WHAT IS THE STATE OF THE PRIVATE SECTOR IN THE FRAGILE COUNTRIES IN WHICH YOU OPERATE?

Marie Ateba-Forget: In the fragile countries where we work, the private sector is poorly structured and underdeveloped. Consequently, it generates very few salaried, formal jobs for the most vulnerable sections of the population. To earn a wage, these people must become self-employed. In Burkina Faso, the informal economy accounts for 91.8% of jobs. In certain fragile countries, the situation has deteriorated sharply: in Myanmar, at least one person in the households we are working with used to have access to low-skilled salaried employment. A few months after the 2021 coup, these jobs had disappeared, making families even more dependent on self-employment. In these fragile countries, it is vital to support people who have become micro-entrepreneurs without really having chosen to do so, and who have no other short-term alternative for meeting their basic needs.

Natasha Olmi: Local contexts are generally complicated for the private sector structures we finance in Africa. For example, our partner Hekima, a microfinance institution (MFI) operating in the Kivu region of eastern Congo (DRC), has to contend with a social and economic environment degraded by several decades of conflict. The country’s governance is weak and the MFI operates in a complex and uncertain regulatory environment where microfinance does not always get a good press because of successive instances of fraud. In this region, Hekima offers quality services to economically active poor people, focusing especially on women entrepreneurs, who comprise 76% of its customers. SIDI and FEFISOL II provide this partner with financing and support.

WHAT IMPACTS DO YOU SEEK TO ACHIEVE OUT IN THE FIELD?

N. O: FEFISOL II is a fund focused 100% on Africa and, like its founders SIDI and Alterfin, we seek to reach places where others don’t really operate and to be as ‘incremental’ as possible. Our aim is to enhance financial inclusion of the most vulnerable people, far from financial services, especially women and rural dwellers. The aim is to positively impact 1.8 million active beneficiaries over the 12-year life of the fund, including over 50% in rural areas. As regards agri-food businesses, we are seeking to boost our partners’ commitment to the ecological and social transition of production processes. The aim is to positively impact over 70,000 small-holders, more than 70% of whom are certified organic or fair trade.

M. A-F: The political and security situation in Haiti, Myanmar and Burkina Faso has deteriorated sharply over the past three years. In these places, our immediate response is to maintain our presence to ensure continuity of service: savings, credit, training, cooking and lighting equipment, etc. Vulnerable families are hardest hit by these events and are having to contend with basic survival issues (i.e., security, food). We also need to adapt and increase the help we are providing, for example, by stepping up our support for male and female farmers who are the guarantors of food security. The European Microfinance Award won by Yikri in Burkina Faso is a brilliant illustration of this commitment.

WHEN YOU IDENTIFY NEW PROJECTS, WHAT DO YOU ANALYSE FIRST?

M. A-F: Entrepreneurs du Monde has long operated in the social microfinance sector. When we work with micro-entrepreneurs, all house-hold expenditure and income is recorded and analysed. We found that energy costs (wood, charcoal, paraffin oil, battery-powered torches, etc.) were a major item (up to 25% of the total budget), so we developed social enterprises that provide access to clean energy. Similarly, we wanted to impact health costs – which have a major effect on the activities of beneficiaries – and we developed mutual health insurance schemes in partnership with the NGO ATIA. In fragile countries, we are currently working on food security issues.

N. O: The social and environmental impact thesis is key to our analysis: vision/mission, distribution of added value, governance, etc. We also focus on social and environmental risks, especially in the agricultural sector. If we identify a risk, we deploy a social and environmental action plan. Moreover, as a debt fund, we must conduct an in-depth, medium-term economic feasibility study: partners must have a viable validated business model so they can pay us back. We track our MFI partners on a monthly basis and, in more informal agricultural sectors, we monitor agricultural campaigns very carefully.

MORE SPECIFICALLY, WHAT SORT OF PROJECT SUPPORT DO YOU GIVE?

N. O: Because technical assistance (TA) played such a big part in the success of the previous fund, SIDI decided to structure a new TA facility for FEFISOL II, financed by Proparco and BIO, the Belgian DFI. The support offered is based on the needs of our partners. In 2023, for example, the facility helped Gebana Togo, a Togolese SME exporting organic soya, to deploy the “inoculation” technique, which not only boosts the income of smallholders, but also encourages soya plant growth (a 20% increase in forecast production volume for 1,700 small producers), while naturally improving soil quality.

