ENTREPRENEURS’ FINANCIAL CENTERS (EFC) for socially responsible sustainable development.

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ENTREPRENEURS’ FINANCIAL CENTERS (EFC) for socially responsible sustainable development.

Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

An EFC is a specialized microfinance institution for SMEs. The objective is to provide access to relevant financial services for SMEs on a sustainable basis, while enabling its clients to gradually become owners of the EFC thus empowering local management. The solution approach is “Build – Operate – Transfer”.

About Project

Solution: What is the proposed solution? Please be specific!

EFCs are specialized microfinance institutions for SMEs. To respond suitably to the needs of entrepreneurs, they provide expertise linked and specifically dedicated to their sector of activity. EFCs offer SMEs a specialized “tailor-made” approach; allow access to financial products and services through specialized employees and enable their clients to gradually become shareholders. The EFC business model is therefore unique and distinctive due to the emphasis placed on capacity development programs and ownership transfer. Right from the outset, the solution encourages the emergence of a locally owned and managed microfinance institution. This is achieved through the shareholding of local partners and through innovative share ownership programs for employees and clients (ESOP-CSOP). The solution is unique since it is built on developing local financial capacity through loan reimbursement incentives, i.e. “dividend bonus”, offered to all SME clients. This mechanism acts as leverage not only to build clients’ financial capacity, but also to encourage good loan repayment behaviour. This model is rolled-out in collaboration with like-minded investors. At the inception of EFC, financial capacity of clients and local partners are yet to be built. Thus DID and other private investors take an initial majority stake. Thereafter, DID will progressively dilute its own participation in favour of local ownership, as their financial capacity increases. Following the “operator-investor” approach, EFC is deployed while ensuring sound institutional and financial development. Terms and conditions of management and ownership transfer are embedded in the shareholders’ agreement and are an integral part of EFC Governance.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

Using Calvert Foundation’s social impact calculator for small business lending (see section "Provide empirical evidence of your proposed solution success/impact at present"), we estimate that: • In Mali, Burkina Faso and Senegal: to date more than 50,000 jobs were created among SMEs thanks to the loan activities of EFCs. In addition, these cooperative networks are employing more than 1,600 persons. These 3 networks, alltogether, now reach more than 2 million clients. • In Rwanda, Zambia and Panama: to date more than 2,925 jobs were created among SMEs resulting from the loan activities of EFCs. These 3 EFCs are employing 215 persons and reach more than 53,200 clients. So, overall, we estimate that to date, EFC programs have created more than 52,925 jobs in addition to the direct jobs created within the EFCs. EFC employees receive competive salary packages and working conditions thus ensuring, for them and their families, adequate living conditions, proper education and healthcare. The proposal to roll-out 6 new EFC programs in Sub-Saharan Africa (mainly) and Latin America / Caribbean region aims at creating, over a five year period, more than 50,000 jobs through EFC loan activities in addition to more than 1,000 jobs directly created within the EFCs. Thanks to the EFCs, microentrepreneurs have access to a range of financial services including savings and credit to support their personal needs, those of their SME and their employees. These financial services bring entrepreneurs both economic and social impacts, especially: - improvement of housing, living conditions, healthcare, and education - job creation - financial autonomy and less dependence - self-development and confidence - financial education and banking literacy EFC clients show a strong interest in the CSOP and are buying shares. They appreciate being able to become owners of their financial institution. Please also see www.did.qc.ca/videos/Entrepreneurs_EN_CD.mov
About You
Développement international Desjardins (DID)
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About You
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Your Organization

Développement international Desjardins (DID)

About Your Organization
Organization Name

Développement international Desjardins (DID)

Organization Phone


Organization Address

150 ave des Commandeurs, Lévis, Québec

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Organization Type

Non-profit/NGO/Citizen-sector Organization

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Your solution
Country your work focuses on
If multiple countries, please list them here. If your solution targets an entire region, please select it below
Region(s) your solution focuses on:

Africa, Latin America and the Caribbean.

Range of turnover in your target firms, in USD

Less than $1 Million, $1-5 Million.

Average turnover in USD of your target firm

<$ 2 million

Number of employees in your target firms

Fewer than 5, 5-24.

Average number of employees of your target firm


Specify the size, average and range of expected loans or investments in each target firm

• Size $750-25,000
• Average $5,000
• Range $750-25,000

What stage is your solution in?

