In developing countries, small to medium-sized enterprises (SMEs) have considerable difficulty obtaining the necessary financial resources to effectively scale up and grow their businesses. Access to traditional growth capital, including debt and equity, is often prohibitively costly, due to such factors 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 that have made significant strides in improving access to capital for individuals seeking US$10 to more than $1,000. Similarly, the International Finance Corporation and other investment institutions have improved access to capital for established firms seeking US$5 million and above to expand their operations nationally and internationally.
However, despite these successes, SMEs seeking US$50,000 to $1 million have great difficulty accessing the required capital to grow their business. For firms operating in the information and communication technology (ICT) industry and in ICT-enabled (ICTE) activities, the challenge of accessing growth capital is particularly acute, because these firms possess few tangible assets that can be leveraged as collateral for loans and often operate businesses whose economics are poorly understood.
In order to better understand these challenges, infoDev commissioned this study on "Financing Technology Entrepreneurs & SME in Developing Countries: Challenges and Opportunities." The study was carried out in two steps. The first phase was devoted to a desk review of the main issues involved in the financing of small businesses in general, and of SME active in the ICT/ICTE industry. The second phase involved the assessment of financing conditions in ten countries including: (i) three in South America (Peru, Argentina and Brazil); (ii) one in Eastern Europe (Ukraine); (iii) three in Africa (Morocco, Senegal and Kenya); and (iv) three in Asia (India, Vietnam and the Philippines).
This report summarizes the main findings of the work, including: (i) an assessment of the financing needs voiced by techno-entrepreneurs; (ii) a review of the financing opportunities available; and (iii) a series of suggestions regarding possible measures to alleviate the financing gap.
Separate country reports provide detailed results for the ten countries surveyed, which are available on infoDev’s website: 10 Country Case Studies.
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Financing Technology Entrepreneurs and SMEs in Developing Countries: Challenges & Opportunities
Complete report as one PDF file
Table of Contents, Preface, Acknowledgements, and List of Abbreviations
II. Basic Definitions and Concepts
III. Salient Features of the ICT/ICTE Industry
IV. Issues in SME Financing
V. Financing of ICT/ICTE SME: The Demand Side
VI. Financing of ICT/ICTE SME: The Supply Side
VII. Extent and Severity of the Financing Gap
Annex A: Generalist Funds
Annex B: Development Funds
Annex C: High Tech Funds
Annex D: Business Angel Groups