As a key driver of socioeconomic growth, small and growing businesses are recognized as the economic backbone of emerging and low- and middle-income countries.
As such, SGBs have a leading role to play in meeting U.N. Sustainable Development Goal 8: promoting sustainable, inclusive economic growth, productive employment, and decent work for all. Yet limited access to affordable credit, as well as a deficit of knowledge, skills, and capacity among entrepreneurs, means their growth is often constrained.
Research suggests that for every $1 invested in SGBs, $13 of value is generated within the local economy, thus making them a great platform for lifting communities out of poverty.
Recognizing the credit gap faced by this “missing middle” — too big for micro credit, too small for mainstream loans — VisionFund International, with the support of World Vision, began testing the provision of SGB loans of between $2,500 and $25,000 in Sri Lanka in 2016. Since then, this has been expanded to Myanmar, Ghana, and Mexico, complemented by a business coaching component, and over $4.3 million has been disbursed to over 1,250 SGBs across these four countries. Over 65% of our current 961 SGB clients are women-led enterprises.
We have encountered many challenges along the way, but we have also learned important lessons that we think can be useful to those supporting SGBs.
1. Starting up is neither easy nor fast
Establishing targets and goals that are too ambitious right from the start can set our clients and our business model on the course for failure. The overall objective should be about developing a business model that solves client problems, enables ecosystem change, and stimulates long-term economic growth, rather than simply the achievement of loan disbursement targets.
As tempting as getting an SGB project up and running as soon as possible might be, taking time to understand our clients and then properly develop the products, systems, and processes that best meet their needs is crucial. Detailed project assessment, design, and setup phases take considerable time. In addition, recruiting a local workforce with the right skill set is often a big challenge in itself.
One example comes from our experience in Myanmar, where we established a team of 30 SGB staff members in less than six months. Given the considerable time taken to establish the project in Myanmar, our first-year targets suffered. However, because time was taken to properly understand clients and establish our operations, we are now on track to exceed our second-year targets.
2. Segmentation is key to reaching those with the highest growth potential
Market segmentation is key to reaching the right clients, making sure that we are supporting SGBs with the highest growth and job creation potential.
But measuring someone’s “growth potential” is not a simple task. Instead of focusing on just the larger loan size that a business requires — a pretty crude and ineffective measure of entrepreneurial potential — we have developed a diagnostic tool to identify businesses that have both a strong vision for growth and also a strong appetite and responsiveness to utilize business-coaching support. And actually, we have seen that these businesses could be in any sector or geographic location.
We have found that younger entrepreneurs, those between the ages of 25 and 45, tend to be more open to discussing different ideas around how their businesses can grow. They also tend to have had greater exposure to digital technology and smartphones, which allows them to access information that is beyond the traditional marketplace. This new, anecdotal evidence aligns with the findings of a 2018 report from the Mastercard Center for Inclusive Growth.
3. Coaching as a driver of long-term success
Access to affordable credit is crucial for SGBs, but without addressing the critical knowledge and skill gaps that entrepreneurs have, their growth can be hindered.
Business coaching should be a crucial aspect of all SGB programs and one of the areas we keep revisiting, as getting it right has proven more complex than we first anticipated.
Recruiting staff members with the right skill set and confidence remains a challenge. Helping them realize that they don’t have all the answers to all business problems — nor should they — is very important. Training staff to understand their role — as a critical sounding board for the SGB client to explore choices and options — is essential.
In addition to using accepted coaching models and business-planning tools, it is important to support clients who show an appetite and responsiveness to coaching at regular frequency. The right staff, the willingness of the client to take advice, and the client’s own growth ambitions are all critical enablers that need to be considered when designing coaching packages.
4. Using a gender lens to empower female entrepreneurs
Women often face many additional barriers in accessing finance and unequal opportunities to develop entrepreneurial capacity, compared with their male counterparts.
An integral part of the program design is the application of a gender lens to identify and address the specific barriers to credit and growth faced by women entrepreneurs.
One of our goals is to provide more than 50% of our loans and business coaching to women-owned SGBs. While this may not sound impressive, the percentage of women-led businesses in the SME and SGB segment often drops significantly below 50% due to the many gendered barriers they face. So far, we are meeting this target in Ghana and Myanmar, but following a recently completed gender analysis of our program, we plan to make further enhancements in product design, promotion, collateral policies, and digitization that will disproportionately benefit more women entrepreneurs.
5. You are only as good as your impact
Monitoring and evaluating our impact is a complex exercise but crucial for the long-term sustainability of the programs and enabling opportunities for decent work.
It is not just about the number of loans given or SGBs reached; it is actually about assessing the creation of decent employment opportunities for low-income staff. Are we supporting the SGBs with the highest growth potential and therefore the ones more likely to have a higher job-creating impact in their communities? Does our business coaching contribute to reducing the gender pay gap and promote equitable practices around decent work?
To answer questions like these, one approach is to implement a quasi-experimental research approach to help understand the highest impact features of a given model and their relative cost-effectiveness.
Using comparison treatment groups, this approach collects detailed quantitative information from each client on at least an annual basis to track the ongoing changes in employment, business growth, management skills and capacity, decent work, and sustainability metrics. Matched with the client loan history and coaching record, this will help us understand what impact our coaching provides relative to the loan itself. And while it's more challenging to measure, we also plan to investigate the impact that is occurring among employees of SGB clients to validate the poverty reduction effects of our program.