VC4Africa highlights comments by Guido Boysen, of GroFin:
“The SME sector is ripe for investment, and the capital exists for this investment to take place. However, before this economic engine of growth kicks into gear, a few myths surrounding the sector need to be dispelled. Firstly, the owners of SMEs are not just unsophisticated entrepreneurs in need of hand holding, they are often good entrepreneurs with sizeable, successful businesses.” He cites an example of one of GroFin’s clients, a petroleum business in Uganda that approached GroFin for funding to the value of about $400,000 to start two wholesale outlets. Prior to approaching the organisation for support, the business had successfully established eight petrol stations, illustrating the sophistication of the SME. Working with an established business and entrepreneur proved successful, with an overall annual rate of return of close to 40%, Guido added, “The second myth is that SMEs do not constitute profitable investments. On the contrary – if these entrepreneurs merely receive appropriate assistance in executing their long term plans, they can reap a return on investment (ROI) that benefits both the investor and the entrepreneur.” This was illustrated in one of GroFin’s Kenyan clients, a borehole drilling business that required $235,531 to purchase its own equipment. The business owner was well-established in the industry, with a solid network of contacts. Their assistance in purchasing his equipment allowed him to reduce his expenses, boosting his cashflow and their management support ensured the extra cash went back into the business and was put to good use. The final IRR on exit was 33.20%. A third myth surrounding SMEs is that they are difficult deals to exit, as they don’t have the governance structures conducive to clean structuring. However, this is a setback that can be overcome, by structuring deals using debt instruments, as opposed to traditional equity. To fully realise the potential of SMEs, the sector needs to be approached with a fresh perspective attuned to the challenges it faces. There is a need for the focus to shift from the available collateral in the business to the viability of the business and the ability of the entrepreneur. Each business needs finance tailored to their unique challenges,. In addition to this, the business owner needs access to the expertise and market knowledge required to make their business a success.More here










































