List all the funding sources that are required for the sustainability of this solution
The solution will initially require both short and long-term funding and other tailor made funding structure products that meet the asset/liability structure of the new entity. A combination donor funding and private market funding will make the proposed more viable and sustaining. Funding sources will be targeted from the following entities:
• international aid organisation and governments (seed capital and technical support to kick start the solution);
o Governments of targeted countries (seed capital and technical support);
o local Development Banks ( to co-finance business projects undertaken by SMEs)
o Local financial institutions such as pension funds, insurance companies (as equity and debt investor into the fund);
o Donor Funding (in form of grants to reduce the funding cost of SMEs); and
o the private sector with surplus funds looking investment opportunities.
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
The ultimate objective of donor intervention in our business model is to improve small enterprise or SME performance in rural areas, as a means to achieve higher economic growth, generate employment, reduce poverty, and meet social objectives. Improving SMEs performance requires many ingredients, such as a policy environment conducive to enterprise competitiveness, access to financial and non-financial serv ices, and expanding markets for SME products and services, creation of well-functioning market with a diverse array of high-quality services that meet the needs of a large proportion of SMEs affordably, and once this is done SMEs in our model will function without donor support. The Village Wealth Creation Fund does not intend to be donor depended because it will be based on business principles. The initial seed capital that will be invested in the fund, will not be given as grants to SMEs, but will be used by the Fund to buy equity stake in the new SME and the required capital the SME needs to start operating. The SME will be owned by both the Fund and the participating villages, with each participating village contributing either a piece of land, forestry, cattle or any acceptable physical assets as a form of payment for its shares in the new SME. Unlike other business model, our solution ensure that the new SME will have resources to start with e.g. SME that will be involved in the production and processing of maize for maize meal, will automatically acquire land on which to produce maize transferred by the participating villages. The funds invested by the Village Wealth Creation Fund will the be invested to produce maize, buy machinery and equipments to produce maize.
In order to ensure sustainability each new SME will be required to produce a business plan. This business plan ideally should meet certain minimum criteria and demonstrates sustainability of the project concept, as well as its development impact or outputs. The following is an illustrative list of business plan elements:
• Marketing and sales plan – an explanation of how the market potential will be realized, size of the market and demand for products;
• Competition – an assessment of how the market and sales assumptions could be affected by other similar competitors entering the market;
• Financial bottom line analysis - this must show the profitability calculations, justified and projected into the future to show how the situation will improve.
• Funding requirements – a summary of funding requirements and of financial contributions;
• Operational plan – an organizational chart with clear responsibilities, staffing plan, equipment and facility plans and assessment of possible problems and solutions.
The time frame through which sustainability will be achieved is 3 to 5 years.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
Our innovative solution puts a business enterprise at the centre of community wealth creation and is built on the idea that when rural and village resource endowment is applied and used creatively, it is the most efficient social change agent and the most sustainable way to build business rural areas. We combine sound business practices with innovative social solutions to create long-term, self sustaining economies in rural communities in the targeted countries. The Village Wealth Creation Fund will provide solution in the sense that small and scattered villages will be organised into business units through the formation of SMEs e.g. five villages with a population of say 10 people in each village will be the shareholder into the new village SME. The villagers will transfer part of the idle/unproductive land, access to water into the new SME. The new SME which will be legally registered will then use the available resources within the community to produce products such crops, poultry, butter, eggs, bread, cattle etc and sell these to urban canters and other markets. The shareholders (villagers) will supply labour at reasonable price, and all profits declared as dividends will be paid to the villagers. In addition to creating jobs, people in the village will for the first time become shareholders, and their idle/dead capital will be converted into financial assets the new SMEs, who in turn can use these financial assets to access funding from private financial institutions.
