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Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique

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This is a presentation by Xiaoting Hou Jones, researcher at the International Institute for Environment and Development (IIED on financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique.

Jones gave the presentation during a session on decentralised forestry finance at the Money Where It Matters (MWIM) event, held in London from 7-8 December 2016.

The purpose of the MWIM event was to reflect on our insights and explore further how financing mechanisms can more effectively channel resources to the local level, and identify opportunities to increase flows of finance to the local level in new contexts for development assistance and national investment.

Participants at the event also agreed on outstanding questions that require further research on finance for and with local actors to achieve the effective use and management of funds to deliver climate resilient sustainable development.

More details: https://www.iied.org/promoting-local-access-development-climate-finance

Published in: Environment
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Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique

  1. 1. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 1 Xiaoting Hou Jones December 2016 Author name Date Xiaoting Hou Jones December 2016 Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique Money Where It Matters
  2. 2. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 2 Xiaoting Hou Jones December 2016 MozambiqueHigh poverty level: 54% population High deforestation, high forest cover: 40.1 million ha (51%) forests; 0.21-0.58% deforestation rate (1970-2002). Main drivers outside of forest sector: agriculture SMEs very important: Informality wide spread: 90.9% SMEs accounts for 98.7% of the total 26,264 registered companies Focus of the research: sustainable SMEs in forest and agriculture sector in a forest landscape Focus region: Zambezia
  3. 3. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 3 Xiaoting Hou Jones December 2016 Sustainable SMEs Capacities Interests rate Scale of investment Rate of return Repayment period Grace period Risk Management Business, environment and social Market, climate Risks 10- 15% Most require investment in machineries Poor infrastructure, high fees keeping costs high >=3 years >=1 years Commercial banks Business Collaterals, formality Volatile interest rate, current > 25% Upper limits vary 6 months - 6 years but mostly short term Public sector e.g. PRSP 10-14%; FDA, FDD: 10% FINAGRO: 70% grant for equipment Require no collaterals, risk sharing (FDD, Landscape) Provide technical support (IPEME, CEPAGRI, Landscape) <= 3 years ?
  4. 4. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 4 Xiaoting Hou Jones December 2016 Actively invest in development since 1990; Governed collectively by private and public sector with private sector as the majority shareholder; Manages development funding from international development partners
  5. 5. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 5 Xiaoting Hou Jones December 2016 Sustainable SMEs Capacities Interests rate Scale of investment Rate of return Repayment period Grace period Risk Management Business, environment and social Market, climate risks 10- 15% Most require investment in machineries Poor infrastructure, high fees keeping costs high >=3 years >=1 years Commercial banks Business Collaterals, formality Volatile interest rate, current > 25% Upper limits vary 6 months-6 years but mostly short term GAPI 30%-40% of funding targeted for business capacity building Risk sharing program where 25%-75% loan is guaranteed (administered through commercial bank) Central Bank Base Rate – 5% E.g. 20,000 USD average loan, with 50% of the loan given as grant if repayment schedule is followed through 12 month-3 years; but there are cases that get longer period Flexibility offered through loan restructured
  6. 6. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 6 Xiaoting Hou Jones December 2016 The Capacity Building Gap: Zambezia Province as an example Managed by Programme Capacity/Tota l funding Forestry Agriculture Environment Social Business Environment Social Business Public Sector IPEME 3 employees X X CEPAGRI 15 employees X Landscape Not defined X X X FINAGRO 4 employees X PPP GAPI 30-40% of 50 million USD X NGOs RADEZA 7 employees X X X X FONZA 5 employees X X X X CECOHAS 4 employees X X X X In Zambezia: 1,805 registered SMEs in a country where informality is estimated at 91%
  7. 7. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 7 Xiaoting Hou Jones December 2016 Financing SUSTAINABLE SMEs Is there finance for SMES? Is the finance providing the incentives/support for socially inclusive and environmentally responsible SMEs?

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