Think and act for entrepreneurship in Africa

Perspectives

A selection of committed articles, open for debate!

Financing African agriculture: how to break the deadlock?

Agriculture is at the heart of the issues of economic growth, political stability, and the fight against climate change in Africa, is an observation which is widely recognized. However, even…

Agriculture is at the heart of the issues of economic growth, political stability, and the fight against climate change in Africa, is an observation which is widely recognized. However, even today, the funds mobilized by African governments for food and agriculture fall short of the targets set. While the FAO estimates that 10% of African national budgets should be dedicated to these sectors in order to achieve economic and social development, in reality these sectors’ budgets are generally too low, poorly spent, and inefficient (FAO, 2021). The fact that such an essential sector remains a victim of chronic under-investment demonstrates the extreme complexity of the challenge facing Africa. The urgency of improving financing for African agriculture is widely recognized, but implementation has been stubbornly lacking.

So, the sector is still marked by the failure of the various state banks created in many African countries to finance the development of the agricultural sector. As for traditional banks, they are often reluctant to direct their financing products towards agricultural actors which are perceived as too risky, too informal, and too fragmented.

Yet, banks have an essential role to play in the future of African agriculture. How can we learn from the mistakes of the past and propose solutions adapted to the financing of African agriculture?

 

Participating in a learning and exchange process

The analysis of agricultural value chains makes it possible to understand the sectors in their entirety. Each flow can be analyzed at the different stages of the chain: production, collection, processing, transport, distribution, equipment, supply, etc, thus breaking the misconception that financing the agricultural sector means financing only the producers.

This value chain analysis approach is linked to necessary on-site visits to meet agricultural entrepreneurs, and deconstruct preconceived ideas. For example, one of the commonly accepted assumptions was that the main criterion for choosing a loan was its cost (price sensitivity of agricultural entrepreneurs). In interviews with entrepreneurs in the agricultural sector in Senegal, it was found that the main criterion for them was the responsiveness of the banking institution, rather than the interest rate, mainly because of seasonality constraints.

 

The importance of proximity and dedicated human resources

The first risk management lever is the training of human resources (business managers and credit managers): this involves putting the credit manager at the heart of the process of identifying the risks related to a sector or an actor.

In addition to this training, there must be closer geographic proximity to the agricultural production areas. A commercial presence in direct contact with the ecosystem of a sector allows a better assessment of the risks. For example, Cofina decided to open a branch in the Niayes region of Senegal in order to be close to the market gardening area: this allows both a better marketing approach and a better knowledge of the risks linked to the crops in the area.

 

Targeting actors better to “secure” funding

In order to manage risk, a financing institution may favor actors with the best quality image in the value chain. These are generally larger and more formal players: aggregators, traders, processors, etc. A bank can also “move down or up” the value chain towards actors perceived as riskier (less risky ??).

The bank can also identify financing instruments where the quality image of a dominant player acts as a security for the bank’ in order to finance the downstream or upstream part of the chain: for example via an advance on an invoice. In this “entry point approach,” risk management is embedded in different time phases: my customer’s business partners today are my customers tomorrow.

Finally, the mobilization of African banks towards the financing of local agriculture will be possible as long as they have access to long-term liquidity. In this context, international donors or impact funds have a key role to play in giving local banks the means to effectively finance agricultural sectors via “earmarked funds” for agriculture.

In addition to this catalytic role, donors can partly address the risks posed by weak collateral and poor-quality assets that characterize some actors in the agricultural value chains. This is made possible by mobilizing risk-sharing funds, concessional financing, or guarantee funds.

Through targeted grants, development agencies can also facilitate the process of analyzing value chains, identifying potential targets, and creating attractive pipelines.

 

Learning, proximity, and risk management

The hundreds of billions missing for the financing of African agriculture can be seen in two different ways: either it is a symptom of a sector that cannot be financed by banks, leaving this function to public programs, international donors or a few microfinance institutions… or it is a sign that there is a huge field of unexplored opportunities.

