UNDP CAMEROON ACCELERATOR LAB
USING COLLECTIVE INTELLIGENCE TO BREACH BARRIERS FACED BY MSMEs TO ACCESS FINANCE
October 26, 2022
Collective Intelligence is created when people work together, often with the help of technology, to mobilise a wider range of information, ideas, and insights to address social challenges.
Take a travel back in time to 2 or 3 centuries ago when mobilizing ideas and a wide range of information from one generation to another was done around the campfire. Often, these were stories with information which served to address day-to-day community challenges at the time. Such information was passed on from generation to generation through “word of mouth”, revealing the place collective power has always occupied in our societies and will always do, to achieving group or community success.
As 21st century challenges have become so complex, fast pace, and with urgent need to match actions to the speed of challenges faced around the globe today, modern methods of tapping from collective power have continuously emerged over the years, now coined “collective intelligence” which could reflect a diverse group or team seated around a table in a room, trying to put ideas together for solutions or a solution to a challenge.
Such seats around the table have replaced the campfires in the days of old, tapping from an intelligence which generates real -time information and data, with prove on informing programmes and accelerating systematic change.
While reflecting on the power of collective intelligence, we acknowledge the strength there is in collective action for development purposes, transparency and accountability, complementarity, and decision-making, and most especially for a holistic approach to programming and development.
In testing how much collective intelligence brings to the development table, UNDP Cameroon, with the support from its Accelerator Lab leverages four key hypotheses to sense methods and techniques which enhance and facilitate access to finance for MSMEs within the framework of the Country Office (CO) Rapid Financing Facility (RFF) project.
The hypotheses derived were based on the following challenges:
Challenge 1: Access to real-time information on available financial products, and or opportunities is limited towards MSMEs.
Hypothesis 1: If MSMEs are linked to financial institutions for an information session, their chances to fund acquisition will increase and their knowledge on available financing opportunities will improve.
Challenge 2: MSME dependence on traditional/classic finance mechanisms hinders product scale-up and sustainability
Hypothesis 2: If MSMEs are connected to innovative finance actors and mechanisms, over dependence on traditional financing mechanisms and approaches will reduce while MSMEs will gain enhanced access to innovative finance opportunities and services.
Challenge 3: Credibility and guarantee is a great concern for financial institutions prompting their reluctance towards grants to MSMEs.
Hypothesis 3: If MSMEs have institutional backup from the Government and development actors including UNDP, then grant procedures will be facilitated and more accessible.
Challenge 4: Financial institutions have limited information and knowledge on MSME activities.
Hypothesis 4: If financial institutions have real time information and increased knowledge about MSMEs activities, the perceived risks on activities will be reduced and their willingness to finance MSMEs will increase.
The Added Value of UNDP Cameroon Rapid Financing Facility Programme to partner MSMEs in the Agri-business Sector
Local MSMEs in Cameroon face multiple challenges including lack of information, lack of capacity and knowledge regarding business development, limited access to finance and technology, especially for women and youth with respectively 53% and 52% who Lack access to formal financial services and products.
In addition, the average overall effective credit interest rate to MSMEs is assessed at 10.5% compared to 5.5% for large companies based on a UNDP Cameroon Evaluation Study on Development Financing. The socio-economic impact assessment study carried out by UNDP on COVID-19 in April-May 2020, revealed that the main difficulties faced by local enterprises are the decrease in demand and supply, and access to finance.
Through the RFF Programme, partner MSME benefited from an integrated range of financial and non-financial supports including capacity building, coaching/mentoring through a local incubator, grants in forms of equipment’s provision, improved products branding, marketing, and access to market, etc. Despite the good results achieved by the Programme, access to finance by MSME has remained a key challenge throughout the implementation.
