Activity File
Financing Challenges Facing ICT-Enabled SMEs
Scaling Up ICT-Enabled Innovation & Entrepreneurship in Developing Countries: The Role of Private Sector Finance
| Activity # |
III-SI |
| Partners |
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| infoDev Lead |
Seth Ayers
|
Summary
A key finding from infoDev's Incubator Initiative and our country work on growth and competitiveness is that there is little available financing for technology entrepreneurs. Without appropriate financing, the inevitable result is a significant slowdown in the business development process, which, in a fast moving business such as ICT, may ultimately jeopardize chances of success. To better understand the financial challenges facing technology entrepreneurs, infoDev commissioned this study, which assesses the current efforts by multilateral institutions and investors to address the financing needs of ICT and ICT-enabled SMEs in developing countries, and identifies the key challenges and constraints to meeting these needs.
Background
Access to traditional growth capital, including debt and equity, is not only limited in developing countries but often prohibitively costly due to various factors such as insufficient legal and regulatory policies, and inadequate financial markets. The development community has tried to address this challenge by creating microfinance lending instruments and private sector investment intermediary institutions, including those supported by the International Finance Corporation (IFC). Microfinance has made considerable strides in improving access to capital for individuals seeking USD $10 to more than $1,000 to start or expand a business. Similarly, the IFC and other investment institutions have improved access to capital for established firms seeking USD $5 million and above to expand their operations nationally and internationally.
Despite the success of these efforts, the development community has yet to address effectively and sustainably the challenge of access to capital for SMEs seeking USD $50,000 to $1 million to scale up their businesses and attract private capital markets. For SMEs competing in technology sectors, the challenge of accessing growth capital is particularly acute as these firms possess few tangible assets that can be leveraged as collateral for loans.
In order to better understand these challenges facing technology entrepreneurs, infoDev has commissioned this study, which is assessing current efforts by multilateral institutions and investors to address the financing needs of ICT and ICT-enabled SMEs in developing countries, and identifies the key challenges and constraints to meeting these needs. The assessment is enhanced by ten country studies that provide further detail on supply and demand at the country level across the key regions. The ten countries include: Argentina, Brazil, India, Kenya, Morocco, Peru, the Philippines, Senegal, Ukraine and Vietnam.
An initial discussion with donors and key stakeholders of the study’s findings and recommendations took place during a joint infoDev and Agence Française de Développement (AFD) workshop held the end of April 2006.
The main findings of the study as well as the Country Assessments, can be downloaded below.