Expert views

Bringing global finance to small businesses

25 September 2019
Ndeye Thiaw, Brightmore Capital, Senegal

Facilitating SMEs in West Africa through impact investment funds

Fledgling businesses in Francophone West Africa need nothing so much as access to financing in order to grow and thrive. Their problem in many cases is twofold: finding a knowledgeable, affordable source while wading into unfamiliar loan and credit processes.

Local banking procedures might be opaque or strewn with red tape, while accountability and collateral demands create new headaches for managers struggling under their day-to-day workload.

Meanwhile, those reviewing applications from small and medium-sized enterprises (SMEs) in the region face a daunting task to identify worthy prospects by traditional means.

It’s hard to find SMEs with established credit profiles. High default rates and uneven record-keeping are the general state of play. Data on the condition of local markets and comparable businesses might be spotty or non-existent, making decisions more difficult and time-consuming.

Put the two together and the results are nothing short of dismal. Just 1% of applicants win approval and 80% of new businesses in the region fail within the first five years. Potential angel or green investors could be forgiven for shying away, while entrepreneur pitches could fall on deaf ears no matter how economically stimulating or environmentally sustainable they are.

The solution, as we see it at Brightmore Capital, is making the process more transparent at both ends of the financing process while delivering an outcome that generates growth and conforms with the United Nations Sustainable Development Goals (SDGs). We’ve identified eight specific SDGs likely to align with our intended targets: Our investments – in at least a dozen companies – will be made across the economic spectrum, including the agricultural and food value chain; financial inclusion; renewables and clean technologies; and essential services. We want to nurture high-potential SMEs and start-ups with the end goal of transforming them into effective enterprises in a region with a growing base of 130 million low- to middle-income consumers.

However, intentions won’t translate into success without proper tools. Developing customized applications can simplify due diligence, bypassing the business-plan model.
Local incubators, agencies and trade and investment support institutions (TISIs) can offer workshops on standards, best practises and investment readiness. A tracking system could provide early-stage data to identify leads while creating a network of contact points on a country-by-country basis.

Once identified, we believe the best way to understand a prospect’s potential for growth is to show them we share and understand their passion. We try to treat them how we would wish to be treated by respecting confidentiality; being approachable; being candid; and seeing the challenges they face through their eyes.

Once a SME is ready to move forward, Brightmore Capital is ready to help with a range of financing options, such as issuing shares or convertible debt. These solutions provide working capital for growth and investment, allowing a budding business owner to expand while basing repayments on future cash flow projections. We provide initial investment packages as low as 150,000 euros ($165,000) while many financiers only offer minimums in the millions of euros.

Crucially, Brightmore also provides multi-stage financing, an ace in the hole for any new business. Growth by a SME often requires larger financing rounds to sustain it as it enters new markets or develops new products. However, raising additional rounds of adequate capital in a timely manner can be difficult as investment funds flow less freely in emerging markets.

We position ourselves as local investors providing growth capital to SMEs that reach set milestones. We believe in living, breathing and embracing diversity every day, all day, with a special emphasis on our local presence. By doing this we work to promote trust and encourage others to become trustworthy intermediaries.

We also seek effective partnerships with local investors and financiers to help broaden the scope of available options while engaging with support networks across Africa and beyond. Gaining commitments from limited partnerships, a kind of fund investor, is essential to financing more local intermediaries in developing and frontier markets. The use of every available option is required to make our vision a reality.