The Accelerator Lab took a deep dive to capture insights from a financing matchmaking event organized within the framework of achieving key RFF Programme components to connect beneficiaries to financial institutions and enhance information on available financial opportunities offered by these institutions. Insights captured from these sessions revealed the following:
- Information related challenges on accessing finance to MSMEs are two-fold; MSMEs are hardly aware of available financial opportunities and related information, meanwhile, on another note, financial institutions lack or have little information on available market-ready products suiting or adapted to the financing demands or strategy of their respective institutions.
- The Accelerator Lab observed that beneficiaries were over dependent on classic finance mechanisms compared to existing innovative finance mechanisms which limited their chances to obtain funds for business development.
- Product standardization and certification for MSMEs remains critical to unlock financing, requiring UNDP’s continuous support to promoting access to markets and competitive value chains in face of national socio-economic challenges. We observed the connection that exist between product quality and consumer trust, requiring continuous and endless efforts from UNDP to position MSMEs at the centre of socio-economic development.
- Support provided to MSMEs by development institutions like UNDP sometimes promote the reinforcement of informal markets or informality in cases where training and equipment support provided to MSMEs without due procedures followed to ensuring product standard and quality control remain challenging to government in terms of promoting competitive markets.
- Lack of financial Guarantee/collateral from the Government or development institutions like UNDP supporting MSMEs was at the centre of discussions from both financial institutions and beneficiaries who emphasized that access to finance would be more efficient if UNDP stood as backup for MSMEs towards financial institutions.
To a good number of the MSMEs who were present at the networking and information sharing event, the Lab noted their enthusiasm to leverage such an opportunity which will connect them to potential investors and increase their chances to acquiring funds.
Preoccupied by their challenges of not being able to respond to guarantee related demands from banks or micro-finance institutions, MSMEs benefited information on alternatives to minimizing or bypassing this burden. Amongst the mentioned methods was the “solidarity guarantee” option whereby a different party, not necessarily the entrepreneur could provide the necessary support financial institutions required for an entrepreneur to acquire funds. Other ways discussed by innovative finance actors required MSMEs to leverage innovative finance mechanisms such as “Equity Investment or Venture Capital” to avoid loans. Insights generated also revealed interesting benefits in the Islamic finance sector, which was considered more inclusive and not based on interest, but rather on ethical values.
The financing matchmaking events organized contributed to reduce the information asymmetry between MSMEs and financial institutions and open the way for improved access to finance for beneficiaries
When the Accelerator Lab sought to know the opinion of beneficiaries on their chances to acquiring financing after the RFF networking and information sharing event, a good number of beneficiaries were within the averages of high and medium chance, while about 12% felt their chances were low.
Beneficiaries perceived that they were already receiving sufficient support from UNDP programmes aimed at empowering youth and women such as trainings, coaching, mentorship, and equipment support, which all contributed to boosting the development of their enterprise. Although, the received support has been very beneficial in recovering from covid-19 induced negative effects, a good number of beneficiaries mentioned that UNDP’s efforts could be more valuable by accelerating engagement processes with banks to facilitate their access to loans.
Compared to 46% of entrepreneurs who placed their bets on easily accessing funds through classic finance mechanisms, 48% believed they will easily receive funding from innovative finance systems, while 2.4% believed that only those who had trust in what they do, will fund them.
The Accelerator Lab drew the analyses that, both innovative and classic finance mechanisms are important for the growth of the MSME sector. None is better than the other, but rather, they complement each other. UNDP as a strategic partner supporting the growth of MSMEs will need to step in on supporting the reinforcement of capacities in innovative finance and promoting innovations which promote inclusive finance for MSMEs.
The emphasis on financial backing from reliable parties to support credit to MSMEs could only be explained by the comfort found in classic or traditional banking systems. Also, it reveals the need for UNDP to strengthen measures and take the lead on innovative finance mechanisms, whose techniques are still timidly vulgarized, developed, and promoted for quick adoption amongst MSMEs. The need for capacity building on innovative finance mechanisms is critical, including the development of inclusive and innovative finance platforms capable of complementing some of the gaps which traditional systems have.