As committed supporters of the growth of African SMEs, Cofina and classM fully subscribe to the second option. We are convinced that an approach based on learning from past mistakes, proximity to the actors, and better risk management will allow the development of the potential of African agriculture.

 

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In Africa rural electrification goes with agriculture

Despite decades of effort and tens of billions of dollars in investment, access to reliable and affordable energy remains a luxury for more than 500 million Africans. This is particularly…

Despite decades of effort and tens of billions of dollars in investment, access to reliable and affordable energy remains a luxury for more than 500 million Africans. This is particularly significant in rural areas where almost half of the continent’s inhabitants live.

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Innovative Investments Empower Women

This article was co-written by Ksapa and Investisseurs & Partenaires, and is also published on their website. The gender question is at the heart of the international debate. The eradication…

This article was co-written by Ksapa and Investisseurs & Partenaires, and is also published on their website.

The gender question is at the heart of the international debate. The eradication of discrimination against women and girls, the women’s empowerment and the parity between women and men are considered as key factors of development, respect of human rights, peace and world security. The Sustainable Development Goals have reaffirmed the key role of women’s empowerment in the democratic process, in order to take the necessary decisions on all aspects of sustainable development.

As such, Ksapa approached Investisseurs & Partenaires, a specialist in impact investing across the African continent, to discuss the implications of gender empowerment for the private sector. Together, we examine key figures on the challenges of gender empowerment, demonstrating its prevalence in rural areas of the African continent. Under the current conditions, how they can businesses and investors embed a solid gender perspective as part of their impact strategies to better address the challenges of the gender empowerment. Based on different initiatives led by Ksapa and I&P, we infer practical recommendations for mobilizing capital in favor of gender empowerment.

1. Key Issues in Gender Empowerment 

Gender empowerment implies, in essence, the equitable distribution of resources between men and women – as well as girls and boys. That is, in principle. In practice, gender empowerment may clash with deeply entrenched social attitudes – themselves translating into equally structural social, economic and cultural decisions.

  • Structural Disparities Between Men And Women

Men and women just like boys and girls are indeed not equal in the face of poverty and in their access to opportunities. Even less so in the context of interwoven climate, health and socioeconomic crises. Women account for less than a third of available human capital wealth in low and lower-middle-income countries. In South Asia, losses due to gender inequality are estimated at $9.1 trillion, compared to $6.7 trillion in Latin America and the Caribbean and $3.1 trillion in the Middle East and North Africa. In sub-Saharan Africa, they amount to $2.5 trillion. As such, the OECD publishes the social institutions and gender equality index, designed to measure, discrimination against women in social institutions at the international level. For example, in 2019, this index was 37.0 in Senegal, 42.8 in Côte d’Ivoire and 34.5 in Ghana.

  • Socio-Economic Impacts of Gender Empowerment

Despite heavy stigma, women now control 32% of the world’s wealth and generate an additional $5 trillion each year – at a much faster rate than in the past. In addition, for every dollar of investment raised, women-owned startups generate $0.78 in revenue, compared to $0.31 for male-led companies. As a result, gender parity in the workforce could generate a 26% increase in annual global GDP by 2025.

  • Zeroing in on Women in the African Agricultural Sector

Agriculture accounts for nearly 25% of Africa’s gross domestic product. In sub-Saharan Africa in particular, women make up nearly half of the workforce in this sector.

Across the continent, agriculture is the largest employer of women, accounting for 62% of the female workforce. In certain countries like Rwanda, Malawi and Burkina Faso, more than 90% of women work the land.

Female farmers’ work in Africa as elsewhere is subject to critical disparities – notably in terms of the division of labor and prevalence of informal work. In African agriculture, women tend to opt for specific crops and techniques and their work is not equally rewarded. When their work is in fact subject to a formal contract, the latter does not necessarily bear their name, often in favor of their husbands. Similarly, female farmers tend to be involved in local markets and retail trade, where men are generally more involved in wholesale trade, with a region-wide scope.

