Development Banks using innovative ways to Finance African Entrepreneurs

In today’s creative world of ever changing ideas, getting stuck on old ways of doings things could mean losing invaluable opportunities and jeopardising a bright future.

The word ‘innovation’ has become synonymous with sustainable growth and any entity that cannot innovate continuously, will eventually become dysfunctional and go into extinction.

In Nigeria, one development bank which has sought to understand the youths and despite the cultural restrictive environment in which they find themselves have proven to be in the forefront of innovativeness is the Bank of Industry (BoI).

Business Unusual

In an environment where business as usual means going against ethical norms, the Bank of Industry has maintained a high level of professionalism that has seen its global ratings on Fitch and Moody’s reach excellent levels.

Testimonials of some of its customers, that “one does not need to know anybody” to get facilities from the bank, are shocking and unbelievable to most Nigerians.

According to these customers, being armed with a good business proposal is all that is required, to walk into their offices or go online and access the bank’s single interest digit loans, yes single digit.

Focus on Youths

Globally, corporate entities have continued to invigorate their brand outlook by integrating youthful ideas with established ethics to create a fusion of fast, dynamic and meticulous organisations.

However most powerful institutions especially financial establishments have refused to bulge to innovation; they have refused to understand the need of young entrepreneurs and how best to meet their needs; thereby creating that disconnect between demand and supply.

The Bank of Industry however seems to understand that young people with creative business ideas and entrepreneurial spirit require encouragement and nurturing to build successful companies and become employers of labour.

In this regards, the BoI has been quite innovative in creating special intervention schemes that directly target the youth segment of the society, particularly their handicap in coming up with physical collateral requirements and have helped many young people find a way around this major hurdle without compromising on the bank’s risk exposure.

Graduates Entrepreneurship Fund (GEF)

Recently BoI developed a N2billion Graduate Entrepreneurship Fund (GEF) Product, in collaboration with the National Youth Service Corps (NYSC).

According to the bank, it represents a significant milestone in its effort to develop a generation of young aspiring entrepreneurs, thereby addressing the looming unemployment problem that could befall graduates of Nigeria’s tertiary institutions currently serving under the NYSC mandatory scheme, immediately after graduation.

The programme effectively de-risked the NYSC members making them eligible for small business loans at single digit interest rates. All that was required of the beneficiaries as collateral was their NYSC certificates.

The bank went further to ensure viability and sustainability of the businesses of the young graduates through effective hand holding and monitoring by its accredited Business Development Service Providers (BDSPs).

The programme was implemented as an integration of both capacity building and funding processes in three stages:

First, there was a selection/screening of the 1,000 NYSC members that will participate in the capacity building process through an online Business Ideas Competition.

Secondly, a three-day intensive entrepreneurship capacity building programme on generating a business idea (value proposition), how to run a profitable business (Business Model), basic financial record keeping, business plan preparation, was organised for them across the country where they were serving.

Before finally picking trainee participants that subsequently came up with bankable business plans and given concessional loans.

The funding covers the cost of equipment and working capital requirement of the proposed projects. The loan to each beneficiary was set at a maximum of N2 million administered at a single digit interest rate of nine per cent per annum, with tenor ranging between 3 – 5 years.

In ensuring sustainability of the businesses under the GEF Programme, a support system was also developed to enable BoI and NYSC to jointly track the business performances of GEF loan beneficiaries.

IFC  and Eximbank’s innovative model

As society progresses on the path of newer, friendlier, more interesting, time-saving models, the era of intransigent business structures has been phased out, as ideas sharing and collaboration has become a corporate tool for getting best results most times.

In its effort to intervene in the Micro, Small and Medium Enterprises (MSMEs) sector in North Africa International Finance Corporation (IFC), a member of the World Bank Group partnered Hungary’s Eximbank to provide innovative financial products for Egyptian farmers, and help smaller businesses in Egypt as well as North African countries adopt sustainable energy technologies.

According to the IFC, MSMEs in Egypt, including farmers active in agricultural-based value chains, face a host of challenges, from difficulties in accessing finance to high energy costs.

Over the past two years, Eximbank has supported IFC’s advisory programs with a total of $1.5 million including $1 million to help IFC pilot an Islamic microfinance program in Egypt and Tunisia, potentially  one of the first scalable models for musharaka (e.g. profit- and risk-sharing) in Middle East and North Africa (MENA) and globally.

In Egypt, the program enabled the Alexandria Businessmen’s Association (ABA) to design and pilot a cost-effective, profitable risk-sharing product, targeting farmers in the dairy sector. The new financing mechanism provides an alternative to conventional microfinance, with many of the heifers purchased for the pilot scheme sourced from Hungary.

“Our partnership with Exim Bank has made these efforts possible,” said Xavier Reille, Manager of IFC Financial Sector Advisory Services – Financial Institutions Group. “Helping financial intermediaries provide new and innovative financial products will facilitate access to finance, a strategic priority for IFC across the region.”

Ambassadors of Innovative Financing

During the presentation of cheques to beneficiaries of the Graduate Entrepreneurship Fund (GEF), in Nigeria, Mr. Waheed Olagunju, Acting Managing Director, BoI, urged the beneficiaries to utilise the opportunity to lift themselves and other youths out of poverty and to be good ambassadors of NYSC and BoI.

Indeed it is important to add that beneficiaries of entrepreneurship innovative financing on the continent should see themselves as beneficiaries of a painstaking process by development financial institutions, who work selflessly to create easy-to-access products for the continent to attain prosperity.

Source: Footprint to Africa

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