Operating for 1‐5 years

How does your proposed innovation leverage public intervention in catalyzing private SME finance?

The solution proposed here is to deploy and roll-out six new EFCs in Sub-Saharan Africa (mainly) and Latin America / Caribbean region.

As a core investor and capacity development partner, DID has been able to attract other like-minded investors to work in partnership to promote and build these institutions. The aim is to build, operate and eventually transfer a strong sustainable national microfinance institution that will continue to provide financial services tailored to SMEs. Without such sustainable financial institutions, local entrepreneurs would otherwise not have access to banking services and an appropriate level of financing to establish and grow their enterprises and promote greater employment. Furthermore, providing financial services access to an emerging or developing country’s SME sector is known to spur its economic growth and development. DID’s overarching aim therefore is to support and promote EFC, while ensuring a double bottom line focus; commercial viability and the provision of financial services to underserved markets and communities.

Typically an EFC program in Sub-Saharan Africa requires around five years of development effort while in Latin America / Caribbean region it is between 3 to 4 years.

For each EFC program, public investment needs vary between USD 4 to 6 million. Public investment is typically divided between capacity development efforts (i.e. 30-40%) and pure capital investment (i.e. debt, mezzanine capital, equity capital). In Latin America / Caribbean region, each EFC program will leverage between USD 30 to 50 million in private investments over a five year period while in Sub-Saharan Africa, the range is between USD 20 and 30 million over the same time frame. Thus the public to private sector investment ratio is 1:8 in Latin America / Caribbean region and 1:5 in Sub-Saharan region. It should be noted that these ratios apply to a five year period only. Considering that each EFC usually reaches financial sustainability between years 3 and 4 of the program, this means that they can more easily attract private investment. Over a ten year timeline analysis, leverage ratios improve considerably. The following are the financial standards for each EFC program:
• Break even point to be reached before Month # 36 of the program;
• Projected IRR (local currency) of more than 35% over a seven year period;
• Return on Investment (ROI) in USD on each EFC program: > 10% (factoring currency risk) over a 6-8 year period.
• Over a five year period, each EFC project must generate direct social and financial impacts (i.e. local taxation, salaries, wages, etc.) in excess of grant support. Job creation through loaning activities (indirect impact) are in addition.

What barriers does your proposed solution address?

Asymmetry of information, Informality, Lack of collateral, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), General barriers to SME development related to investment climate, Lack of financing to women entrepreneurs, Specific barriers to fragile and weak states.

If you checked any of these barriers, describe how your solution addresses them

a)Thanks to the capacity development activities, EFC employees are specialized and highly cognizant of entrepreneurs’ needs, their value chains and markets. EFCs analyze market segments (fisheries, transport, carpentry, etc.) and build-up “reference sheets”. This enables EFCs to close the information gaps. EFC employees are therefore able to offer informed management advice along with financial products specifically designed for entrepreneurs thus providing effective support as their businesses expand.

b)EFCs finance both informal and formal sector SMEs. While financing informal SMEs, EFCs aim to help them migrate towards the formal sector. Business expansion is hampered when informality is widespread and skills are lacking. Despite innovative ideas and penetration of previously unexploited markets, SMEs often stagnate because of low productivity, often a result of outmoded technologies or poor labor practices. In addition, financial services offered to these businesses are often overpriced or inappropriate. Informal SMEs face problems of development, competitiveness and expansion. In order to migrate from informal to formal business, SMEs need to have access to financing and improved access to knowledge and skills. EFC programming is providing both, thus fostering formal sector development.

c) EFC’s lending approach is based on SME capacity to produce and create value out of business opportunities. Collateral is not the leading lending criteria.

d)see c) above

e)see a) and b) above

f)EFC develops and provides tailor made financial products to SMEs.

g)Through this initiative, strong local institutional capacity is built while enabling local ownership. DID have 40 years of experience in transferring expertise and building local financial intermediaries capacities (i.e. IT solutions, instrumentation, training, coaching, tools, etc.).

h)Through decentralization of “business loan centres” (a DID innovation), EFCs reduce transaction costs and deliver financial products to the door steps of entrepreneurs. To further reduce transaction costs, EFCs also use cutting edge technologies (i.e. smart cart, VPN).

i)EFCs have a distinctive approach since they target low-end un-served/underserved markets. In that sense, EFCs are often seen as “market makers”. EFCs stimulate competition by demonstrating that deserving SMEs are viable business. EFC Zambia and EFC Panama are prominent examples.

j)Exit option is covered under the local ownership scheme i.e. developing local financial capacities. EFCs have access to local currency funding, either locally or internationally through currency risk mitigation strategies and mechanisms (existing or developed).

k)see a) and b) above. Most EFCs were and are deployed in countries rated 6 or 7 as per OECD country risk classification.

l)More than 40% of EFC clients are women.

m)The EFC program is based on market potential. All EFCs are licensed and regulated by local authorities and they also rely on strict internal controls embedded in the business model. EFCs are community-based institutions and are therefore best positioned to cope with local situations.

Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

Since 1996, DID has implemented 10 EFCs. The first EFCs were established in collaboration with cooperatives networks:

• In Mali: 2 EFCs, one with the Nyesigiso network (2004) and one with the CAECE network (1996). Both are now financially sustainable, fully controlled and managed locally. Rural and urban focus.
• In Burkina Faso: 4 EFCs with RCPB network. 1 financially sustainable (2003), 3 in the deployment / roll-out phase (2009). Rural and urban focus. Controlled and managed locally.
• In Senegal: 1 EFC with PAMECAS network (2004). Controlled and managed locally. Financially sustainable. Urban and rural focus.

Altogether, these EFCs (Burkina Faso, Mali and Senegal) have disbursed close to USD 200 million to more than 75,000 SMEs. Using Calvert Foundation social impact calculator, we estimate the social impact for job creation at more than 50,000 thanks to the financial intermediation activities of these EFCs.

Based on lessons learned from this experience and evolution of the market, we have developed a new EFC strategy focusing on local ownership. So far the following EFCs have been created based on the revised strategy:

• In Rwanda: 1 EFC with local partners. Financially sustainable. Urban and peri-urban focus. Controlled and managed locally. EFC Rwanda, since 2005, has disbursed equivalent of USD 17 million to more than 6,000 SMEs. Average loan is less than USD 2,500.

• In Zambia: 1 EFC with local and international partners. In the deployment / roll-out phase. Currently with urban and peri-urban focus. Since July 2009, EFC Zambia has disbursed equivalent of USD 1.5 million USD to more than 650 SMEs. Average loan is USD 2,200.

• In Panama: 1 EFC with local and international partner. Currently in the deployment / roll-out phase. Urban and peri-urban focus. Since March 2010, EFC Panama has disbursed equivalent of USD 1.3 million to more than 200 SMEs. Average loan is USD 6,500.

These EFCs also contribute in a significant manner to encouraging social and economic development and revitalization of their respective zones of intervention. In addition there are qualitative successes such as the strong participation of women in the EFCs as employees, directors and clients. There are more of these success stories every day and when considered with women entrepreneurs’ increased access to financial services, the EFC solution confirms its relevance and contributes to local private sector development and growth by facilitating both access to financial services and knowledge.

By adopting a turnkey approach, the solution relies on developing local capacities and expertise transfer mechanisms. This approach and strategy are in line with sustainable development best practices aiming at empowering financially excluded parties by promoting emergence of community owned and controlled financial institutions while reducing dependence on external subsidies.

How many firms do you expect to reach?

One EFC program can disburse more than 12,500 loans over a 5 year period. Thus six EFC programs can disburse more than 75,000 SMEs loans. Considering a minimum average loan of USD 2,500 this implies total disbursement of more than USD 187 million, thus creating 50,000 jobs.

What is the volume of private SME finance you aim to catalyze?

Between USD 150 million and USD 240 million over a five year period. Target is USD 200 million. See point above "How does your proposed innovation leverage public intervention".

What time frame will be required to reach these targets?

Five (5) years.

All EFCs mentioned above (section 10) are still active in their respective markets, issuing more loans to more SMEs every day. After a period of ten years, targets are generally multiplied by 3 (see section "How many firms do you expect to reach" and section "Tell us about the social impact of your innovation").

Does your solution seek to have an impact on public policy?


What would prevent your solution from being a success?

Our experience shows that there are two primary critical factors underlying EFC’s success:

1- The importance of adequately funding the development phase i.e. local capacity building and availability of funds to fuel growth and roll-out.
2- Absence of unwarranted political intervention and severe social events (i.e. civil war, post-conflict recovery, turmoil and the like).

