Networking

State encouragements, capital abstracts, trade communities.

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Turkey is among the largest 10 markets of machinery in Europe, with around $28 billion USD total machinery sales. The Turkish machinery industry has a wide product range. Today, the industry produces building machinery; heavy industrial machinery; machine tools; hand tools; drilling machines; pumps and compressors; textile machinery; food processing machinery; internal combustion engines and turbines; sewing machines; refrigerators; washing machines; dishwashers; valves; conveying and hoisting machines; cutting and bending machines; air conditioning units; woodworking machinery; boilers and burners. The industry is also capable of producing parts and accessories for the above‐mentioned machinery types. The share of the local inputs used in the production of these machineries is around 80 percent.

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The project will impact the middle east countries. Also machinery parts sector will have earnings with this project.

Bpeace currently receives funding from foundations, corporate donors, grassroots fundraising and events, appeals and the U.S. Department of State.

For a portfolio of 25 SMEs, the total funding needed for the three-year period is $1.5 million—or $60,000 for each SME. One-third or $500,000 is contributed by the value of the pro-bono professional services provided by Bpeace skill-based volunteers. The remaining $1 million must be raised for each portfolio.

These funds pay for Bpeace U.S. and in-country staff, in-country services, travel expenses for SMEs and additional programming costs.

Bpeace’s begins its Community Exit Strategy the day we enter a community and hire local staff. Today, we are evolving our strategy in order to create more jobs globally and bring peace to more communities.

Bpeace will continue to bring knowledge, tools and support to entrepreneurs as we implement our seven-year strategic plan in each community that we work. Our goal is to create 1,000 jobs in each community, leaving behind a freestanding consulting firm founded by former Bpeace staff and program participants. We plan to work in five communities per country in order to create a total of 5,000 jobs in each country in which we work.

During the first three years that we enter a new community, Bpeace hires a Country Director and Entrepreneurial Adviser with consulting experience. Bpeace coaches them to operate like a consulting firm as they take on a group of SMEs and provide them with customized, hands-on services.

At the end of the third year, the first group of SMEs completes the Bpeace program. They will have also concluded the Capital Markets & Corporate Finance program and we expect that we will have already begun to initiate pro-bono introductions to appropriate sources of financing for the SMEs that require growth capital.

The cycle continues in each community with two more cohorts of entrepreneurs through the seventh year.

During our seventh and final year in a community, Bpeace headquarters will assist in-country staff in finding paying clients to support a self-sufficient consulting firm. Bpeace will leave behind 1,000 new jobs that spark a multiplier effect that sustains thousands of families and boosts local purchasing power, which in turn lifts other businesses, creates even more employment and new markets and accelerates the community up the path to prosperity and peace.

Our largest source of private funding comes from Bpeace members who provide their time and expertise to our SMEs, in addition to funding for our programs. We currently have over 250 active dues-paying members and so a loss in some of our membership would not be detrimental to our programs. Bpeace recruits new volunteers specializing in particular skills and industries on a continual basis to ensure that all of our SMEs get the customized, hands-on attention that we commit to them at the beginning of our program.

Bpeace’s three-year program has thus far proven to be sustainable. Our success has been rooted in working with highly motivated and talented SMEs and in our ability to recruit professionals to support them. Still, some risks include:

Risk: Were we unable to find enough of the appropriate professionals in our network, we would not be able to meet the needs of the SMEs.
Strategy: Bpeace is constantly recruiting new members and creating additional partnerships in order to mitigate this risk.

Risk: Regional instability could threaten the success of our programming.
Strategy: Even in areas of high-conflict we have been nimble enough to make adjustments. In Afghanistan, we increased the ground staff and reduced the number of trips that Americans made to the region. Today, we are stronger than ever in Afghanistan.

Risk: Difficulty identifying qualified entrepreneurs.
Strategy: Bpeace is learning how to seek out and identify appropriate business-owners with the ability to scale. We constantly utilize our extensive and growing network to discover new businesses and are explicitly developing relationships in the larger end of the “missing middle” spectrum.

Risk: Finding investors with interest in conflict-affected countries.
Strategy: Bpeace members span the financial industry. We plan to tap directly into our members’ networks in order to connect with investors and educate them about the SMEs through programming. Bpeace will work to eliminate uncertainty for investors by introducing them to SMEs with whom we have built a multi-year relationship, trained through our programming and who have a constant Bpeace support network that consistently performs due diligence.

