BARCELONA, Spain (Thomson Reuters Foundation) — Small firms in developing countries, many of them farming operations, will forge direct links to international investors under a new scheme to help them expand and bring extra income to poor communities.
Five British charities have created a syndicate through which investors can back hand-picked businesses, using a model similar to that of the Dragon’s Den TV series, in which entrepreneurs pitch ideas to prospective funders.
Seventy percent of small and medium-sized businesses in developing countries cannot access capital, according to Christian Aid, which co-founded the scheme called Access To Capital For Rural Enterprises (ACRE).
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Investors often see deals with smaller companies as too risky or expensive, said Joanna Heywood, who leads ACRE.
“There were a lot of enterprises we came across that were buying, or wanted to buy, from farmers and producers and wanted to grow and expand but were struggling to get beyond a certain growth stage,” Heywood said.
The agency decided to look beyond its traditional work of aiding poor farmers in developing countries and try to address problems further up the supply chain.
Christian Aid and its partner charities — Traidcraft, Practical Action, Twin and Challenges Worldwide — have a track record of working on agricultural commodities, fair trade and clean energy.
They are hoping to secure investments in the “missing middle” of $200,000 to $2 million.
They have found seven investors, including individuals and impact investment firms, which hope to channel $7.5 million to enterprises they will select from a pool of 100.
The first deal involving a Zimbabwean company is now being put together, Heywood said.
Martin Rich, an investor who advised on the creation of ACRE, said the new scheme would allow companies to access business support and “patient capital.”
The financiers are planning to leave their money invested until a positive result has been achieved, which could be 10 years or more, according to ACRE.
ACRE is targeting enterprises that could transform the efficiency or scale of the market in which they operate.
They include a Zimbabwean producer of organic baobab tree-based products that lobbied the European Union to allow baobab imports into Europe, which opened up a major new market.
ACRE also hopes to nurture women entrepreneurs and boost the incomes of women producers in an effort to address the imbalance between the high proportion of farming done by women and the low level of assets they own, Heywood said.
Two-thirds of the businesses in the ACRE pipeline are based in Africa, the majority in agriculture and the energy sector.
