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How We Should Structure The Unstructured



Olayimikah Bolo, Principal Partner at Falkirk Limited(Falkirk Risk)

The just concluded 3-part post on “Why We Must Structure the Unstructured” highlighted the importance of the Micro, Small and Medium Enterprises (MSMEs) sector as a catalyst for sustainable economic development, with observable impact on employment creation and poverty reduction.

However, knowing the “Why” without proffering plausible solutions on the “How” will at best be a fruitless reflection.In contemplating the “How” as a professional Risk Manager, my reflection started by considering the “Context” of the sector – including the cultural factors and human behaviour. At the end of my reflection, the two nagging questions were as follows: (1) What are the “intentional actions”that can be taken to “Structure the Unstructured” considering that the inherent sector risks and challenges are largely known and do not fall into the “realm of the unknown” (the figure below summarises the MSME sector challenges/risks); and (2) What are the “intentional actions” that can be taken to stem the noted high (and growing) level of “Informality” in this sector?

These are indeed questions that require deep reflection and a determination to “Structure the Unstructured”!

Reflection on the nagging questions from my last post continues with a subject I find most intriguing -the existing high and rising level of informality. At the bottom of the MSME pyramid are the micro enterprises (MEs) with the largest population and relatively lower income bracket- in varying degrees (see below figure). Whilst a sizable percentage of the players in this sector are ill-educated, majority knowingly choose to remain informal, primarily for reasons of additional costs of formalisation that in most cases prove excessive –e.g. the high entry cost of registration and the recurring costs thereafter like taxes, licencing fees, contributions, etc.

This brings to mind the MSME registration initiative by the FGN through the Corporate Affairs Commission (CAC) in Q4 2018, where a special window was granted MSMEs to register their businesses at a half-cost of ₦5,000. A large percentage of the micro enterprise players may not be able to bear this additional cost.

To put the micro enterprises in the lower rung of the income bracket in proper perspective, think of the following, most of whom are either found on the corner of every other street, or operate from their homes – the roadside mechanic with their apprentices,the “mama puts” or “bukkas”,the barbing and hair dressing salons, the Mama Deborah and her cleaning ladies, the list goes on and on…

In “Structuring the Unstructured”, in addition to tax incentives that will “help” the MSME cross the estimated “3-year failure” mark, one should consider value creating initiatives that will encourage the players to commence the formalisation process, thereby stemming the tide of rising informality…

Whilst creative incentives to spur the MSME sector are being formulated and considered by Federal and State Government Agencies, the industry players themselves, need to be deliberate on surviving beyond the estimated lifespan.

A key process in being deliberate is the adoption of risk management. The concept of risk management is explained in my article “The Art of Risk Management – On A Lighter Note”

It is all about understanding what may go wrong in the chosen line of business, and proactively put appropriate risk response measures in place. Being reactive when an event materialises may cost you the business altogether!

Also Read Meet Sivi Malukisa, The Congolese Entrepreneur Whose Food Startup Is Promoting DRC Cuisine

Key challenges or risks facing the sector are detailed in my earlier post Every MSME can proactively apply the process shown in the below figure in a bid to Structure The Unstructured and thereby increase their chances of survival.

Whilst the MSMEs are encouraged to increase their chances of survival through the proactive internal application of risk management processes, a fascinating external mechanism is through the use of Credit Guarantee Schemes. As with Credit Guarantees, the lender of funds is provided with a recourse in the event of default.

Credit Guarantee Schemes (CGS)provide the needed financial and economic additionality for MSMEs. The preferred model is that of risk sharing by the Credit Guarantee Institution and the lender, as this should ensure the application of adequate credit rigour to viable and sustainable transactions, whilst curbing the temptation for fund providers to transfer non-performing portfolios.

Though most Institutions offering CGS in developing countries are government owned, it is time for creativity and thinking out of the box. It is time for our Institutions to Collaborate with the Government – howbeit Federal or State – to engender economic growth. Much like the Central Bank’s Risk Sharing scheme for the Agric Sector – NIRSAL, funds can be structured and provided by the CBN, local and international development agencies, targeted at specific economic sectors to migrate the MSMEs from low -to medium -to high value-adding activities.

Institutions with credit risk assessment expertise like the Credit Bureaux should begin to see the bigger picture and consider the value chain for plausible forward integration… a Credit Guarantee Division perhaps? Surely food for thought in a bid to “Structure The Unstructured.”

By: Olayimikah Bolo

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Mixed-use is the key to funding hotel development in Africa




JLL’s research into global property transactions reveals that in the first half of 2019, there was a 42% increase in the value of mixed-use property transactions

JOHANNESBURG, South Africa, September 16, 2019 – A new report from JLL, the world’s largest professional services firm specialising in real estate, has revealed that people seeking to finance a new hotel project in Africa will be much more successful if their hotel is part of a mixed-use development.

JLL’s research into global property transactions reveals that in the first half of 2019, there was a 42% increase in the value of mixed-use property transactions, whereas there was a decline in other sectors, with Office down 4%, Industrial down 6%, Retail down 20%, Hotel down 18% and alternatives down 40%.