2. Embedding a Strong Robust Gender Perspective in Impact Investment Strategies 

Poverty alleviation and food security depend directly on the development of systematic solutions for gender empowerment. The African agricultural sector’s capacity to nurture stable livelihoods hinges on innovative measures designed to foster farmers’ access to land, capital and means of production – especially where women are concerned.

That is precisely why the World Bank developed a gender strategy for international project developers. The document lists 4 key levers to reduce gender gaps:

  • Awareness-Raising: Improve gender gaps by reducing access differentials in health, education and social protection (e.g. school/work transitions, gender stereotypes in the workplace, sexual and reproductive health rights…).
  • Opportunity: Remove barriers to further and better employment, boosting women’s participation, their opportunities to generate their own income and access to productive assets (keeping in mind key considerations of the burden of care, access to mobility and formal employment…).
  • Empowerment: Strengthen women’s voice and empower them by encouraging men and boys to share decision-making processes around delivering services, reducing gender-based violence and managing potentially conflictual situations.
  • Property: Remove barriers to women’s ownership and control of property, effectively improving their access to land, housing and technology.

Based on this strategy, investors – and development teams in particular – are encouraged to consider the means to engage with their potentially impacted stakeholders. That way, they may indeed better identify and assess concrete gender gaps; a series of efforts ultimately encompassed in a gender action plan.

3. Practical Examples of Capital Mobilization in Favour of Gender Empowerment 

  • Introducing 3 Agricultural Businesses Supported By I&P

For the last two decades, Investisseurs & Partenaires has committed to financing and supporting the emergence of African entrepreneurship champions. As an impact investor, I&P seeks a positive social and/or environmental return in addition to a significant financial performance, the impact of which is measured through a continuous evaluation process.

This approach is applied both in selecting potential investees and in the support afforded to the selected companies. It is also characterized by the Group’s emphasis on measuring investees’ social and/or environmental impact, based on priority objectives and progress monitoring methods against the projected positive impacts.

As part of its gender strategy in particular, I&P actively seeks to develop a pipeline of small and medium enterprises, either managed by women or with a major impact for women. I&P therefore systematically includes gender-specific action plans in its portfolio companies’ ESG action plans (with increase targets on the number of female employees, access to management positions, specific training, etc.). As such, 33% of the companies supported by I&P are managed by women.

Similarly, 79% of I&P’s portfolio meets at least one of the criteria of the 2X Challenge, an initiative of development banks to define what would be considered a women-friendly investment.

Within the I&P portfolio, the three following companies illustrate how a gender perspective can be developed and adapted to the agriculture sector:

    • Soafiary (Madagascar): Founded in 2006 by Malagasy promoter Malala Rabenoro, Soafiary specializes in the collection, processing and sale of cereals (corn, rice) and legumes (beans, cape peas, lentils, soybeans) on the local and international market.
    • Citrine (Côte d’Ivoire): Citrine Corporation processes and transforms cassava into fresh attiéké (cassava semolina) and placali (cassava paste) in southern Côte d’Ivoire and more specifically in Grand-Bassam.
    • Rose Eclat (Burkina Faso): Rose Eclat is a family business launched in 1999 by Rosemonde Touré. A fruit and vegetable processing company, the company markets nationally and internationally processed and/or dried fruits and vegetables. It produces mainly mango but also bananas, okra, strawberries and onions – which are certified organic and comply with the food safety management system (HACCP).
  • Commonalities and specificities of I&P Investees

Emblematic of I&P’s work on gender empowerment in the agriculture sector, all three companies are committed gender equality and empowerment. Soafiary in particular translated this policy into a roadmap that encapsulates its commitments to gender equality and empowerment. This written document indeed outlines the company’s gender policy, as a concrete tool to monitor– both internally and externally – progress made and measures implemented by the company to foster gender equality.

All three companies prioritize the recruitment of women for seasonal jobs and do not apply any form of gender discrimination in recruiting for permanent jobs. Women are also involved in the corporate decision-making processes and hold various positions of responsibility. As a result, men and women have equal opportunities for career advancement, either by tapping into permanent or seasonal employment – all of this with comparable pay. Women also benefit from on-the-job training. Rose Eclat additionally gives women the opportunity to train outside the company for career advancement or to become self-employed.

