Does the Diaspora need its own small business fund?

By IndepthAfrica
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Jul 11th, 2012
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Dele Meiji Fatunla

Whether it’s small restaurants, import-export business or a mom and pop corner shop, immigrants and Diasporas have a knack for running businesses, often out of necessity, always out of drive. Yet, it can be difficult for ambitious diasporans to turn their hands to business in Africa because of a lack of capital. There is an increasing interest in small and medium sized enterprises in Africa; such companies are now attracting interest globally from private equity groups and other investors. There seems to be an increasingly global consensus that small businesses are critical to building strong economies; Germany’s Mittelstand is the model of a strong economy built on the back of relatively small and efficient enterprises, often family owned.

In many African countries, where economic growth, despite being robust is predominantly still commodities led, such a model may seem a distant dream, albeit one that the interest of private equity groups and other investors could hasten. Nevertheless, when investors talk about small and medium sized companies their understanding very often differs from that of Africans in the diaspora, particularly those who actually aim to start businesses. For these private equity investors, small and medium sized often means companies with a turnover of not less that £1 million pounds – £15 million pounds. While many diasporans may harbor ambitions of building companies that big, more often than not, they expect to start from a much lower base of capital.

We’re talking relatively small amounts of investments as low as £5, 000 to £50, 000; which begs the question. Do we need a small funds agency for Africans in the diaspora who want to build businesses in Africa?

Apart from UK banks, which are reticent to lend to small businesses, talk less of small business aiming to operate international, the source of such capital is not really evident.  The traditional source of funding for business has often been reliance on family and cultural networks; however, these may be less available as such cultural ties begin to fray over time. Furthermore, disposable income, which could be another source of capital, is often under pressure from the need to send remittances, often for daily expenditure rather than building businesses. Yet for many there is no shortage of ideas, ambition and will, only a distinct lack of sources of relatively small amounts of capital for these individuals. It’s not really clear which institutions would be willing to supply this capital: microfinance institutions are focused on the poorest of the poor, and large private investors seem interested only in businesses that have already scaled. It begs the question: do we need a small funds agency for Africans in the diaspora who want to build businesses?

Dele Meiji Fatunla is Editor of Diaspora Debate.

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