Reducing Risk is Key to Strengthening Access to Finance for SMEs
Manager, Anglo American
Over 25 years, Anglo American has invested in enterprise development in host countries to support the development of both the business and local communities. A key priority is to ensure that the economic impact of our enterprise development activities extends beyond the mining sector and encourages more broad-based economic growth in countries with a strong dependency on mining.
Building on the experience of our Zimele programme in South Africa and our Emerge programme in Chile, the company has developed a global enterprise development strategy and rolled out new programmes in Brazil, Peru and Botswana. Since 2008, Anglo American’s enterprise development programmes have backed more than 48,000 enterprises, disbursed more than US$100m and supported more than 76,000 jobs.
Through our growing work with SMEs, we are developing a deeper and more nuanced understanding of the constraints facing SMEs and the role we can best play in helping to overcome those constraints.
Take access to finance. From our experience, it is becoming increasingly clear that the availability of capital is not the always the main issue – rather the blockage often lies more with the ability of financial institutions to design financial products appropriate to the risk profile of SMEs, alongside their willingness to understand and positively shape the behaviour of SMEs over time, enabling them to become more bankable and ready for mainstream financial products.
We are working with the governments to promote economic development and diversification by catalysing the growth of micro, small and medium-sized companies (MSMEs). Our recently launched programmes in Brazil, Botswana and Peru aim to leverage the wealth creation potential in the mining sector in favour of divisification, supporting SMEs in our supply chains but also in other strategic sectors in the economy.
In terms of scale, we tend to play a role in helping to bridge the risk gap between commercial financing and SMEs by enabling the financial sector to build the expertise to better meet the needs of small and growing business. We have recently signed an MOU with Barclays in Botswana to enable increased access to finance to SMEs participating in the Tokafala programme. We also have partnerships with government in South Africa and with other NGOs, regional banks or commercial entities in Chile, Peru and Brazil.
In our experience there is a sequence of providing support to SMEs that starts with business advisory services first, and experienced business mentors for small and growing businesses as a second step, before facilitating access to capital. This approach enables participating entrepreneurs to strengthen the credibility of their business strategies and establish a track record, thus reducing the perception of risk amongst potential funders.
We want our enterprise development programmes to be plattforms where the “mainstream”players such as banks, consultancy companies and government get a better understanding at lower risk of how to support SMEs and get a financial and social return. Our goal is to avoid competition with the government and commercial initiatives and allow them to reach scale faster and at lower risk, so once the initial concept is proved, we recognise the need to step aside and allow existing banks and governments to take forward the risk, and with it the potential opportunities.
Our apporach follows a “private equity” type approach which involves acting as an owner of the SMEs, a director with skin in the game, rather than simply paying for a consultant to give a couple of hours of “advisory” every now and then. We need to influence the psychology of entrepreneurs and allow them to teach us about their environment to understand where the opportunities may or may not exist. To achieve this, we emphasise the provision of individualised and integrated support for small and growing businesses over enough time. For each business, the programmes provide a tailored blend of advisory support, on-going mentoring, access to markets and funding (e.g. grants, loans, equity).
So where should our collective efforts be focused going forward? It is clear that medium size companies offer the potential to create more jobs, more quickly, with better and more stable salaries. Public-private partnerships focused on enterprise development need to help medium-sized SMEs to grow more quickly and help them to achieve greater stability in their operations.
At the same time, we also need to acknowledge that very few micro enterprises will make it to become a small or medium-sized business as the people involved are actually seeking an alternative to unemployment rather than wanting to be an entrepreneur with the associated risk of having their own business. For these micro-businesses, we need to help them either to find a job, or to become small scale or medium-sized as quickly as possible.