By Tony Sheldon
As a social enterprise moves beyond its start-up phase, there is good news and bad news – and it is the same: the challenges you face in launching your enterprise will continue to be the challenges you face in managing and growing it. Certainly the challenges evolve, and the specifics change, but you will continue to grapple with the same underlying issues: financing, staffing, profitability and impact. » Continue reading “Beyond Start-Up”
SME investment can be proftable
The good news is that the importance of SMEs in terms of a country’s economic growth has now begun to be recognized by the formal banking sector. Spurred by increasing competition in their traditional businesses, banks are now looking to the largely untapped SME segment, which now presents a lucrative opportunity. When traditional banks downscale their operations to serve the SME market, higher transaction costs and undefined risk management strategies are seen to be a major obstacle. However, the profitability of SME banking, if it is served effectively by creative business models, has been proven by various case studies. The graph below shows that Return on Assets (ROA) of SMEs is higher than the ROA of the total portfolios of the sample banks. So it looks like this is one trend that banks would do well not to ignore.
ROA SME vs Bank Total
Source: SME Banking Best Practices – Benchmarking, International Finance Corporation
Lack of Access to Financing – A Case in Pakistan
A recent survey conducted by the Small and Medium Enterprises Development Authority in Pakistan is a clear case in point of how SMEs struggle from lack of access to formal financing opportunities.
According to the results, only 16% of SMEs surveyed applied for bank loans in the last two years; more than half of these applications (53%) were rejected. In fact, a great majority of SMEs resort to personal connections for financing.
The Importance of the SME sector
Case in Point – The Indian Landscape
The Importance of the SME sector
The SME sector, with its ability to generate jobs and wealth can have a direct and significant impact on the formalization of a country’s economy.
It is said that among high-income countries of the Organization for Economic Cooperation and Development (OECD), two-thirds of all jobs are created by the SME sector. The figure is lower among low-income countries because of the overwhelmingly dominant informal sector, yet the SME sector’s contribution is significant. And as an economy grows and income levels rise, the impact of the SME sector only increases.
Source; SME Banking Guide 2009, International Finance Corporation
Small and Medium sized Enterprises (SMEs) are a driving force of economic development, and are key to job creation and GDP growth, both in developed and developing countries. However, mainstream banks, particularly in emerging markets, have typically viewed SMEs as high-risk investments and have shied away from serving these businesses.
And while banks may consider many of these SMEs to be too small or risky, even the fast growth of microfinance has not helped their cause too much because many of them are too large to be effectively financed by microfinance institutions. More SMEs are suffering from this noticeably widening gap, which is called the SME financing gap.
Everyday this week, we bring to you some key findings of our Indian Social Enterprise Landscape Survey.
Main Sources of Financing – Limited access to the commercial financing
The survey results revealed that there is a clear divide between those that have access to mainstream and/or commercial funds and those that rely on personal connections and grants/donations to raise money. The ratio is about 50/50. Forty-five percent of respondents obtained funds from commercial sources whereas 21% of respondents source their funds from personal connections such as family members and friends; another 21% rely on grants and donations from charitable organizations.
The survey report, which offers an in-depth analysis of the results, is available for INR400/US$10. Just click the Social Enterprise Landscape Survey Report banner on the top of our website – www.beyondprofit.com or send an email to Asako Matsukawa atpublications@intellecap.com.
See other data sets from the Social Enterprise Landscape Survey
Everyday this week, we bring to you some key findings of our Indian Social Enterprise Landscape Survey.
Challenge – Financing
The results reveal that acquiring funding is by far the biggest challenge for social entrepreneurs. Forty four percent of enterprises said that Financing/Funding is their main challenge.
The survey report, which offers an in-depth analysis of the results, is available for INR400/US$10. Just click the Social Enterprise Landscape Survey Report banner on the top of our website – www.beyondprofit.com or send an email to Asako Matsukawa atpublications@intellecap.com.
See other data sets from the Social Enterprise Landscape Survey
What if you could check out a development project, evaluate its social impact, and support the project as you would if you were shopping at a clothing store or your local supermarket? A new post-paid financing concept for development projects, initiated by YouSee—a Hyderabad-based non-profit founded in 2009—could bring a paradigm shift in development financing.
Conventionally, donors make funding decisions based on expected outcomes of a certain project. But, between the grant allocation and the outcome, there can be many inefficiencies, and implementation gaps. As a result, the most benefit doesn’t always come from the funds.
YouSee takes the guess work out of development financing.
» Continue reading “A Paradigm Shift – A New Model for Donor Impact!”
