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G20 SME funding commitments to Ashoka’s Changemakers SME Finance Challenge winners totals more than half a billion dollars

Team YS
posted on 12th November 2010
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Ashoka Changemakers, a global community of social entrepreneurs, the G20 Seoul Summit and the Rockefeller Foundation on Friday introduced 14 innovative finance models dedicated to unleashing the potential of small and medium-sized enterprises (SMEs) in emerging markets.

The 14 winning finance models, including one from India, were selected through independent judges from over 300 candidates in more than 30 countries in the world.

This is a tremendous accomplishment and an important step in strengthening the global economy by boosting the SME sector through organized and well-served scope for investments and financing.  The impact of these finance models covers a wide range of strategies, including training, visibility, risk management, and access to new markets.

MEET THE WINNER FROM INDIA:

Aavishkaar Venture Management Services in India works with private and government entities to solicit investment proposals for ventures that benefit the rural people and economies of India and that are socially conscious, environmentally friendly and commercially viable. Founder Vineet Rai, an Ashoka Fellow, is proving that the vibrant innovative spirit at the “bottom of the pyramid” is profitable in more ways than one.

At the Pittsburgh Summit, the G20 Leaders committed to launch the G20 SME Finance Challenge, a global competition to identify innovative new ideas from the private sector to maximize the flow of funds to SMEs and award the best proposals.

In Toronto, the Leaders of the G-20 launched the G20 SME Finance Challenge and committed to mobilizing funding for implementation of the winning proposals. The Leaders also agreed to announce the winning proposals at the Seoul Summit. Accordingly, the SME Finance Challenge Award ceremony was arranged on the margin of the G20 Seoul Summit as an event attended by the U.S., Canadian, and Korean Leaders, who are the Chairs of the Pittsburgh, Toronto, and Seoul Summits, respectively.

President Lee Myung-bak hosted the award ceremony on November 12 at the COEX Auditorium after the G20 Leaders’ Meeting. U.S. President Barak Obama, Canadian Prime Minister Stephen Harper also attended the ceremony. President Lee, in his capacity as the current G20 Chair, congratulated the 14 winners of the Challenge and presented award certificates to the three “People’s Choice” winners at the Challenge and presented award certificates to the three “Peoples’ Choice” winners that garnered the most votes in an online competition. President Obama and Prime Minister Harper also delivered their congratulatory speeches.

The three People’s Choice winners are: (1) European Fund for Southeast Europe (“Sustainable local currency SME financing window”); (2) Peace Dividend Trust (“Factor Finance for Procurement”); (3) Medical Credit Fund (“Providing affordable loans and quality upgrades to private SMEs”).

For an overview of the G20 SME Finance Challenge and the three People’s Choice Winning proposals, please refer to the Annexes.

To scale up the winning proposals and to identify and support other innovative SME finance models, Korea, the U.S., Canada, and the Inter-American Development Bank (IDB) have agreed to launch an SME Finance Innovation Fund and committed a total of US $528 million* to support the Fund. Korea is expected to participate in the steering committee of the SME Finance Innovation Fund, through which Korea can gain more knowhow on diverse and innovative solutions to SME financing.

*The amounts of funding committed by each country/institution are as follows:

US: US $205 million ($5 million in a grant by the USAID and $200 million in co-financing1 through OPIC2).

Korea: US $101 million ($1 million in a grant by the government and $100 million in co-financing through the Korean Export Import Bank3).

Canada: US $20 million in a grant by the government.

IDB: US $202 million ($2 million in a grant and $200 million in other forms of financing)

1)      Co-financing: Investment or loan provided for projects which the SME Finance Innovation Fund invests in.

2)      2) OPIC (Overseas Private Investment Corporation) is a public corporation that provides financial supports for the U.S. private investments in developing countries. It will provide co-financing for projects in which the U.S. private sector participates.

3)      The actual amount of financing provided by KEXIM can differ from the amount committed since under Article 18 of the Korean Export Import Bank Act, KEXIM can invest only in projects where Korean enterprises participate.

Since many innovative SME finance solutions have emerged from the private sector through the Challenge and the winning proposals will be scaled up with support from the SME Finance Innovation Fund, it is expected that the SME Finance Challenge and the award ceremony attended by three G20 Leaders will significantly contribute to mobilizing more international support for closer cooperation between the public and private sectors to increase flow of funds to SMEs.

Additional:

Here are some potential angles and interviews for unique, interesting coverage of social finance, for the G-20 Summit and beyond from Asia:

Local innovators tend to be good stewards of their environment and communities – For investors interested in social finance, SMEs are a natural magnet: often they are by their very nature eco-friendly, social justice-oriented businesses since their owners live, work, and employ workers there.

Example: Aavishkaar Venture Management Services in India works with private, and government entities to solicit investment proposals for ventures that benefit the rural people and economies of India and that are socially conscious, environmentally friendly and commercially viable. Founder Vineet Rai, an Ashoka Fellow, is proving that the vibrant innovative spirit at the “bottom of the pyramid” is profitable in more ways than one.

