NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Editor’s Note: The Aspen Network of Development Entrepreneurs (ANDE) is one of NextBillion’s content partners. This post was originally published in Business Fights Poverty and reposted here with permission.

Last week, the ANDE celebrated its third anniversary. As often happens with milestones, for me it was a time to reflect.

ANDE is a network of organizations that support small and growing businesses (SGBs) and entrepreneurship in developing and emerging markets. I was first exposed to this idea in the summer of 2008, before the term “SGB” had even been coined. After ten years working in the for-profit and non-profit field, I’d gone back to business school to spend some time exploring this growing realm of social enterprise – and found myself that summer interning for Agora Partnerships in Nicaragua. (See a recent NextBillion post on Agora Partnerships here).

At the time, Agora was a hybrid organization – providing non-profit capacity building support to entrepreneurs while at the same time managing a for profit fund that was investing in small businesses in Nicaragua with the goal of creating social impact. I was working on various projects, including Agora’s social impact report. So I was the one who got the call from founder Ben Powell, shortly after Pam Flaherty of the Citi Foundation came up with the term SGB. “Jenny, erase all reference to SME – the new term is SGB.” I’ll admit – I rolled my eyes. Did the social enterprise sector really need another acronym?

But what I didn’t know then is that Ben had just returned from a meeting in Aspen, Colorado where a group of founding members had just formally agreed to launch the Aspen Network of Development Entrepreneurs. What this group had already realized was that there were a growing number of organizations that were focusing on a specific subset of SMEs that were characterized both by the fact that they were too small to access traditional forms of bank capital and private equity – but also had the potential to scale and grow. They recognized that this level of business had the potential to transform economies and in fact lift countries out of poverty by creating jobs, and wealth, and goods and services that provided social and environmental benefits to their communities. They needed their own name.

A year later I joined the ANDE team and SGB became a part of my everyday vocabulary. In the three years since we have continued to find more and more organizations that are focused on this “missing middle” of businesses that are too large for microfinance and too small to get a bank loan. ANDE is now a robust network of 150 global organizations. We’ve made a lot of headway, which our Executive Director recently recapped in his own third anniversary blog. But we still have a long way to go to achieve our goal of creating a thriving entrepreneurial eco-system which significantly improves prosperity for poor people.

One of the biggest challenges the sector still faces is connecting entrepreneurs with the right type of capital at the right time. As ANDE evolves we have come to find that the missing middle itself has a missing part—because even in our network of members, very few are able to provide financing at the critical $25,000 – $200,000 range. The transaction costs are too high, the risks too great. And this is particularly true in countries like Nicaragua. Agora itself has evolved. Its fund is now fully invested in 10 companies, but instead of raising another fund, they have re-launched as an accelerator—focused on helping early stage businesses prepare for investment and then connecting them to other sources of capital and support.

So as part of our anniversary, we recently announced a new initiative—in partnership with the Argidius Foundation—to address just this issue. The Argidius-ANDE Finance Challenge is a new competition designed to support innovative ways to provide financing to small businesses in emerging markets that require $20,000-$250,000 in early stage capital. It will focus on some of the toughest places to procure start-up capital—Nicaragua, Guatemala, Honduras, Burkina Faso, Mali and Moldova. Through this competition we will identify innovative programs to unlock more capital for early-stage companies, we’ll support them, we’ll study them, and ideally we’ll help replicate them. It is no easy task—but given what we’ve seen from this sector in just three short years—we’re confident it can be done.

To find out more about the Argidius-ANDE Finance Challenge please visit http://as.pn/sgbprize.