countries is a key obstacle to setting up businesses that create jobs. The new company can support promising businesses’ growth potential in cases where their activities are still too small-scale to interest traditional development finance companies,” says Minister for Foreign Trade and Development Anne-Mari Virolainen.
FCA Investments is planning to make direct investments of EUR 0.1 –1 million. Traditional development finance companies seldom make investments that are under one million euros because the administrative costs of small investments become too high in relation to the investment made.
Making small investments is worthwhile for FCA because at the initial stage it will use also other resources to support the financing of businesses. It can support them, for example, in matters related to the management of finances, business planning and marketing.
Compared to other similar actors, FCA Investments benefits from the fact that Finn Church Aid has staff on location and they have experience from countries in which investments will be made,” says Executive Director Jouni Hemberg from FCA.
FCA Investments is planning to make its first direct investments in Uganda in Eastern Africa. In addition to Uganda, FCA will probably make direct investments also in Somalia, Kenya, Jordan, Nepal, Myanmar and Cambodia. In some of these countries the operating environment is clearly more challenging than in Uganda.
“Work and sufficient income are the only way to achieve sustainable peace. By providing loans for vocational training and small businesses we can lift people out of poverty. We believe that the private sector will play a key role in providing support also to the poorest countries,” says Hemberg.
Jouni Hemberg, Executive Director of Finn Church Aid, tel. +358 50 325 9579
Max von Bonsdorff, Director of Unit for Development Finance and Private Sector Cooperation, tel. +358 50 344 1014
Juha Kirstilä, Special Adviser to Minister Virolainen, tel. +358 40 552 8200
Fact: a loan with interest to Finn Church Aid
The loan to be granted to FCA is a so-called development policy investment. Previously, development policy investments have been made in the Inter-American Development Bank (IDB) (EUR 9.2 million), Finnfund (EUR 130 million) and the Finland–IFC Climate Change Program (EUR 114 million).
The interest for the loan is 0.5 per cent, and FCA will start to pay the interest in 2019. The loan period will be 18 years and the loan capital will be repaid in four installments.
More information about development policy investments on the website of the Ministry for Foreign Affairs at: um.fi/kehityspoliittiset-finanssisijoitukset