Business Growth in Developing World Fuels Global Economic Recovery

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 Covering the G-20’s major new economic initiative with a focus on economic recovery 

Small and medium sized enterprises (SMEs) are the single largest engine of job creation and economic growth worldwide. And it’s emerging economies that are leading the global economic recovery; they are growing at three times the rate of mature economies. But SMEs are often shut out of the formalized banking system. To help them reach their potential, the G-20’s cutting edge open source competition, in partnership with Ashoka Changemakers, found the world’s best ideas for making significantly more financing available to SMEs. The winners will meet with G-20 leaders at the summit in Korea on November 11-12.
 
The entrants in Ashoka Changemakers G-20 SME Finance Challenge, are successfully tackling the barriers to SME financing. With the G-20’s committed financial support, they will be poised to meet their potential and pull millions of people out of poverty and into the middle class, create wealth, and stabilize local economies and the global economy as well.
 
 
Here are some potential angles and interviews for unique, interesting coverage of the global economic recovery, for the G-20 Summit and beyond:
 
SMEs are more creditworthy than banks think – Without traditional evidence of creditworthiness (such as balance sheets, credit records, and profit projections), SMEs, which tend to be informal, have been considered too risky for formal lenders. New tools for determining informal businesses’ soundness are causing banks to take a second look.
 
  • Example: Entrepreneurial Finance Lab (EFL) has developed a tool that predicts credit risk by using psychometric technology – assessing an entrepreneur’s fundamental intellectual and psychological characteristics. Used successfully in pre-employment screening for decades, EFL’s tool modifies existing psychometric tests to predict credit risk with the same accuracy as traditional credit scoring models, but without requiring any credit history or collateral. Initially developed at Harvard’s Center for International Development, EFL is a partner in the G20 SME Finance Challenge.
Prohibitively high borrowing costs will become a thing of the past – Traditionally burdened with extremely high borrowing costs, SMEs are beginning to find fairer lenders in the growing numbers of financing firms with an interest in developing world businesses.
 
  • Example: Minlam Asset Management channels private institutional capital to SME lenders via local currency loans. Rather than relying on grants, Minlam attracts investment capital from private institutions and issues local currency loans to SME banks, eliminating the burden of currency risk and lowering borrowing costs for SMEs. Minlam is a solution entered in the G-20 SME Finance Challenge. 
Developing world business owners need no longer operate in isolation Mentorship, management and technical support, and networking opportunities have always been critical to SME success. These tools are becoming available to more and more entrepreneurs needing support to grow their businesses.
 

BiD Network’s online SME platformThierry Sanders

Example: connects entrepreneurs, investors, and business mentors. 35,000 members worldwide share information and collaborate. In 4 years, BiD, an entry in the G-20 SME Finance Challenge, has helped start 400 SMEs by connecting entrepreneurs with local business angels. Founded by in The Netherlands, BiD now has 500 business coaches that engage with local SMEs in multiple countries and offers investment training for investors unfamiliar with investing in SMEs.

    Reduced Western aid can mean opportunity to tap into hidden local resources The world’s poorest countries are suffering from a sharp reduction in donor aid in the wake of the global economic crisis (up to 25% less in 2011), but they are also awakening to their own untapped resources.
     
    • Example: Pension funds represent over one trillion USD in latent assets in the developing world. R4D issues local currency, guaranteed development bonds to unlock this enormous amount of unutilized capital for SMEs and simultaneously reduce reliance on foreign aid and their exposure to foreign currency risk. R4D, founded by David Stevens and Marianne Pellegrini, is currently working with the governments of Uganda, Rwanda and Nigeria and was an early entry winner in the G-20 SME Finance Challenge.
    This is just a small fraction of the resources available through Ashoka and Changemakers. For further information and to access our global community of more than 140,000 changemakers around the world, please contact:
     
    Sarah Mintz
    Community Manager
    703.600.8204
     
    Josh Middleman
    Community Mobilizer
    202.450.5452