The three companies also emphasize women’s physical and moral integrity in and outside of the workplace, ensuring they can access healthcare and social protection. Soafiary also set up a financial inclusion and banking system specific to women. Access to financial products and services allows women to anticipate the financing of their long and medium-term goals or to face unexpected events. Moreover, savings begets credit and vice versa.

  • Shared Perspectives with Ksapa’s SUTTI Initiative

Echoing I&P’s focus on training, Ksapa launched the Scale-up Training, Traceability, Impact initiative (SUTTI) for the development of responsible agricultural supply chains. Through this new platform, smallholders can access technical and operational training and education. The goal is optimize their crop and agricultural economic production, improve the quality of their livelihoods by increasing their income, diversifying activities and reducing poverty. Not only does this foster gender parity, it is also key to retain young farmers in rural areas.

Through the development of our own digital application, we combine analysis and evaluation, coalition structuring and pilot calibration, program implementation and impact monitoring. That is indeed how Ksapa measures SUTTI impacts and its contributions to gender empowerment in particular, in the form of their inclusion into the program. Through training, SUTTI supports gender empowerment, opening up the conventional division of labor and women’s potential to sell and manage the product of their labor and operate diversified income activities.

Because women bear the brunt of lacking financial inclusion, literacy and digital literacy, the SUTTI solution targets optimal accessibility for women. The program indeed focuses on diversifying smallholders’ income, thereby developing additional leverage for gender empowerment in agricultural areas.

In short, this approach aims to unlock the following 4 key challenges:

CORE ISSUES  RELEVANT SOLUTIONS
Low productivity tied to lacking access to information and services as well as climate change, major weather variability and pest and disease outbreaks  Good Agricultural Practices (GAP) Awareness: Deliver face-to-face and digital sessions to support smallholders’ income generation through crop diversification, water efficiency and perhaps carbon credits. Through a digital application, videos and tutorials can indeed be shared that support practical tests and the direct implementation of GAPs across the farm. Decision support tools: digital apps can include a community chat feature that allows smallholders to share questions and decide how best to implement GAP. A marketplace function offers smallholders the opportunity to share price/volume information and decide just where and when to sell. Overcoming language and digital literacy barriers: Tailoring solutions to the needs of smallholders involves translating content into local languages and perhaps including a text-to-speech feature for the benefit of less literate farmers.
Lack of access  to appropriate financial/insurance products Develop financial solutions for smallholders, paid for example with tokens issued through a carbon offset system.
Women’s lacking access to digital services  Organize women-specific training groups (e.g., recruit 1 all-female cohort for every 3) to identify and meet the particular needs of female farmers. Adapt content accordingly (e.g., including gender perspectives, especially targeting on-farm health and safety training content).
Smallholders lacking access and ability to select markets and sales methods  Structure a supply of inputs to smallholders, paid for instance via  carbon offsets and revenue from a gamification tool – encouraging them to regularly fill-out impact monitoring questionnaires. Boost market access by supporting year-round crop diversification outside the production cycle of farmers’ main crop. Strengthen decision support tools – allowing smallholders to identify new marketing channels, track their transactions and identify the best options for buying/selling their crops

Conclusion

At the helm of their respective impact programs, I&P and Ksapa outline the following commonalities in their integration of a robust strong gender perspective as part of the impact investment strategies:

  • Prioritize gender empowerment in designing agricultural development projects; 
  • Identify the agricultural sector’s direct and indirect contributions to gender dynamics;  
  • Clarify the roles and responsibilities in developing a robust gender perspective; 
  • Allocate specific resources to empowering female farmers; 
  • Develop stakeholder engagement and grievance mechanisms specific to female farmers. 
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Youth employment: Africa should not train more, but train better

A couple of numbers are enough to understand how important the challenges related to the employability of young people on the African continent are. Currently, 15-24 year-olds represent 20% of…

A couple of numbers are enough to understand how important the challenges related to the employability of young people on the African continent are.