The importance of stakeholders’ coordination as a key element in improving MSMEs access to financing opportunities
Some government actors and financial institutions echoed that information gaps amongst actors within the MSME sector is another great barrier limiting funds for enterprise development. Actors acknowledged the existing coordination challenges and the common characteristic of working in silos which only promoted a duplication of actors’ efforts towards financial assistance to MSMEs. At government level for example, sub-ministerial initiatives, like PEA-JEUNES, PTS-JEUNES, PIAASI, APME, just to name a few work on MSMEs finance without clear coordination with other development actors and donors like UNDP, French Development Agency, World Bank, and more, working on same issue at Country level. Therefore, having the same MSMEs benefiting from several support initiatives is common. An important insight to act on is that, while some MSMEs receive support regularly to address the same problem, others never have. We noted the growing public interest in supporting MSME growth, through a good number of programmes offering funding opportunities to MSMEs across sectors. However, the where, when, and how to have a hold of such information was challenging to MSMEs. While MSMEs felt that the platforms for such information on opportunities are often not user friendly or updated, government partners and private sector partners reiterated the need for entrepreneurs to build a research and consultative culture which sought information from the right sources.
As UNDP continuous to support government efforts on promoting resilience and a safe business environment for MSMEs, the insights generated from the matchmaking event will better inform Country programme’s future support to MSMEs. It will also help to shape and redesign Country office approach to partnership mobilization, for more sustainable programme outcomes related to strengthening financing and resilience for women and youth MSMEs.
The Lab observed that working in close collaboration with the MSMEs lead Ministry of Small and Medium-Sized Enterprises, Social Economy and Handicraft helped UNDP to align to government’s vision on building competitive and sustainable MSMEs. The diversity of entrepreneurs supported by UNDP who intervene at different stages of the agribusiness sector revealed the potential of MSMEs in this sector to the nation’s economy, and an opportunity to strengthen collaboration for improved market access for MSMEs, and a possible boost in transition from informal to the formal sector.
However, for such a programme whereby, promoting access to finance for MSMEs was a key component, financial institutions felt excluded from the programme design process, complicating their buy-in to facilitate procedures for access to credit to MSMEs without recommendation or solid backing from UNDP.
Best Practices and Lessons Learned
- Developing innovative and inclusive finance information platforms and mechanisms which connect MSMEs to real-time and existing funding opportunities will address information gaps on financing for MSMEs.
- Strengthening public private partnerships with functional information mechanisms will break the chain of working in silos and avoid duplicated efforts from development partners.
- Designing specific partnerships with innovative and classic finance actors will promote an enabling environment which facilitates credit/loans to MSMEs.
- Designing strategies which harmonize the efforts of innovative and classic finance mechanisms will go a long way in reducing existing gaps, thereby responding to the financial needs of the expanding MSME ecosystem.
- New markets developed for the RFF programme entrepreneurs across the agribusiness value chains. The networking, coaching and mentorship sessions of the programme connected MSMEs to new markets and partners addressing their needs in production, transformation, packaging, and communication.
- Building trust with government and private sector partners and working with them on a day-to-day can help boost UNDP’s transition from fragmented projects to portfolios. Working together with the Ministry of Small and Medium-sized Enterprise, Social Economy and Handicraft on this project revealed the necessity to reinforce collaboration with the Ministry on building more resilient MSMEs.
- Collective intelligence remains a powerful organizational tool for addressing programmatic challenges and strengthening partnerships. After the matchmaking event between MSMEs and Financial Institutions, at least 68% of RFF beneficiaries have been contacted by financial institutions to explore funding options for supporting MSMEs.
As the UNDP Cameroon Country office carries on with efforts on strengthening resilience for women and youth, including building back better, its Accelerator lab is making sense through collective intelligence of complexities surrounding accessing credit and finance by MSMEs in the Argo-industry sector. The Lab’s next steps will include building experiments around resource mobilization techniques for young entrepreneurs.