Bpeace handpicks 25 SMEs for each of our three-year programs from hundreds of applications. We have 50-80 SMEs under management at any one point in time. As we continue to accept additional SMEs into our program, Bpeace plans to only select businesses in high growth industries with the ability to scale and create employment opportunities. Moving forward, Bpeace will specifically select SMEs we believe have the need and ability to make successful use of growth capital at the end of our three-year program.

Bpeace’s Corporate Finance and Capital Markets program intentionally targets the development of a high-growth SME investment sector.

Geographically, Bpeace is on an aggressive track. As we enter each new country, we start in the capital city. Within five years, we expand to four other communities within the country. We stay in each community up to seven-years, exiting after the SMEs create 1,000 jobs. Our sustainable growth plan (described in the question, “graduating from dependence on public finance”) frees us up to continually enter new countries and communities.

PROGRAM FUNDING SOURCE AMOUNT $
SME CapitalFund 1. Developmental Financial institutions 4 000 000.00
2. Private Equity Firms 1 000 000.00
3. Local Financial Institutions 1 000 000.00

Capacity Building 1. Developmental Institutions 500 000.00
2. Non-Governmental Organization 100 000.00
3. Private Organizations 50 000.00

WiSnet 1. Trade Bodies 50 000.00
2. Private Enterprise 100 000.00
3. Developmental Institutions 1000 000.00

Advocacy 1. Private Enterprises 10 000.00
2. Non-Governmental Organizations 15 000.00
3. Trade Bodies 10 000.00
4. Developmental Institutions 20 000.00

TOTAL FUNDINNG REQUIRED 7 845 000.00

NOTE
Funding requirements are for the Zimbabwe pilot project

The proposed solution will offer fee based services. For example, when web directory is launched, firms will be paying fees towards the administration and maintenance of the sight so as to maintain perpetuity of the platform. Public finance will only be required as initial capital to cover various expenses that will be incurred in the setting-up of the platform. Consultations on the setting-up of the platform will take the majority of time, estimated to be three to four months for the pilot project. The actual web designing domain registration and hosting will be expected to take one to two months. All in all, this platform will be expected to graduate from public expenditure after six months.

Capacity Building programs will also be fee based so as to cover overhead costs like venue hire, audio visual equipment and stationary as well as fees for the trainers and presenters. Public finance will be required only for technical assistance and the hosting of the first program. Thereafter, the programs will be expected to be self sustainable. Post training cd’s, books and other presentations will be sold to those who were not able to attend the program or those who simply require their own copies for archiving. This will be an income generator for future program expenses.

Consultations with legislators in terms of reforming the regulatory framework will be done on a conference or forum basis. This will be an opportunity for established and up-coming companies to market their services. In essence, the costs of hosting of such symposiums will through sponsorships. Companies that sponsor the events will have the opportunity to advertise and distribute their promotional materials. This platform will not require public finance.

The establishment of a secondary capital market for SME will require a substantial input of public finance to cover first-loss capital. Extensive consultations will be required as well as substantial technical assistance. Ideally, all paperwork, regulatory framework as well as infrastructure and institutional set up is expected to be completed after one and half years. Thereafter, the market will become self sustainable just like any stock market.

At the present moment, it is quite difficult to estimate with a high degree of accuracy the timeframe it will take to graduate WiSnet from the reliance on public finance. This is due to the interconnected nature of the platform with regards to the sectors that it will target as well as the stakeholders who will be involved in the implementation of the solution especially on a global platform. A lot of protocols will have to be followed in different countries. The graduation and success of the solution will largely depend on the input of international bodies in terms of coordinating and providing expert knowledge on the ideal implementation criteria of the solution.

Private funding will be required for the initial start-up funding. The solution essentially requires a hybrid of public and private financing in the proportions of 90% and 10% respectively. Any loss of private funding will be cushioned by the input of the beneficiaries of the proposed solution. As mentioned in the response to question 19, services offered by the solution will be fee based thus ensuring sustainability of programs once they have been launched.

The major factor that can potentially impede on the sustainability of the proposed solution is the politicization of developmental interventions especially in Zimbabwe. Over the past years Non Governmental Organizations’ and donor activities where hampered by interventions of the government. Prior to 2009 and the formation of the Inclusive Government, most NGO operations were almost non-existent. However, the Inclusive Government has brought some normalization to the operations of NGO’s. The solution implementers will endeavor to continuously engage the government and all interested parties in the implementation of proposed solutions.

Poor investor confidence is another disease that can hinder the sustainability of the proposed solution especially in Sub-Saharan Africa. This is exemplified by the poor flow of Foreign Direct Investment in the region. This can be partly attributed to the not so investor friendly regulatory framework. The Indigenization and Economic Empowerment law that is being enacted in Zimbabwe has impacted negatively on the flow of FDI at a time when the nation is prioritizing long term investment.

