Nigerian small businesses to attract $2 million credit facility

Nigerian medium and small enterprises could attract up to $2 million from Grassroots Business Fund (GBF or the Fund), an investment fund that aims to aims to reduce poverty by building companies which provide sustainable incomes and cost-savings for poor populations in lower-income countries.

The fund recently partnered with the Africa Guarantee Fund (AGF) to provide a $700,000 credit facility to Soko, a manufacturer and distributor of artisanal jewelry based in Nairobi, Kenya, in September.

AGF is a non-bank financial outfit headquartered in Kenya, with a mandate to assist financial institutions increase their financing to African Small and Medium Sized Enterprises (SMEs) through the provision of partial financial guarantees and capacity development assistance.

“We are looking to invest in businesses in all African countries,” said a GBF officer who spoke to Businessday from Kenya. “But we have to see the business plan of such enterprise to understand it and ascertain its funding requirements”

Speaking further, the Fund officer noted that for GBF to invest in any business, whether in Nigeria or any other African country, such business must have been in operation for at least three years, with a demonstrated social impact in its immediate community. GBF measures social impact by the economic value generated as income or cost-savings, and the number of people affected.

“The business must also have strong financial background evidenced by consistent profit history, and capacity to take on additional funding,” the officer added.

The Soko investment, part of which is convertible to equity, marks GBF’s twelfth portfolio investment in Africa.

The deal is structured as a 3-tear revolving credit line which Soko will use to finance working capital to support its rapid growth offered by current demand. Soko currently sells handcrafted, ethical fashion jewellery on behalf of more than 1,800 artisans in Kibera and Rongai who use natural or recycled materials such as cattle horn or brass in crafting their products for just-in-time orders for a global client base.

For investment, GBF usually seeks debt financing opportunities with sizes ranging from $750,000 to $2 million businesses that help generate sustainable earnings for people with low incomes in Africa, Asia and Latin America.

The fund devoted about 70 per cent of its portfolio valued at $20 million to agriculture in 2015, while it 14 per cent allocated of its funds to Africa.

For Nigeria’s small businesses whose gross under-performance has undermined their contributions to the country’s economic growth and development to attract funding from GBF and similar investment outfits, industry sources said that certain essential business practices must be in place.

“The businesses should have structured financial management framework, for instance, written long-term strategy with clear implementation plans, functional corporate governance codes, practical human resources policy and environmental management plans,” the sources said.

GBF also provides financial support to businesses with high impact: businesses that provide products or services to the poor in their region, having spent $2.1 million (7%) of fund portfolio to this category of businesses with impact on 4.67 million people and dependents.

 

Innocent Unah