Well I am employed by Engineers Without Borders Canada as a Junior Fellow, which is 18-month job/internship consisting of three parts. First being 6 months of learning and preparation, 4 months of working in one of EWB’s ventures in Africa, and 8 months of sharing my experiences and learning with my chapter and U of S’s next junior fellow.
So what most of y’all are probably interested in is what I am up to this summer. Well I am embedded in Kulemela Investments. Kulemela Investments is a business that believes it is possible to make money by doing good. At Kulemela we see that small-scale farmers lack access to fair and reliable markets for their produce. We are investing in various points along the agriculture value chain in Ghana to increase food security and competitiveness in agriculture markets. If you wish to learn more check out their website here.
So now you know what Kulemela is about but you still have no idea what I am doing… Ok well essential I am designing new financial products that mitigate financial risk and provide a positive social impact. In the past Kulemela has provided loans in the form of fixed asset financing, working capital financing, and production financing to help grow small and medium-sized agribusiness. These are all very traditional methods of financing that are offered at any bank in Canada. How ever banks in the developing world have refused to provide these kinds of financing options to small and medium business. Currently credit is only available to very large business from traditional banking institutions and impact investing firms that can absorb $250,000+. Over the past 40 years there has been a huge push to provide basic banking services to the working poor and because of these efforts millions of people now have access to banking and credit services from microfinance institutions.
This has left a gap in the market making it almost impossible for entrepreneurs to grow their business from micro enterprises that can only handle a few thousand in investment into ones large enough to take on $250,000 in financing. Now providing financing to entrepreneurs in the area of $10,000 – $100,000 the so-called missing middle in financing isn’t an easy task. This is the stage where an entrepreneur will really have to start managing their cash flows and become business savvy quickly or they will fail. The due diligence cost of researching and entrepreneur and business will be almost the same for a loan of $30,000 or $200,000 making the profit margin on a small loan almost non-existent. This is why banks and impact investors only deal in large loans and microfinance institutions have largely gotten around this cost by charging very high interest rates, providing loans to groups of individuals, and being mostly non for profit.
If you are interested in learning and doing more to solve the problem of the missing middle financing click here.
I am spending my summer trying to develop different financial products that are specifically designed for small and growing business and entrepreneurs in the developing world. I will be focusing on the maize, soy, and poultry value chains and developing financial products that mitigate in unique risks in each sector as well as the challenges of providing financing to entrepreneurs that have little to no collateral and may have yet to develop the business know how to handle a large financial investment.
The goal is create a more competitive market so small-scale farmers receive the highest price for their produce. This will be achieved by growing small and medium size business the more the sector grows the more competitive it will become. New jobs will be created, small-scale farmers will earn more money, food security will increase, and poverty reduction will occur.