Currently, 15-24 year-olds represent 20% of the African population, but more than 40% of the unemployed [1]. By 2030, according to UNESCO projections, approximately 100 million young people will enter the African labor market due to the demographic structure of the continent.

Meanwhile, many companies and employers are looking for qualified [2] and therefore employable[3] individuals. There is a mismatch between available training programs and the specifics of the labor market, which is undergoing constant restructuring, in many sectors,.

Therefore, one could ask whether the great challenge today is not to train more, but to train better? Especially in the context of technical and vocational education and training, which obviously have a major role to play in promoting the integration of young people into the workplace.

In this article, we will explore three paths to improvement, based on the experience of an African SME in Côte d’Ivoire which specializes in professional training: the Institut de Management, de Gestion et d’Hôtellerie (IMGH), founded by Augustine Bro in 2009. Between December 2020 and July 2021, IMGH employees (managers, middle-managers, trainers) participated in capacity building training organized by GIZ Côte d’Ivoire.

Pathway 1: negotiate the shift to digitalization

Technical and vocational training courses are the first to have to adapt to globalization and the resulting technological changes, as they are oriented towards practice, learning, and the acquisition of work techniques. The transition to digital technology, which was supposed to be gradual, has been drastically accelerated by the Covid-19 crisis, which has had a major impact on the training sector and has redefined the demands of the labor market.

The prerequisites to successfully negotiate this shift are first of all material. In West Africa, household connectivity is not guaranteed in many rural or isolated areas. In addition to internet coverage issues, there are also the costs of the packages needed to consult the online tools necessary for learning[4]. Finally, the acquisition of computer equipment to access the content of online courses is an additional burden for students.

IMGH Focus:

To overcome these material difficulties, IMGH has put training capsules online which can be consulted via computer and mobile phone. This initiative solved both the impossibility of holding face-to-face classes at the height of the Covid crisis, and the connectivity of learners, insofar as most had at least access to the internet via their smartphones. Financial efforts will still be required to ensure that all students have access to online courses.

Since the start of the Covid crisis, IMGH has adopted a mixed approach, combining face-to-face and distance learning. This format offers many advantages: self-paced learning, customizable content, cost savings, etc. It is also a proven model that will be able to adapt to future crises, whether they are health, economic, or political.

Beyond concerns about equipment and connectivity, the greatest challenge of this transition to digital could be that of the competence of trainers and the transmission of knowledge (theoretical knowledge, but also and above all, know-how – techniques, professional gestures, practice, behaviour,  quality,  values).

Some of these elements, already difficult to transmit in a face-to-face environment, are even more so in distance or hybrid teaching and require much more involvement and pedagogy from the trainers. Hence the need to train trainers and any other person involved in the transmission process beforehand.

Pathway 2: Update trainers’ skills

The quality and relevance of any professional training is directly related to the professional competence of the trainers.

In the case of vocational training, most of the courses offered are taught by teaching teams from the trade. This situation responds to the logic of transmitting techniques specific to each profession, which would otherwise be difficult to share. Nevertheless, this empirical knowledge, acquired thanks to years of experience in the field, tends to become fixed in time. The risk being that once transposed onto the job market, the skills transmitted to students turn out to be obsolete. Consequently, it is essential to constantly renew the skills of trainers.

The training of managers and middle-managers is also an essential aspect to take into account. In the age of digital transformation. The success of a new development strategy depends on the ability of all employees to adopt it. They contribute fully to the internal transformation of the company and thus participate in the process of skills transfer.

IMGH Focus

The GIZ training, which the IMGH team attended, is based on the logic of alternating practice and theory, which allows the knowledge acquired to be updated and transferred directly to the workplace thanks to a point of view and experience from outside the organization.

According to Augustine Bro, founder of IMGH, this training has enabled her entire team to be more aware of the changes taking place in the professional market and to adapt their training offers in the long term.

