ANDE published its State of the Small and Growing Business Sector report for 2019 this week. With all the challenges, changes, and turbulence caused by the COVID-19 pandemic, it was great to read a report highlighting all the progress that’s been made in the past year to support SGBs. According to an ANDE survey of 488 SGBs in March-April 2020, 50% rated receiving technical assistance to access relief funds and pivot their business as ‘extremely” or very” important to their survival and recovery. This makes the work ANDE members, capacity development providers, investors, and donors alike, ever more essential in the coming weeks and months. With this in mind, we thought we’d highlight some of the positive findings of the report to inspire us in moving forward.
- Capacity Development Providers added value in 2019 at a median cost of US $4,881 per enterprise or entrepreneur, having supported over 190,000 SGBs in the year. But these providers have needed significantly scaled back operation because of COVID with 34% of ANDE members reporting they have downsized their operations.
- Providing tailored one-on-one support and mentoring services are growing in their importance and use by capacity development providers. Roughly 75% of ANDE member providers combine classroom training with personalized mentoring and consulting services.
- SGB-inclusive Investing is still on the rise. There were 85 new SGB-focused investment vehicles launched in 2019 with an average AUM of $35 Million USD. 75% of these new vehicles take a sector-agnostic approach with the ICT sector being the most popular focus for sector-specific funds (54%).
- There are major new players focused on providing catalytic capital, defined as investment capital provided to support creating the necessary infrastructure and markets for SGBs to more easily access return-seeking investments. It is patient, risk-tolerant, concessionary, and flexible. For instance, 2019 saw the creation of the Catalytic Capital Consortium, a partnership between the MacArthur Foundation, Rockefeller Foundation, and Omidyar Network, and an African Development Bank $270 Million USD fund investing in the intermediaries that finance social businesses.
- More investment vehicles are being managed locally in the same markets in which they are investing. 53% of managing organizations in 2019 are based in the emerging market, but sub-Saharan Africa still lags behind with only 30% of organizations investing in the region being headquartered there. All in all, though the growth of locally headquartered and managed investments is positive since it is these networks that are best positioned to identify the highest-impact opportunities.
- Investors are still favoring anglophone West African SMEs to their Francophone counterparts. Nigerian SMEs, for example, raised $377 million in 2019, more than twice that of 2018 ($127 million), yet francophone West African SMEs experienced a decline in startup funding over the same period.
- Impact Measurement and Management (IMM) is still a key challenge and priority for investors. According to ANDE and GIIN reports, the case for IMM has been successfully made and now investors are looking for ways to operationalize the frameworks. One consistent IMM strategy is aligning with the SDG’s and 72% of investors surveyed have already integrated SDG targets or indicators to their approach.
- SME-focused funding is still a tiny portion of the total Bilateral and Multilateral funding, just 1.8%. But consistent with the trends since 2015 the major focuses are on Gender and Climate!
- Central America and the Caribbean are still being overlooked by PE/VC investors with only about 1% of investment dollars and 1% of investment deals being directed to the region in 2019. That said, we’re excited that SEAF’s launch of the Caribbean SME Growth Fund can help address some of the gaps.
- Access to finance is still a huge constraint or Southeast Asian SGBs. In the region over 30% of SMEs don’t have access to debt capital or lines of credit and this problem is even worse in the Philippines where a staggering 50% do not have access to formal loans.
One final note, we want to thank Randall Kempner for everything he has contributed to the SGB Sector! As his letter so succinctly put, “Over the past decade at ANDE, we have learned how important SGBs and entrepreneurial support organizations are to economic prosperity in emerging markets. These firms are the job-creating backbone of most economies…Enterprises and the jobs they create represent a pathway out of poverty and towards the dignity of decent work and a steady income.” ANDE plays a huge role in supporting the development of SGBs and we are proud members and fans of the network. We look forward to the next chapter in ANDE’s development and thank Randall for his leadership over the past decade.