USAID's Grand Challenges for Development are an exciting way for new and nontraditional partners to engage with the Agency and contribute to solving pressing and complex development problems. The USAID-supported Water and Energy for Food Grand Challenge is reaching out to innovators in the private sector and forming beneficial partnerships through its regional innovation hubs.
Read more in an excerpt from the article below, originally posted on Agrilinks.
Enabling Small- and Medium-Sized Enterprises' Access to Private Sector Financing
By Kathryn Bailey
Small- and medium-sized enterprises (SMEs) are the backbone of the global economy and could significantly contribute to increasing sustainability and productivity in the agricultural sector. However, as the USAID-supported Water and Energy for Food (WE4F) initiative has learned through its investment landscape mapping activities, SMEs lack access to financing due to a variety of factors. In the Middle East and North Africa (MENA) most firms find debt unappealing and banks are not seen as growth partners. In Southern and Central Africa (S/CA), risk-averse banks’ prohibitive interest rates and collateral requirements are barriers of access for innovators. Similar to these regions, enterprises in South and Southeast Asia (S/SEA) face those challenges, with the additional burden of having difficulty identifying investors who share their vision.
To combat these challenges and enable more SMEs to access financing, the WE4F Grand Challenge leverages multiple solutions: technical assistance, pipeline and partnership development, investment facilitation and a guarantee mechanism.
Building Pipelines and Partnerships for Investor Matchmaking and SME Financing
While all the regional innovation hubs (RIHs) have a similar design, they do use different methods to build pipelines and partnerships for SME financing. The MENA, S/CA and S/SEA RIHs use expressions of interest (EOIs) from investors to build investment pipelines, while the East Africa and West Africa RIHs pursue a partnership model.
Through the EOIs, investors can directly join WE4F and connect with relevant innovators. These EOIs remove risks from the investors, as WE4F conducts due diligence and continuously monitors environmental, social and governance compliance. Innovators benefit from this approach because they no longer have to go out and search for investors and they now understand how to present themselves when discussing investment opportunities.
The partnerships being developed by the East Africa and West Africa RIHs also focus on directly connecting innovators with investors. In 2021, East Africa RIH signed a new partnership with the AlphaMundi Foundation that will provide technical assistance and results-based climate financing to East African innovators. In West Africa, through the RIH’s partnership with the ECOWAS Centre for Renewable Energy and Energy Efficiency, the hub organized a virtual business-to-business networking event that fostered dialogue between enterprises and banking and financial institutions.