M. A-F: Our support consists in providing technical assistance and giving local teams the resources needed to achieve operational autonomy (training, tools and procedures), financial autonomy (achieving financial breakeven) and institutional autonomy (incorporating entities under local legislation, introducing solid governance). But it also involves financial support in the form of grants to cover the operating losses of the first few years in loans and principal needed to roll out activities to a larger number of beneficiaries and enable people to change scale. Our incubation model enabled us to forge an entire ecosystem, because no investor was prepared to step in and help social enterprises that were not yet breaking even.

HAVE YOU ESTABLISHED ANY SPECIFIC LOCAL PARTNERSHIPS TO ENSURE THE SUSTAINABILITY OF YOUR FUNDING?

M. A-F: From the very beginning of a project, Entrepreneurs du Monde chooses a local structure – usually with corporate legal status – and provides it with long-term support (for around ten years) at every stage of its development. This support is both cross-functional (i.e., finance, social performance, governance, information and management systems, etc.) and ongoing, enabling the local team to be equipped, innovate, learn and develop their skills. Entrepreneurs du Monde plays a key role in the governance of the organisation and is guarantor of its social mission. This modus operandi helps reassure investors and, out in the field, the emergence of these social enterprises ensures the availability of sustainable services providing long-term support for beneficiaries. Lastly, in fragile countries, the stated independence of these private structures from the public sector is proving to be an important strength.
 
N. O: The FEFISOL fund builds on the partnerships forged by its founders, SIDI and Alterfin. We generally work with NGOs that support agricultural businesses in order to get a different perspective on the partner, which also helps to reduce counterparty risk - Nitidae, for example, is one of our preferred partners out in the field. At the other end of the chain, we work with agricultural product buyers in Europe - especially with Ethiquable, a French cooperative specialising in organic fair trade products, with which SIDI has just signed a long-term strategic partnership.

HOW DO YOU SEE THE SITUATION DEVELOPING IN THESE HIGHLY VULNERABLE REGIONS?

N. O: The effects of climate change will undoubtedly be greater as we move forward. At the same time, access to energy - particularly clean energy - is likely to remain a major challenge. To meet this challenge, we want to equip our partners with renewable energy production plants and we are working to recover the organic by-products of processing (via pyrolysis of cashew nutshells, for example). We also support the production of organic and local alternatives to chemical inputs.

M. A-F: In the current international context, it’s hard to be optimistic. In the three fragile countries in which we work, we are preparing for long-term deterioration and working with local teams to try to adapt. The increase in extreme poverty and food insecurity in three years is amazing, and we know the situation is likely to be compounded by new aggravating factors linked to climate change. In Burkina Faso, we are launching an experiment with displaced people in extremely precarious circumstances: we allocate them an income for a limited period and provide them with enhanced support to help them set up an income-generating activity. In Myanmar, we are considering introducing a food transfer system to facilitate access to basic foodstuffs at sustainable prices. In these three countries, we are stepping up our support for male and female smallholders who are the key players in food security.

WHAT DO YOU EXPECT FROM FINANCIAL BACKERS AND ARE YOU SEEING ANY NEW FUNDING “TRENDS” AMONG THEM?

N. O: Given the amplification and overlapping of risks in Africa, we expect international financial backers to commit more to risk-sharing: to compensate for the low returns on small investments and the most fragile customers, hedging of risks (political, counterparty, exchange rate), first loss, etc. This would enable a fund like FEFISOL II, dedicated to financing rural microfinance and family farm holdings, to expand its activities in these extremely fragile countries, by strengthening its mission and incremental value.

M. A-F: Because of higher interest rates, borrowing requirements are undermining the business model of social enterprises, which are desperately trying not to pass on these costs to their beneficiaries, who are already highly vulnerable to inflation. At a time when recapitalising our social enterprises is becoming increasingly urgent, it is even more difficult to convince investors – even social investors – when it comes to projects located in fragile regions. Public financial backers must therefore acquire stakes in Solidarity Enterprises with Social Utility (ESUS) in developing countries, providing terms and conditions that are compatible with their social mission and limited for-profit status.