Legislators in Zimbabwe have also had the tendency to overlook innovative ideas in the name of ‘national interest’. The Finance Minister advocated for the granting of security of tenure for farmers reallocated so that they (farmers) can use the security to source financing from banks. Members of the opposition party heckled him without considering the impact of such an idea on the development of the economy.

Africa has been riddled with a poor communications infrastructure which can also hinder the access and flow information from developed countries to developing countries.

The proposed solution intends expand immediately to other sectors as well as scaling up within each sector. Initial sectors are agriculture, tourism, agro-processing and manufacturing, services and finance. Generally, Africa has a comparative advantage in agriculture and mining therefore the solution intends to exploit this advantage by having a bias towards these sectors.

The solution intends to springboard from the advantages that have been exploited by Youth Business Forum so as to further expand the solution into other provinces. Once the local Zimbabwe market has been exploited, the solution will expand into the southern African region later on expanding into the Sub-Saharan Africa region ultimately growing to encompass the global SME market.

This solution comes in two parts, establishing OSIS and a public liquidity back-stop facility.

1) OSIS will raise funds from public and private sponsors to set up the platform and develop a subscriber base for premium services. Start up funding can be in form of equity, loans or through pre-paid subscriptions from a number of core sponsors. The commitment by the public sector will be a key factor in raising private capital.

2) The public liquidity back stop facility will have start-up costs (mainly technology and personnel) for the taxpayer. The proposal does not envisage the public sector taking significant credit risk and we expect that start-up costs will be amortised quickly through trading and fee income as trading activities resume.

The ultimate sustainable funding source for SME markets will be the institutional investor market: pension funds, insurance companies, asset managers, bank treasury departments, hedge funds, and sovereign wealth funds. Such private funding will gradually reduce the need for liquidity currently provided by the public sector.

We believe that local banks lending to SME is good business. This is confirmed by the reasonable performance of European SME securitizations since the crisis (S&P June 2010). If private investors get access to the right tools and information to do their risk analysis and see that there is more secondary market liquidity, they will recognize the benefits of investing in SME securitizations (or covered bonds should they emerge). As private investors re-enter the market, public intervention can be scaled back, which we expect to happen gradually over two to three years.

Specifically, we expect that both parts of our solution will graduate from dependence of public funds in the medium term:

1) Open Source Investors Services is designed to turn profitable as it attains critical mass in terms of a paying subscriber base, at which point we expect the repayment of any public start-up funding to commence.

2) We advocate the creation of a public liquidity back-stop facility to encourage investments by private investors. As the primary and secondary markets for SME backed securities become more liquid through increased transaction volume, transparency and disclosure, the value of the put option will decrease and eventually investors may prefer to trade the securities without the put. Alternatively, as lending increases and the need for public intervention reduces, the public liquidity back-stop providers can make the put option for new securities less valuable by lowering the guaranteed minimum value.

Again, we distinguish the two parts of our proposal, the Open Source Investors Service platform and the proposed public back-stop liquidity facility:

The OSIS platform aims to raise funds in the form of equity and pre-paid subscriptions from a number of public and private sponsors so that the loss of one sponsor should not threaten the survival of the business.

Currently, there are only a small number of private investors who have the capacity to invest in European SME securitizations, resulting in a largely dysfunctional market.

Open Source Investors Service in connection with the back-stop liquidity facility can play a critical role in increasing the number and capacity of private investors. As the SME securitization market recovers the dependence on individual large private investors should decrease.

Critical is the co-operation of banks to provide information beyond legal and regulatory requirements, but also voluntarily share information about the way they assess risks and interpret historical performance data.

Of equal importance is the participation of investors who have developed sophisticated tools and opinions that have not traditionally been shared with the broader market. We believe that sufficient data is available and if information is prepared in a standardized accessible format then the effort required for participants to contribute meaningfully can be minimized.

As with any open source platform, the success of the venture depends on the eagerness of the community to make high-quality contributions. The quality of the contributions especially in the start-up phase will require active moderation, monitoring and policing by the OSIS team to ensure that the platform is not abused for market manipulations or for the spreading of false information. In this sense, OSIS will be very different from other open source projects such as Wikipedia.

If a public liquidity facility is put in place as proposed, users of the platform will not only have non-financial social incentives to participate, but also tangible financial incentives as newly issued SME-back securities will attract better risk pricing due to reduced downside risk and a lower liquidity premium.

We believe that the European SME securitization market is the best starting point for Open Source Investors Service as the market is relatively mature, but currently dysfunctional. Credit supply to SMEs in many European countries is at a critical stage and has deteriorated further in the wake of the European sovereign debt crisis.

