SME Finance Innovation Challenge Fund (SME Finance ICF) – Round I.
In March 2011, the FSDT’s Board approved a project to establish a special fund called “SME Finance Innovation Challenge Fund (SME Finance ICF)” to stimulate innovation among banks and other financial institutions in Tanzania. Through this project, FSDT aims to support projects testing innovative concepts, technologies and business models that will deliver new products and better services to underserved SME clients. It was observed that, the SME market in Tanzania lacked variety of financial products/services to suit the SMEs largely due to limited “innovation” and often considered it to be costly and risky.
Projects
Fund’s structure and target market
SME Finance ICF is a risk-sharing mechanism designed to finance up to half of the cost of developing new products/services in order to encourage ideas that might otherwise be too risky to attract commercial operators but are still worth undertaking. These ideas could involve new technologies, better credit scoring, create links with service providers in order to reach previously un-served businesses, opening up new service channels and devising creative marketing and customer service strategies. The ICF does not finance normal course of business or capital for on-lending. Grant awards are made through a two-stage competitive process, in the range US$ 100,000 to US$ 500,000. Decisions are guided by an independent panel.
Round I – Grant Award and Results
The project took off in June 2011 and was meant to run for two rounds as a pilot. The first round attracted 19 applicants out of which 12 applicants were assessed to be microfinance focused and hence unsuitable for the competition. Three applicants made to the full proposal stage and final selection. One applicant, Go Finance Company Limited, was selected by an Independent Review Panel as a sole winner and received a full grant of US$152,000. The project will provide short term credit to SMEs specializing in the distribution of fast-moving consumer goods. The funds will therefore be applied to fund 50% of the costs of developing the MIS for the project, consultants’ fees, salaries for staff involved in the project and commissioning of the software.
Go Finance Company Limited
GO Finance; an initiative of a group of enterprising and creative young Tanzanian bankers with corporate banking experience. It is a meso-finance company that provides working capital and short to medium term loans to MSMEs involved in the value chains of multinational corporations that manufacture Fast Moving Consumer Goods (FMCGs). In addition, the company intends to provide access to Information Technology, and targeted training that assists entrepreneurs to strengthen the capacity of their businesses. The company has successfully rolled out the sole grant-award winning project whose initial performance report will be availed in the first quarter of 2013.
Lessons
The project has stirred interest in the market such that financial institutions, business support organisations and technology led and/or software development houses are coming together to develop new products or business support services that will enhance service provision in the SME market segment.
The FSDT Board therefore, has approved extension of the project to cover further rounds in the coming financial year.