Xander Nijnens, Executive Vice-President, JLL Sub-Saharan Africa, explains that the trend is driven by lenders’ approach to risk. He said: “Diversifying risk by including alternative types of property, commercial, retail, hotel and branded residences, in one development, provides comfort to financiers due to the diverse and more consistent income streams generated. Branded residences are also increasing in prevalence because they provide up-front cash inflows and a more predictable source of revenue than one gets from a hotel alone.”

In Africa, the leading funders of hospitality construction projects are government-backed Development Finance Institutions (DFIs) like International Finance Corporation (IFC), Overseas Private Investment Corporation (OPIC), the CDC Group, Proparco and the German Investment Corporation (DEG). They are motivated by economic development, skills development and job creation and have a lower requirement for the predictable, consistent loan repayments required by a commercial bank. DFIs are also able to stomach more risk.

Also Read Interview with Badejo Stephen, CEO and Founder of The Removalist Logistics

A driving factor for this trend is that hotels rent their rooms in euros and US dollars rather than in local currency which, from a financing perspective, reduces the risk to the lender and lowers the interest rate paid by the borrower.

The research comes a week ahead of the Africa Hotel Investment Forum (AHIF), Africa’s highest profile gathering of the hospitality and tourism industry, which takes place in Addis Ababa on September 23-25.


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Fenix International to Launch Off-Grid Solar in Mozambique in partnership with leading operator Vodacom




Launching sales in Mozambique is the latest step in Fenix’s expansion

MAPUTO, Mozambique, September 16, 2019 – Fenix International, a next-generation energy company and subsidiary of ENGIE, opens its sixth market in Mozambique, where it expects to reach 200,000 households with clean energy and inclusive financial services within 3 years.

Launching sales in Mozambique is the latest step in Fenix’s expansion. Headquartered in Kampala, the company has already connected 500,000 customers to solar power in Uganda, Zambia, Côte d’Ivoire, Benin, and Nigeria. Fenix has rapidly grown operations as a subsidiary of ENGIE, enabling the company to scale off-grid energy and financial services across new markets, with Mozambique the fourth new market opened within the past year.

Luke Hodgkinson, Managing Director of Fenix Mozambique, comments, “Mozambique has set an ambitious target with their ProEnergia initiative to reach 100% of the population with electricity by 2030. The country represents an optimal market for off-grid solar products, with only 27% of households currently connected to electricity and a highly distributed population. Fenix’s operations here will focus on reaching those most in need of energy access, particularly districts in the North and people who are using expensive, polluting, and dangerous methods such as kerosene and candles to light their homes.”

By replacing fossil fuel-powered lanterns, solar home systems allow off-grid customers to illuminate their homes with clean LED lights, as well as charge phones and run radios, TVs, hair clippers and speakers. Fenix’s latest product, Fenix Power, is a GSM-enabled power system that enables the company to determine product usage and potential technical issues remotely, improving the customer experience. Fenix is the first PAYGO solar company in Mozambique to use these Internet of Things (IoT) technologies to reduce costs and bring high-quality, affordable technology to rural, last-mile customers.

Fenix has partnered with Vodacom and Vodafone M-Pesa SA to tackle the challenges of distribution, connectivity and mobile payments that have left rural Mozambicans underserved by affordable energy products in the past.

Luke adds, “We are delighted to partner with Vodacom and Vodafone M-Pesa SA. With their market-leading brand, distribution network and payment platform, and Fenix’s high-quality products and excellent last-mile customer service, together we can provide clean energy and financial inclusion to millions of rural Mozambicans. Once these foundations have been established, the possibilities to bring other life-changing products, from household appliances to crop insurance, are truly endless.”

Gulamo Nabi, from Vodafone M-Pesa SA adds, “We’ve been working to unlock the potential of M-Pesa for the millions of Mozambicans in rural areas, far from the national grid or traditional financial services.

“Vodafone M-Pesa SA is excited to work with Fenix to access these areas and provide the easy, fast and secure payment platform for customers to light up their homes with clean, affordable energy. This is totally aligned with our mission to create mobile solutions to change our customers lives.”

Also Read Interview with Badejo Stephen, CEO and Founder of The Removalist Logistics

Fenix is headquartered in Maputo, but will operate in every province of Mozambique within the next three years. Whilst sales have already begun in the South Region, the next point of entry for investment will be in the province of Nampula before the end of the year. This decision is motivated by Fenix’s commitment to delivering its solution to households most in need and in the hardest to reach corners of rural Mozambique. To serve its customers across the country, Fenix will train and employ over 150 full-time sales and marketing, customer service, product diagnostics, and logistics professionals.

Fenix International

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Arab central banks’ chief laud Egypt’s successful economic reform experience




Governor of the Central Bank of Egypt (CBE) Tarek Amer

CAIRO – 15 September 2019: Governors of Arab central banks and monetary institutions applauded Sunday Egypt’s successful economic reform, which helped restore investors confidence.

This came during the 43rd session of the Arab Central Banks Governors and Arab Monetary Associations, which kicked off earlier in the day at the Central Bank of Egypt (CBE) with the participation of over 200 Arab bankers, central banks’ governors, ministers, economic experts and officials of the Arab Monetary Fund.

Also Read Meet Sivi Malukisa, The Congolese Entrepreneur Whose Food Startup Is Promoting DRC Cuisine

Participants asserted that the Egypt’s economic reform experience over the past four years should be documented as a model to be followed by other countries.

Egypt Today

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