The founding team members of OSIS are seasoned experts in this market segment.
One of OSIS's founders, Jeroen Batema, is also the founder and current chairman of a global banking association called PECDC (www.pecdc.org) which owns the largest data base of inter bank credit loss statistics in the world. One of the major asset classes this association focuses on is SME bank loans. PECDC is one example of how much high quality data is available in principle, but is not currently used by established credit rating agencies or the SME finance markets in general. Other examples include credit scoring agencies and credit insurers that have important SME related data which are not currently used in the SME finance market. OSIS aims to mobilize the best available information from all sources including many sources that are currently untapped.

There is scope to apply our solution in many developed and developing regions outside Europe even those regions that have not had an active securitization market. Banks typically play a critical role in the financing of SMEs. With the implementation of Basel II banks will increasingly become capable of satisfying data and disclosure requirements for securitizations.

The OSIS idea is not restricted to SME securitizations and could be expanded to other asset classes and market segments such as mortgage, consumer or microfinance asset-backed securities. The idea of an alternative rating process based on broad participation by the investor community is also very powerful for individual corporate and sovereign credits. As the open platform will be developed by its participants it is conceivable that it will quickly expand and develop across a wide range of financial risks across many regions.

The funding sources for the Information and matching platform and for the remittance service are listed:
• Direct running and development for the Foundation ”Information and Matching platform” for 2011 2012 are 0,6 Million €. Following years the foundation is self-supporting based on share in transaction fees and on client fees.
• It is suggested to reserve 0,7 Million € to set up a consultancy and workshop activity, with the purpose to further develop financial and entrepreneurial services and evaluate social and economic impact.
• For the DiasporaLink remittance service investments are sought: 1 Mio € in 2011 and 0,7 Mio € in 2012.
Total requested funding 3 million €

The capacity to graduate from dependence on public finance is secured by several factors.
For DiasporaLink remittance service:
• The remittance service is connected to a global Visa money transfer service which allows transfer from any Visa bank worldwide. This allows a world a worldwide scale-up, relying on a global money transfer network. The Visa money transfer service can also be expected to follow and adjust to technology development.
• During the development and pilot phase a marketing network has been built up, which from start will support a full-scale launch in Sweden, Germany, Spain and UK.
• The combination of a cooperative remittance service and support for diaspora/homeland start-ups and SME’s motivate diaspora organizations to actively take part in the promotion.
• The remittance service is conveniently accessible and cost effective. For comparing transfer fees we refer to http://remittanceprices.worldbank.org a Worldbank web-site which compares world-wide different country corridors and types of remittance service providers. Worldbank compares transfer fees in the least costly and the most costly corridors. For a transferred amount of 200US$ (134€) the lowest rate world-wide is 3,3€ and the highest is 24,1€. In comparison the DiasporaLink fee is 3,3€ and this includes 30% of the fixed fee set aside for the seed investment fund.
• Solutions based on MFI’s and credit unions holding “community” accounts for remittance distribution for the “last” mile is ready to be implemented and marketed during 2011. This solution also support connection to mobile phones whether in national networks or network managed by regional finance institutions.
• The “community” account handling can be adopted to handling of accounts hold by MFI clients and thus be an administrative tool for MFI’s. This includes also saving accounts, whether subject to guarantees or not.
For the Information and Matching platform:
• For marketing and dissemination towards potential entrepreneurs and mentors it is an advantage to have access to the clients and marketing platform of the remittance service.
• The initial content in the platform is provided through cooperation with major microfinance and business development providers, which ensures a fast build up of relevant content.
• Financial institutions can benefit from, access new clients and business opportunities, being part of the remittance flow especially supporting the “last mile”, using recorded regular remittance flows as collaterals and receiving contributions from small investors
• Business development institutions can access new clients and business opportunities and form diaspora/homeland programs with other business development institutions
• Remittance senders and receivers are served as potential entrepreneurs or mentors and as potential micro-lenders, via institutions or peer-to-peer
• Diaspora organizations are served as partners in homeland economics and social development
The time frame for being independent from public finance is two years.

