Through USAID’s Research Technical Assistance Center (RTAC), a research team is collaborating to identify and advance effective investment solutions for Nigeria and Uganda’s Small and Growing Businesses (SGBs)—commercially viable businesses with five to 250 employees seeking between $20,000 and $2 million in investment capital.
The research initiative is led by the Makerere University Business School Entrepreneurship, Innovation and Incubation Centre (MUBS EIIC) in Uganda in partnership with researchers from Temple University in the United States and a study team in Nigeria with researchers from the University of Jos, University of Ilorin, and the Federal University of Technology. This collaborative approach allows for the bridging of global perspectives and local investment insights to identify promising financial models that will work in real-world settings.
Addressing Barriers to Investment. SBGs face unique barriers when it comes accessing financial capital necessary for financing operations, introducing new products and technologies, and penetrating new markets. Currently, no financing models match the needs of SGBs because of their size. According to Collaborative for Frontier Finance, SGBs are often referred to as the “missing middle” because they are:
- Too large for microfinance solutions.
- Too small for private equity.
- Too risky and lack enough collateral for commercial banks.
- Lack the growth trajectory that venture capital seek.
And unlike microenterprises, which typically start small and stay that way, SGBs are designed to grow.
Helping Grow Emerging Economies. SGBs represent important contributors to growth in emerging economies. The Aspen Network of Development Entrepreneurs reports that SGBs can advance economic development by:
- Increasing economic growth.
- Improving access to goods and services.
- Creating stronger supply chains.
- Increasing equality by empowering marginalized groups.
The RTAC team is focusing on the specific financing needs of dynamic enterprises—a subset of SGBs that tend to be in established industries such as trade, manufacturing and retail and have proven business models (see Figure 1). This new research is designed to identify the types of investors best positioned to finance such businesses.
Creating Practical Recommendations to Spur Concrete Action. Findings generated by this study on what works and doesn’t work in financing SGBs can help inform policymakers, investors, and other players about the most effective ways to advance dynamic enterprises. The study team plans to draw out practical recommendations from the research findings and package them into products that can help these decisionmakers put evidence into action. Facilitating a more effective flow of investment capital to the SGB market can make these enterprises vehicles for job creation and, ultimately, poverty alleviation.