Pathway 3: Capacity building through the co-development method

Finally, there can be a more collective approach to the new problems linked to the transformation of professions. Updating skills and knowledge to adapt to the demands of the job market is a necessity, and being in contact with other professionals would be an effective way to overcome one’s own shortcomings and acquire new knowledge.

A professional co-development group is a development approach for people who believe they can learn from each other to improve their practice. Individual and group reflection is facilitated through a structured consultation exercise that focuses on issues currently experienced by participant[5].

Thus the co-development method makes it possible to directly approach the practical side of a job, or of a task to be carried out, in a concerted manner. In contrast to a normative approach that only offers a single point of view, co-development, through the plurality of contributions, increases the development perspectives tenfold. This approach encourages everyone to consider a situation from a different and complementary angle, to think much deeper and to adapt new and more productive solutions.

IMGH Focus

“The adoption of the co-development method has brought new life to our organization. A new and very positive dynamic has taken hold and everyone is now voluntarily contributing to it, whether it be in terms of training, management, or governance. For example, those who are more comfortable with computers do not hesitate to give a helping hand to their colleagues in difficulty, and those who are struggling with other issues do not hesitate to ask for advice or help. So far, this method has been nothing but beneficial, both in terms of accounting and the work atmosphere” – Augustine Bro

In summary

The mismatch between existing training programs and the needs of an ever-changing labor market hinders the economic development of African countries. Opportunities exist and are being created, but the continent is still struggling to provide a skilled and employable workforce.

Vocational training actors, such as IMGH in Côte d’Ivoire, need to offer up-to-date and relevant content. We have mentioned here some of the practices implemented by IMGH since the Covid-19 crisis and the GIZ training (digitizing its training offer, strengthening the skills of trainers and teams…), but many other ideas can still be formulated to bring relevant and quality vocational training to African youth!

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[1]  http://www.iiep.unesco.org/fr/en-afrique-la-transformation-de-la-formation-professionnelle-est-en-marche-13763

[2] Jean-Michel SEVERINO, RFI 20/01/19 https://www.rfi.fr/fr/emission/20190121-afrique-manque-emplois-qualifies-investir-formation

[3] En se référant à la définition donnée par l’Organisation internationale du travail (OIT), l’employabilité est « l’aptitude de chacun à trouver et conserver un emploi, à progresser au travail et à s’adapter au changement tout au long de la vie professionnelle »

[4] https://www.entreprenanteafrique.com/les-ecoles-africaines-au-temps-du-covid-19/#_ftn6

[5] Adrien PAYETTE, Claude CHAMPAGNE, PUQ, 1997 ( https://www.puq.ca/catalogue/livres/groupe-codeveloppement-professionnel-573.html )

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Investing in the exceptional African creativity

Africa intrigues and inspires the world. Some recent examples prove it: the Gucci Summer 2019 collection; the Dior cruise 2019 collection, inspired by African fashion with some fabrics printed in…

Africa intrigues and inspires the world. Some recent examples prove it: the Gucci Summer 2019 collection; the Dior cruise 2019 collection, inspired by African fashion with some fabrics printed in Côte d’Ivoire; the Milan fashion week 2021 opened by the Fab Five, five designers from Africa. And so on.

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Why the creation of the African Medicines Agency is an urgent and compelling requirement for Africa?

With 17% of the world’s population, Africa (55 countries, 1.3 billion people) bears a disproportionate burden of disease: it accounts for a quarter of the world’s disease burden, 60% of…

With 17% of the world’s population, Africa (55 countries, 1.3 billion people) bears a disproportionate burden of disease: it accounts for a quarter of the world’s disease burden, 60% of people living with HIV/AIDS, and more than 90% of the world’s annual malaria cases, but only 6% of the world’s health care spending and less than 1% of the world’s pharmaceutical market.

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Supporting private firms in Africa: Why and how?

