From rescuing to reshaping
In March, the prospect of Covid-19 spreading in Africa became a concern, and so the African development community came together, joined by international organizations in virtual meetings, to prepare the African continent for the spread of the virus. At iBAN, we participated in this dialogue by gathering the latest knowledge and expertise through monitoring webinars, which mainly focused on SME support, and uploading summaries on our Covid-19 response page in order to share our insights.
Now, three months into the Covid-19 pandemic, we have seen how the conversation around the crisis has already gone through three phases: a period of applying first aid measures, followed by a focus on detecting underlying problems that became even more apparent through Covid-19, and finally a shift towards solutions that could lead to a more resilient and inclusive economy in the future.
In late March and early April, business survival was at the top of everyone’s mind, and most webinars for SMEs put this theme centre stage. Speakers shared a sense of urgency and a hands-on mentality to provide support. In the SUN Business Network’s Webinar on April 8th, Nigerian SMEs shared their first response measures. Besides training workers to comply with hygiene protocols, the upmost priority consisted in staying liquid and staying operational – staying in business.
The obstacles to doing so were manifold. For many businesses, sales plummeted because products were kept off markets by mobility restrictions and bottlenecks. This resulted in a squeeze on the cash resources of many firms. An often-coined phrase was “cash is king,” so speakers discussed ways to decrease expenses and adapt their business models to the new situation. In that context, Emiliano Mroue, of the West African Rice Company (WARC), shared his experiences from the Ebola epidemic, which his business survived by closely guarding cash until a recovery brought in new revenue streams. Emiliano had a positive message to share; WARC eventually emerged from the crisis even stronger and more resilient. Nevertheless, he stated: “But before we thrive, we need to survive.”
To survive, many SMEs were forced to cut salaries for a limited time or even furlough their workers. Ndidi Nwuneli from Sahel Capital set out a call to action for SMEs: they should approach their banks or lending institutions and renegotiate terms for liquidity, access credit lines where possible, ask suppliers and landlords to postpone payments and – get investment ready!
Lawrence Haddad, executive director at the Global Alliance for Improved Nutrition (GAIN), supported her and cited the following key criteria for investment readiness: good governance, control of finances, compliance with legal requirements, a clear company identity and a above all, a plan. Companies should have a plan to come out of the crisis and to come out stronger and more resilient. The view that capital would become available for those that have a plan echoed throughout all webinars with participants active in the impact investment sector. And indeed, over $1 trillion in grants, loans and cash equivalents have been made available for SMEs worldwide so far.
The underlying challenges
As time advanced, SMEs were still struggling to obtain liquidity, and underlying challenges became apparent. The mood in webinars shifted from excited urgency to sober reflections on the extent of the crisis. As Denis Medvedev from the World Bank stated in an IFC webinar in the beginning of May,“We will not solve the problems of the last 30 years within the next three months.”
He referred to the lack of access to finance for many SMEs in developing countries, the Missing Middle. Many of the traditional finance instruments used by Development Finance Institutions (DFIs) simply would not reach those most in need. Nancy Lee, Senior Policy Fellow at the Centre for Global Development, concluded that the current system of support from multiple DFIs was insufficient. The DFIs would not be allowed to take big risks, which is exactly what they would have to do at times like these to reach those hit hardest by the crisis – struggling SMEs in developing countries and the people at the Base of the Pyramid (BoP) that are closely linked to these SMEs as distributors, suppliers, customers or employees. It requires new approaches, and more inclusive approaches.
Reshaping for more resilience
Looking into the future, and examining what we must change, The Aspen Network of Development Entrepreneurs (ANDE) focused their webinar at the end of May on blended finance as a solution to reach SMEs more efficiently. The Overseas Development Institute (ODI) made a case for provid legal frameworks for mobile payment solutions and crowdfunding services. Above all, private sector involvement through impact investment echoed as a solution in recent webinars. It succeeded in positioning itself as a possible way to go forward in the future. Yet it remains to be seen if impact investors will really step up and provide the funding that inclusive businesses need to emerge strong from this crisis, realising financial returns while also generating social value and reaching the BoP through SMEs. As a target for impact investment, IB models are especially well positioned. “Investments in IB models are expected to generate commercial returns through sustainable business cases with clearly articulated social goods for the poor and direct impact chains,” states Markus Dietrich, Director Asia and Policy at iBAN.
To support these investments, we need higher visibility for IBs, and we must support them in acquiring the relevant skills and networks to convince impact investors and allow them to scale their business. Along with our Covid-19 response page on our platform, iBAN is supporting immediate Covid response activities, as well as developing programs for Covid recovery, targeting policymakers and investment seeking inclusive businesses.
“This crisis provides a real moment for leaping forward. Impact Investors and DFIs have an opportunity to make progress on what’s been holding back lending to growing inclusive businesses, such as desiging the right risk reducing blended finance vehicles or finding cheaper ways to lend by assessing firms remotely. The question is if they will seize the moment.”
Andrew Kaiser – Tedesco, Director for Company and Investor Engagement at iBAN