Sustainable Poverty Solutions – What Really Works?
Photo by Roman Nguyen on Unsplash
Redemptive Entrepreneurship - Catalysing a values-based movement of entrepreneurs and impact investors
Reuben Coulter, Transformational Business Network (TBN)
Overview
Economic growth can be the single biggest contributor to poverty reduction. In the past two decades, China alone has lifted more than 300 million of its citizens from poverty through its economic growth, whilst the Asian Tiger economies have been transformed through the creation of their small and medium enterprise (SME) sector. Africa has also seen rapid economic growth over the past decades and Christianity has flourished. However, it stands at an economic, social and spiritual crossroads. Progress threatens to be undermined unless growth can become more inclusive with jobs created, poverty addressed and endemic corruption uprooted. Christian entrepreneurs and investors need to redeem the marketplace. The choices that Africa makes today will have an impact for many generations.
A New Awakening
The current situation in Africa shares many parallels with Great Britain at the time of the Industrial Revolution, where strong economic growth was challenged due to poverty, inequality and corruption. In response to the crisis of their day, Christian business leaders, investors and politicians came together to seek God and develop biblically-inspired models of transformation whose legacy is still felt today. For example, the Lever brothers (founders of today’s Unilever) created Port Sunlight, a model town which provided housing, healthcare and education for their employees, Lord Shaftesbury lobbied parliament to introduce welfare and labour reforms and various Quakers established cooperative banks to enable the poor to save and start businesses.
Transformational Business Network
The Transformational Business Network (TBN) is a global movement of values-based investors and entrepreneurs committed to creating jobs and inclusive prosperity in emerging and frontier markets. We believe that a ‘new awakening’ is needed, rooted in our Christian faith, to mobilise the entrepreneurial creativity to tackle the challenges which face people living in poverty at the base of the pyramid.
Entering the Promised Land?
Over the past twenty years, sub-Saharan Africa has demonstrated a remarkable economic turnaround, buoyed by rising foreign direct investment flows, particularly into the natural resources sector; increased public investment in infrastructure; and higher agricultural production. Careful analyses of Africa’s growth story show that growth is becoming more broad-based, in that it is driven by non-commodity industries, and gradually becoming an engine for jobs.
The opportunities in Sub-Saharan Africa
Regional growth is projected above 5% in 2015, grown two to three % points faster than global GDP over past decade and the consumer market is expected to be worth $1 trillion by 2020
Working-age population is expected to double to 1 billion in the next 25 years, with largest youth demographic
Crossing the Desert
High-income countries have historically created employment and addressed inequality by developing a robust small and medium enterprise (SME) sector. 50% of total employment creation comes from small enterprises with less than 100 employees and are particularly beneficial to low-income communities.
Entrepreneurs face many challenges to take their businesses to scale - 90% of businesses do not grow and over 75% fail within 3 years. The majority of businesses remain informal and at subsistence level because of the enormous challenges they face. These challenges include:
1. Need for ethics in business to transform society
Corruption is rife in Africa – for example Kenya is ranked 139 out of 168 in Transparency International’s Corruption Index. This erodes trust, increases costs and has a tremendously detrimental effect on society and entrepreneurs alike. While >75% of East Africa’s identify as Christians, there is a disconnect between people’s faith and how they live out their values in the realm of business and investing.
2. Lack of support and technical assistance
Most entrepreneurs do not have sufficient experience or in-house expertise to enable them to scale. This is demonstrated by the fact that nearly 80% of entrepreneurs are seeking mentoring support, while 72% have no formal accounting system and 57% have no formal business plan. Other challenges that constrain them from being fully prepared for investment, include unproven operations, an unclear strategy to scale, informal financial and corporate records, and a lack of realistic projections.
3. Lack of early-stage growth capital
There is a critical gap in early-stage growth capital for SMEs, particularly between US$100 to 500k. 84% of SMEs are unserved or underserved, with a financing gap of almost USD$140 - 170 billion. The banking systems does not effectively serve very small businesses, with only 36% in Kenya, 17% in Ethiopia and 10% in Uganda able to access any loans. This is primarily due to banks‘ collateral demands and high interest rates (often in excess of 20%). Typically entrepreneurs raise funding from friends and family but this creates significant limitations on growth. Impact investment is increasing in the East Africa region but >90% of investment is going to ex-pat led businesses. The reasons for this is lack of investment-ready businesses, fear of corruption and perceived risk.
Crossing the Jordan – our experience to date
Transformational Business Network (TBN) has a 14-year track record and proven methodology in successfully scaling purpose-driven entrepreneurs.
Our mission is to:
Transform business culture
Accelerate purpose-driven entrepreneurs
Mobilise impact investment
Transforming business culture
Entrepreneurship can be a lonely and challenging journey. TBN is building a values-based community of entrepreneurs to transform the prevalent culture. It is supporting entrepreneurs to live out their faith and values in their businesses and hold each other accountable. It does this through its Transformational Pledge, sharing inspirational examples and ideas, peer-discipleship groups and network events. To date, TBN has engaged over 7,000 business leaders across 4 countries and held conferences in London, Jakarta, Singapore and Nairobi.
Accelerating purpose-driven entrepreneurs
TBN’s flagship programme ‘Scale for Success’ is a 6-month business strategy process which prepares businesses for investment. Over the past two years’ it has enabled 35 businesses in East Africa to refine their strategies, strengthen their systems and processes, and matched them with investors from around the world. For example, in TBN met an entrepreneur Luvuyo Rani in the slums of Cape Town in 2008. He had a small business but a big vision of providing South African youth with much-needed computer. Our pro-bono mentors helped him develop a business plan and we provided a growth loan of £50,000. Today Silulo Technologies is highly profitable with 36 stores which train thousands of youth every year.
Mobilising impact investors
For external investors, lack of knowledge and trust often prevents them from investing. TBN bridges the financing gap by partnering with investment funds, foundations and private investors to enable them to identify and invest in purpose-driven entrepreneurs and provides post-investment support services. For example, TBN and Arrow Capital have developed a $2million debt fund in East Africa which provides affordable loans of between $50 – 250k.
Conclusion
Redemptive entrepreneurship and impact investing is creating jobs and lifting people out of poverty. However, it will require us to collaborate together and build a redemptive ecosystem. Our experience has shown that mobilising a global movement of entrepreneurs and investors, rooted in Christian values, has the potential to transform the world.
References
‘Fighting Poverty through Enterprise – Creating a Transformational Business Network’, Lord Brian Griffiths and Dato Kim Tan, 2007
‘Enterprise Not Aid, for Social Change’, Article - Singapore Management University, Dato Kim Tan, 2012
‘Impact Investing – Time for New Terminology Article’, - Stanford Social Innovation Review, Dato Kim Tan, 2014
‘Barriers to Finance Africa’s SMEs’, International Finance Corporation & ABN Digital 2011
‘The Landscape for Impact Investing in East Africa’, GIIN and Open Capital Partners, 2015
‘Tracking Reach to the Base of the Pyramid through Impact Investing’, DfID, 2015
‘Impact Investment: The Invisible Heart of Markets’, G8 Social Impact Investment Taskforce, 2014
International Finance Corporation ‘Barriers to Finance Africa’s SMEs’ ABN Digital 2011