The launch plan for both the remittance service and the Information and Matching platform is built on parallel activities in four segments:
• Sweden to selected countries,
• UK to Sub-Sahara,
• Spain to Latin-America,
• Germany to Balkan countries with Turkey
If we have more than one private funding source we assume that they differ in priorities on the four segments. We will survive through:
• Cutting down on number of parallel segments
• Starting to search additional funding sources

We have earlier pointed to two issues that might prevent the solution from success. The same issues can threaten sustainability.
I. Resources in the emerging economies and resources in industrial countries dedicated to diaspora development and integration must support each other. This applies in particular to finance of diaspora/homeland SME’s and includes:
• A definition of the individual diaspora/homeland concept, so it is clear who are the beneficiaries in both ends of diaspora/homeland SME, so each finance provider can legitimate its support.
• A procedure for diaspora/homeland due diligence and collaterals, that satisfy the framework of each finance provider.
Our impression from meetings is that these requirements can be met.
II. The extremely fast development of technology, in particular the application of mobile phones for money transfer. Provided we meet the technology challenge this is an opportunity:
• Via Visa money transfer, we can already connect to mobile inputs for remittance senders.
• Most mobile networks for money transfer are designed for national or regional markets and are thus good candidates for connection via our “community” account.
• Requirements may arise to connect mobile phones to individual MFI and credit union accounts. This is subject to development project managed by the solution partners.
The raised two issues must be carefully monitored and our main strategy to maintain sustainability is to ally with already established partners.

Our proposed solution is such that it encourages a fast scaling up to a global market. The reasons are:
• The connection to the global Visa money transfer makes it possible to launch the remittance service globally without specific preparations in the sending countries, except a registration with the sending countries financial authorities.
• The agreements and arrangements that are made with MFI’s and credit unions in receiving countries on implementation of “community” accounts are independent of the sending country.
• The above two reasons gives the advantage that two scale up activities can run in parallel: marketing and promotion in sending countries and contacting and implementation with MFI’s and credit unions in receiving countries.
• The partnering with established and global organizations for microfinance information and for business development also gives a base for scaling up.
The scaling up will start from the four segments:
• Sweden to selected countries,
• UK to Sub-Sahara,
• Spain to Latin-America,
• Germany to Balkan countries with Turkey
Next steps in scaling up are:
• Include major sending countries within EU such as France, BeNeLux, Italy, Portugal, etc.
• Include additional receiving countries based on contracting regional finance institutions
• Explore major regions like North America and the Gulf region

The founders of VC4Africa (Ben White, Bill Zimmerman and Bart Lacroix) have mobilized 50.000 in their own startup capital. These initial funds are being used to develop a new website for the VC4Africa community, now +/- 10.000 members. We expect to be live with this new platform by September 2010. Additional capital is needed to grow and scale our activities.

Second to core funding we are looking to source capital that can be invested in the entrepreneurs with the best ideas as determined by the community. Here we seek 2.6 million needed to establish a revolving fund where any profits are re-invested in new entrepreneurs.

As VC4Africa develops we are introducing revenue generating models that will push us into sustainability. Initially, we are collecting profiles of investors i.e. a detailed brief on their required investment. We actively link entrepreneurs and their business projects to matched investor profiles. For each successful match made we ask for 1.5% from the investor and 1.5% from the entrepreneur. We also have content deals and event deals in place where we receive a commission on each member that takes advantage of these value added services. We run on a two year plan and reach sustainability in 2012.

The initial funding is already secured so this is not an issue we worry about. VC4Africa started as a passion and a hobby. To this extent it will always exist and serve its purpose of connecting entrepreneurs and investors, a process where we are already adding value. Our interest in securing additional support essentially allows us to do more of the same.

The VC4Africa officers program was established in the interest to engage the most active and dedicated members in the process of managing the community. Any member can apply to become part of this revolving program and it ensures the members keep ownership of the project. If for some reason the founders were unable to keep VC4Africa running there are enough dedicated members to keep the platform running.

Online networks focused on investment often attract the wrong kind of people. It is important we maintain our efforts to mitigate any spam or scamming activities. In the new site we are building a membership ranking program where each user will build a reputation based on the quality of their total input. This system will effectively create distance between users adding value and individuals who might have alternative motives. This process mitigates any unwanted activity and helps members monitor their own engagement. At the same time, we believe the best way of dealing with challenges like this is to keep an active and engaged community empowered to do their own due diligence and policing. To this extent we have implemented an officers program of dedicated individuals active in managing the quality of the site, her members and content. Finally, we continually work to raise awareness of these issues and remind both entrepreneurs and investors of the risks inherent to the investment process. This includes background information, interviews and featured discussions. In the end investing in African projects comes with risk and it is our task to inform our members to the best of our ability about the strategies and tactics they can apply in making sound business decisions.

We seek to leverage the power of the Internet which gives us immediate international access. At the same time our focus is on entrepreneurs building businesses in Sub-Sahara Africa. Via social networks we are quickly growing our communities in each country and around specific types of business. We do give an accent to new high growth sectors like Internet, mobile and green technologies.

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