How does your proposed innovation leverage public intervention in catalyzing private SME finance?
RCS has partnered with world-class organizations versed in the development of financing institutions for the bottom-tiers of an emerging market economy and has put forward a compelling value proposition to a range of development finance institutions (DFI’s) that will effectively multiply access to capital for its target activities by about 20 times the private capital it is raising.
The Paris Club on June 30th 2010 removed Liberia from the Highly Indebted Poor County (HIPIC) list paving the way for government investments in basic infrastructure such as roads, ports and electrification, all necessary to support the thriving business economy. Additionally, Liberia has been working with the World Bank to develop institutions, including a robust regulatory system and transparency in the legal system. These two avenues of improvement will reassure both international investors seeking opportunities in Liberia and local entrepreneurs with business opportunities. These positive developments will help reinvigorate investor confidence in the Liberian economy and will also encourage more Liberian nationals to start their own businesses, both of which will bode well for Republic Capital’s business model.
What barriers does your proposed solution address?
Lack of collateral, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), General barriers to SME development related to investment climate, Specific barriers to fragile and weak states.
If you checked any of these barriers, describe how your solution addresses them
a) Lack of collateral
The majority of the Liberian SME sector funds itself though retained earnings, which significantly hampers their ability to grow.
Additionally, the banks’ requirements for collateral, which is as high as 150% of the loan amount, significantly limits enterprises’ ability to access bank funding. RCS will address this barrier by offering financial services to SMEs which lack the collateral to qualify for a traditional bank loan
b) Lack of SME access to skills / knowledge / markets
RCS will contribute to capacity building amongst its target clientele by assisting with business planning, business structuring and establishment of internal controls that are pre-requisites for successful business conceptualization, funding and implementation.
RCS, through its diligence process, will help local entrepreneurs who lack the skills necessary to navigate through the investment process to gain access to such skills and knowledge.
c) Unavailability of financial products tailored to SME needs
The majority of the financial products available in Liberia are focused on the needs of large international firms and are primarily short term in nature. RCS, through its comprehensive range of offerings designed for the SME segment will expand access to such financial services.
d) Underdeveloped local capital markets (term local currency funding, exit options for SME equity)
Owing to the underdeveloped nature of the Liberian capital markets, investors (both international and local) do not have a safe channel for investing in the Liberian economy or exiting from their investments. Since RCS will intermediate the flow of funds from both international and local markets, it offers a unique opportunity for such investors to help build a healthy SME sector in Liberia.
e) General barriers to SME development related to investment climate
In markets like Liberia, where long term investment capital is lacking in the banking sector, even more established businesses lack local access to long-term funding to finance their growth needs.
A merchant banking institution such as RCS can address this bottleneck by identifying promising companies and structuring and packaging transactions for investors.
f) Specific barriers to fragile and weak states
The 15 years of civil war in Liberia has deprived the country of the infrastructure and institutions necessary to support the required development. The current government has initiated a lot of efforts to build the infrastructure and develop institutions, including a robust regulatory system and to ensure transparency to increase investor-confidence and thereby, attract investments. Similarly, private sector initiatives such as RCS will set a precedence for private sector inflows in to the Liberian SME sector and encourage more such investors to follow suit