List all the funding sources that are required for the sustainability of this solution

The required funding includes (i) public investment, both in terms of capacity development grant and capital investment (debt, mezzanine and/or equity capital), and (ii) private investment (debt, mezzanine and/or equity capital). The promoter (DID) will participate in the private investment. Please see section "How does your proposed innovation leverage public intervention".

Over a five year implementation period, rolling out six new EFCs will require public investment between USD 24-36 million (average USD 30 million), of which between 30%-40% is a capacity development grant (average USD 10.5 million) and the remainder is pure capital investment (average USD 18.5 million). The capacity development grant financing is concentrated at 75% in the first three years of each EFC program as institutional capacity development is a key strategic priority.

Over a five year period, the total private investment required is therefore between USD 150–240 million (average USD 200 million). Investment flow increases as institutional capacity is built.

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

Please see section "How does your proposed innovation leverage public intervention" and section "provide empirical evidence of your proposed solution's success/impact at present". The required financial standards for each EFC program are:
• Positive Net Present Value using a risk-adjusted discount factor (not less than 20%, usually 30%)
• Break even point to be reached before Month # 36 of program;
• Projected IRR (local currency) of more than 35% over a seven years period;
• Return on Investment (ROI) in USD on EFC program: > 10% (factoring currency risk) over a 6-8 years period.

Therefore, upon completion of each EFC program, each institution is fully autonomous and has graduated from public dependence to commercial viability.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

The most critical years of an EFC program are the first three which is the time required to develop institutional capacities and reach financial viability. This is the period when public investment and promoter investment are most needed. Promoters’ investment in the EFC program includes DID and selected like-minded microfinance investors. Obviously promoters’ financial capacity cannot cover the capacity development grant component.

After reaching financial viability between the third and fourth year of operations, EFCs are then capable of attracting private investment. There are many Microfinance Investment Vehicles on the market looking for viable institutions with double and triple bottom line objectives such as the EFC. Through our experience, we’ve noticed that viable institutions can also attract local investments.

Nevertheless, on the market, well managed and governed microfinance institutions are not widespread and current private investors tend to focus on the same pool. Thus, increasing good investment opportunities is warmly welcome in the market.

Therefore, if an EFC happens to lose its largest private funding source for reasons other than viability (i.e. change of investment policy of one private investor); we do not view this as a challenging issue. Moreover, it is the EFC strategy to diversify sources of funding. Usually EFCs try to work with a pool of 3 to 5 different investors, thus mitigating funding source risks.

In addition to the foregoing, when permitted within local regulatory frameworks, EFCs also offer savings mobilization services, therefore contributing to the financial independence of the institution as a partial alternative to private funding.

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

A global partnership with public investors in order to support and accelerate roll-out of 6 new EFCs is critical. The kind of partnerships needed include technical assistance / capacity development grant and investment (debt, mezzanine capital and equity).

DID also works closely with firms involved in Business Development Services (BDS) when available to provide technical support for the SMEs.

Moreover, it would be interesting to create synergy between the different EFCs so they can share their best practices and learn from each other.

Are there non-financial issues that could threaten the sustainability of your proposed solution?

Non-financial issues potentially threatening the sustainability of EFC programs are political intervention, unfavorable economic conditions, political instability and civil disturbance – turmoil throughout the EFC program implementation period.

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

Our solution aims at scaling up existing EFC institutions to national level coverage, through the expansion of local branch networks.

We also aim at strengthening financial sectors in the countries where EFC operates. For example, by increasing competition, deepening access to financial services and pushing the frontier of finance both in terms of products (i.e. microhousing for entrepreneurs in Zambia www.pfsl.com.zm ) and ownership structure.

EFC programs often are initiated as microfinance non-deposit taking institutions with the expectation of further migrating to deposit taking institutions and thereafter to formal banking institutions with a large local ownership base.

By practicing and implementing strong governance and operating practices and policies, EFCs are promoting self discipline, often within fragmented and weakly regulated markets. EFC policies and practices thus influence regulators and supervisory authorities’ orientation.

EFCs provide professional financial products and services for lawful and environmentally friendly income generating activities conducted by SMEs. Thanks to qualified and well-trained human resources, they are able to assist entrepreneurs in all sectors of the economy. Their products and services are also specialized and adapted to multiple sectors.

For instance, EFC in Zambia is financing SMEs in the following sectors: hardware stores, private schools, chicken farming, building construction, groceries, fashion design, cotton manufacturing, apartment rentals, etc.