Lack of funding for SMEs in Africa is consistently reported with few bright spots. However, there is an emerging funding option called Growth Finance. On the February 10, 2010 AfribizTalk show, Guido Boysen, Chief Investment Officer of Grofin, shared insights into the Growth Finance industry for SMEs.
Boysen briefly shared how Growth Finance compares to other financial options. Microfinance provides excellent funding sources for micro-entrepreneurs with very small, informal businesses (e.g., hand crafts and small markets) and has a cap of approximately $3,000. Commercial banks lend to SME’s with a large amount of collateral (usually at a very high interest rate and short-term financing). Private equity firms look for larger organizations with strong management teams, which are very stable. There remains a huge gap in servicing SMEs in Africa.
Growth Finance is a unique niche as is Grofin, a pioneer and leader in the market. Growth Finance supports SMEs in all stages of business development, from start-up through growth and expansion. Boysen says that they can support almost any type of business, except for farmers, at this time. However, they can support other types of agricultural businesses like agro-processing.
The Growth Finance model used by Grofin not only provides the funding, but business support. Growth Finance also differs in that businesses are evaluated not on collateral, but the viability of the business and the entrepreneur. The funding cycle is longer than commercial lending institutions, from four to six years.
What’s also significant is the Growth Finance niche is being proven out and succeeding in Africa. Grofin started in 2004 and has grown to a capitalization of over $230 million dollars. Boysen figures that they are just scratching the surface of the market in developing nations. This suggests that the opportunity for others to enter the market is also there.
But the story goes back to the entrepreneurs, and others, who benefit. In just over five years, Grofin’s efforts alone have produced close to 5,000 jobs in Africa. This translates to over 20,000 beneficiaries in local communities.
You don’t want to miss any of this interview. To listen in on the show, click here. For further information on Growth Finance and the work of Grofin, visit www.grofin.com.
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