Beyond the declarations of intent regularly renewed at international summits, we must finally scale up to massively finance SMEs in Africa, to spur private sector development and thus meet the…

Beyond the declarations of intent regularly renewed at international summits, we must finally scale up to massively finance SMEs in Africa, to spur private sector development and thus meet the challenge of better development of the continent.

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The case for informal bonds

This article argues for the implementation of an alternative financing mechanism for informal small and very small businesses in Africa that would allow them to benefit from other formal financing…

This article argues for the implementation of an alternative financing mechanism for informal small and very small businesses in Africa that would allow them to benefit from other formal financing opportunities under better conditions than those offered to them today.

 

A review of current funding mechanisms

African economies today are still predominantly financed by the banking sector, which carries the disadvantage of elevating the banker to the status of a sort of multi-sector specialist who groups entrepreneurs in various sectors such as the agri-food, energy, consulting, and even new technology sectors, into the same single portfolio.

Private equity investors focus almost exclusively on large deals in order to ensure the monitoring of their investments (although fortunately some of them have oriented their investment strategies towards small and medium-sized businesses).

Microfinance institutions, whose success is due to a financing model adapted to small-size loans and small companies, but unfortunately carries some significant drawbacks, including the application of high interest rates.

We could also mention meso-finance, which is quite new and essentially functions as an intermediary between traditional banking and micro-bank financing. Nano-credits, which are generally below 100,000 FCFA, are offered by some Fintechs but are still quite rare.

Finally, an informal and parallel financing system has been created which is a sort of “street financing”
system that applies predatory interest rates and abusive loan terms and requires, among other things, the borrower’s debit card as a guarantee.

This overview of existing financing mechanisms makes one thing clear: the informal sector, which according to the International Labor Organization represents more than 85% of jobs on the African continent, has been completely left behind. It is therefore necessary to develop an alternative financing mechanism to cater to this vital segment of our economy.

The overview of existing financing mechanisms makes one thing clear: the informal sector, which represents more than 85% of jobs on the African continent, has been completely left behind.

 

The informal sector as a life raft

The informal economy constitutes a veritable life raft for the vast majority of Africans. In the case of Europe, this life raft is characterized by each state’s social welfare model, and each country has defined a minimum wage that allows every worker to provide for the basic needs of his or her family.

In Africa, this life raft is characterized by one’s informal activities. The public administration employee who earns 65,000 CFA francs per month (100 €) and who has 6 children to support, will need to develop an additional activity in the informal sector in order to make ends meet and feed his or her family.

Financing our informal sector, therefore, amounts to financing our social welfare network. The informal sector simply cannot remain the forgotten or poorly equipped part of our economy that it is today.

Today, the African financial market should represent hope, an option, through the inclusion of informal entrepreneurship. Each player in our economic network should be able to access an opportunity through this financial market.

This is why we are calling for the implementation of a new product, which we could refer to as “informal bonds”.

Each player in our economic network should be able to access an opportunity through this financial market.

 

What are informal bonds?

According to the International Monetary Fund (2017), the informal sector represents between 20% (South Africa) and 65% (Benin, Nigeria) of the GDP of African countries. Contrary to popular belief, informal does not necessarily mean poorly organized.  In fact, some informal businesses such as planting or motorbike taxi driving, for example, organize as Cooperatives or Groups.

The idea of the informal bond is simply to allow business groups that have historically demonstrated good organization and governance to seek financing for their members through the financial market by issuing what would be called an “informal bond”, a bond dedicated to financing informal business activities.

A group’s leadership would select, thanks to their knowledge of the sector and of their members, the beneficiaries as well as the loan amounts granted to them.

Assuming that the group has previously demonstrated moral probity, it would be possible for all or part of the bond to be guaranteed by a bank or a state guarantee fund.

For security and transparency reasons, loans and repayments would be made directly via “mobile money” transfer between the custodian bank of the operation and the informal entrepreneurs.

 

This concept could encourage the progressive structuring and formalization of informal actors, who would have specific guidelines to follow in order to qualify for this financing mechanism (group membership, record keeping, opening of a mobile money account, etc.) For their part, the States would benefit from an increase in tax revenues.

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