Small and Medium-Size enterprises (SMEs) create most of the jobs in any economy, and they also play a critical role in providing goods and services to low-income communities. But there are very few sources of financing to help SMEs scale. Interest in SME funds is growing, however, so finding successful models is critical. Shell Foundation has piloted and is now scaling just such a successful model. In this and succeeding posts, we ask Shell Foundation?s Kurt Hoffman to explain the model, its impacts, and the potential for scaling. We?d welcome comments from others about the Shell Foundation model, their experience with other models, and other suggestions about catalyzing SME development in BOP markets.
A.H.: The Uganda Energy Fund was the Shell Foundation?s first attempt at providing investment financing for local SMEs. How did this Fund start?
K.H.: The Uganda Energy Fund was started through a partnership with DFCU, a local commercial bank that had started out as a development bank. We were interested in growing a portfolio in the local SME energy sector, which is where we saw the greatest unmet need. Microfinance was there, large loans were there, but there really was nothing in the middle--$10,000 to $500,000--for SMEs looking to scale, despite the fact that these businesses are the largest source of local job creation.From the outset, the key for us was to make it a commercial interest, not a charitable one. The Fund was initially capitalized with $4 million, half from each partner, with an additional $300K in soft money contributed by Shell for startup and technical assistance costs. It focused on lease financing for equipment. We made sure the loan manager was local from within DSCU.
The Fund was up and running within 9 months, offering leasing finance secured by equipment. We provided financing to any kind of energy project, as long as it was more environmentally sustainable than the status quo. Within three years of launching the fund has financed over 50 SMEs, generating over 5000 new jobs and livelihoods. And it looks as if it is generating about 20% return on investment.