Women SME owners are proving they are a solid investment – Statistics show that women small business owners have a higher loan repayment rate than their male counterparts. Micro-lenders have known this for years and now they are taking the next step and adding financing products for the “missing middle” – the businesses that have grown too big for micro-lending but are not embraced by large banks and traditional investors. As with micro-finance, they are seeing the potential for profit while having a social impact as well.

Example: The Kashf Foundation, started by Ashoka Fellow Roshaneh Zafar of Pakistan, is the second-largest micro-lending institution in Pakistan with over 300,000 women customers. Since it was founded in 1996, Kashf has closed over $36 million in commercial deals with key local and international banks – all while maintaining an investment-worthy credit rating. A new SME financing program is underway.

Green SMEs = High tech – Pro-environment businesses are not anti-technology. In fact, some of the most advanced ideas for stemming global warming come from small and growing technology firms.

Example: One financing innovator in Korea hopes to tap into that advanced technology as an alternative to credit ratings and collateral. By using a sophisticated rating system to assess a technology’s chances for success, INNOBIZ Loans hopes to shift the conversation about investment risk away from an SME’s finances and toward the power of the innovation itself. High-tech sustainable energy solutions are among the businesses INNOBIZ Loans supports.

Strengthening women’s property rights increases productivity and strengthens communities – In developing countries women produce 60-80% of the food and own less than 5% of the land. If women had the same access to land that men do, agricultural productivity would increase by 20%.

Example: Sikha Roy, an Ashoka fellow in India, is organizing women who are daily-wage earners to exercise a legal right over unused land and then to farm it. With produce of their own, the women can feed their families, escape the manifold abuses they are exposed to as laborers, and stay close to their children and loved ones, thereby bringing new life to their villages. Roy’s organization, Srreoshi, was a winner in a recent Changemakers competition.

Engaging the financial sector advances property rights reform – Property rights are a highly emotive, politically charged, and multi-faceted issue. With a problem so deeply tied to policy and access to capital, the financial system must be a part of the solution. Owning land requires access to capital and/or credit, making coordination with the financial sector and support from policy makers a critical part of successful initiatives.

Example: Offering slum dwellers in Sri Lanka the opportunity to trade the municipal land they occupy and choose from new apartments available, Stock Exchange Market brings dignity and security to the poor. Working with welfare workers, government authorities, real estate developers and bankers, Dr. Darin Gunesekera, an Ashoka Fellow, creates for slum dwellers a transferable asset in the land they occupy which they exchange for entitlement certificates to purchase an apartment in a new building.

SMEs get people back to work – unemployment is one of the greatest destabilizing forces following a crisis, and local SMEs are on the front lines of job creation.

Example: Ashoka Fellow Sabiha Shah, Founder of the Women’s Development Fund in Pakistan, is supporting women business owners in the wake of the flooding. She is working with women entrepreneurs in refugee camps to train them in new skills and business management, allowing them to support their families now and prepare to rebuild their businesses, or start new ones, when they return home. “Women in Pakistan are very skilled and very brave,” she says. “If we train them and support them they will be successful businesswomen.”

SMEs aid in preparation and prevention – Local entrepreneurs know the lay of the land, are familiar with traditional successful prevention strategies, and have a big stake in minimizing the effects of a disaster. Their work and their success are critical to keeping the worst from happening.

Example: Ashoka Fellow Eko Teguh Paripurno of Indonesia taps into local community resources in disaster-prone areas to plan, build and lobby for policies that will minimize the devastation in future floods, fires, landslides, volcanic eruptions and earthquakes. He knows that supporting local SMEs with incentives and credit will help spur preventive measures and mitigation efforts.

SMEs rebuild economies – For every dollar invested in an SME, twelve more dollars are generated for the local economy. That ripple effect includes increased wages, tax revenues, and market efficiency.

Example: The International Finance Corporations’ Peer Stein arrived in Afghanistan in 2002 to help start a bank geared to financing SMEs. Despite 25 years of almost uninterrupted war, the country had “an astonishingly vibrant small business community which basically provided the most essential services and whatever was needed in the market,” he says. “And particularly…the small business community [had] the right resilience coupled with dynamism that would help build some of the economy.” The bank he helped launch has now grown into the largest licensed financial institution catering to micro and small business in the country. Peer Stein is a partner in the Changemakers.

Ashoka’s Changemakers is a community of action that connects social entrepreneurs around the globe to share ideas, inspire, and mentor each other. Through its online collaborative competitions and open-source process, Changemakers.com is one of the world’s most robust spaces for launching, discussing, and funding ideas to solve the world’s most pressing social problems.

The Group of 20 was first established in the wake of the Asian financial crisis of the late 1990s as a meeting of finance ministers and central bank governors. Its goals were to bring stability to financial markets and to promote economic cooperation. Membership consists of advanced and emerging economies from all regions of the globe.

The G-20 countries include: Argentina, Australia, Brazil, Canada, China, France, Germany, India Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, United Kingdom, the United States of America, and the European Union, who is represented by the president of the European Council, the president of European Commission and the European Central Bank.

The Rockefeller Foundation fosters innovative solutions to many of the world’s most pressing challenges, affirming its mission, since 1913, to “promote the well-being” of humanity. Today, the Foundation works to ensure that more people can tap into the benefits of globalization while strengthening resilience to its risks.

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