The SMEs that will be created will sell their products to the urban centres and in markets of targeted countries. Efforts will be made to secure long-term contracts with government so that SMEs will sell their products to government institutions e.g. an SME in rural areas involved in the production of school uniforms will reach an agreement with government that all schools falling within a certain l be supplied uniforms by the rural SME. It is expected that all new SME established should be able to break-even within year two of their operation and become self-reliant without relying on donor funding for along time.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
Most villages in the targeted countries falls under customary law, under the control of the tribe's chief. For the innovation to succeed the chief and their traditional authority need to buy into the concept. Once the chief buys in, he will be instrumental in convincing his communities to part with their land for development purposes. The other partnership that is crucial for the success of this innovation partnership with local and central government of each target country.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
Our innovation is to create organised structures and convince the rural population to start formalising their business transaction through organised legal business structures. Several previous studies found that demographic characteristics, such age and gender, and individual background, such as education and former work experience, had an impact on entrepreneurial intention and endeavour (e.g. Kolvereid, 1996; Mazzarol et al., 1999). A research by Charney and Libecap (2000) found that entrepreneurship education produces self-sufficient enterprising individuals. Also, the study revealed that entrepreneurship education of employee increases the sales growth rates of emerging firms and graduates’ assets. Mazzarol et al. (1999) found that female were generally less likely to be founders of new business than male. Finding from another study in India by Sinha (1996) disclosed that successful entrepreneur were relatively younger in age. In their study on Internet café entrepreneurs in Indonesia, Kristiansen, Furuholt, & Wahid (2003) found a significant correlation between age of the entrepreneur and business success. Kolvereid (1996) found that individuals with prior entrepreneurial experience had significantly higher entrepreneurial intentions than those without such experience. Conversely, Mazzarol, et al. (1999) found that respondents with previous government employment experience were less likely to be successful founders of small-businesses. But, they did not investigate the relationship between previous employment experience in private companies and entrepreneurial intentions. The above observation shows that it might be a challenge for entrepreneurs to emerge from villages and rural areas due to the level of education, and the composition of the rural population (female vs male, young Vs old etc). It is therefore clear that education, work experience and gender, access to technology and information, will be crucial in the success of our innovation and in designing an intervention package to address short-comings.
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 will make a significant impact on the agriculture sector in the targeted countries where rural population possess thousands of fertile agriculture land not put to good use. The vast majority of the poor in the targeted countries reside in rural areas, where the incidence and intensity of poverty is also higher than urban centers. Life in rural setting, from the economic point of view, is backward. Villages and settlement in rural areas is typically scattered without any form of structure. However, the rural poor in villages commonly possess multiple physical assets and sources of income from agriculture and other natural resources. A significant share of economic activity in rural areas is devoted to the production of basic commodities, especially staple foods, for which the income elasticity of demand is low.
Agriculture constitutes the principal source of income and employment for the majority of the population of the targeted countries. Greater proportion of the foreign exchange these countries earns also comes from this sector. The sector accounted for about 8% of GDP in Namibia and Botswana and more than 20% in Zambia. Contribution of agriculture sector has the potential to increase and serve as an engine of growth in other sectors.
Analysis of national account data in the targeted countries has clearly indicated that there is a close relationship between the overall performance of the economy and the performance of the agricultural sector. A simple regression analysis was made to quantify the linkage between agricultural and GDP growth rates in terms of elasticities. According to the estimation result, a 1 percent growth in agriculture would lead to a 0.32 percent growth in GDP. The fact that other sectoral elasticities of growth with respect to GDP are lower than this indicates that agriculture is the predominant sector in determining income at the national level in these countries. The study found that growth in agricultural value added is, therefore, the most determining factor of real GDP percapita growth in a number of African countries, including the targeted countries.
Contribution to Employment: Similarly, agriculture is the predominant sector that contributes to employment in the targeted countries, although its contribution to employment has been declining over the years to declining investment in the sector. Poverty in the targeted countries is widespread and deep-rooted and constitutes the priority development challenge in these countries, and the increased established SMEs in rural areas that supports agricultural development will lay a strong foundation in building wealth for the nations of these countries.
In addition to direct impact on agriculture sector, our solution will have impact on tourism, manufacturing (butter making, milling, abattoirs, bakeries, etc) and service sector such as banking, microfinance, insurance, medical funds and fund management.