In Sub-Saharan Africa as elsewhere, Micro, Small and Medium Enterprises (MSMEs) play a crucial role in economic development and job creation. However the sector hardly achieves its full potential because of a series of challenges, among which is limited access to financial services, but also because of a more general lack of knowledge about this particular segment. 

In order to better meet MSMEs’ needs, a first step consists in identifying the profiles, growth paths, success factors and challenges faced by those who managed to turn their microenterprises into small or medium entities, hereinafter referred to as “Small and Growing Business” (SGB) owners.

As microenterprises are likely to resort to microfinance institutions (MFIs) to get access to financial services. At a glance of Micro Financial institutions:

• SGB owners include both men and women, but female SGB owners distinguish themselves with a higher level of education on average and by starting their businesses at an older age. This may imply that education is more determining for women’s success, and that women were more constrained by household tasks and children care before being able to fully commit themselves into their activity.
• Most SGB owners are married, and a large part of them benefit from their spouse’s support, who work in their business. However, SGBs are characterized by a low share of family members among their employees at the time of survey, showing that those who managed to grow are also those who dared open their business to external skills and not relied on family only.
• Having many dependents may slow down business growth, however most SGB owners have a family, children and dependents, which implies that this is not irreconcilable with business management and growth.
• A minimum level of education seems necessary to be able to make a business grow, since no entrepreneur is illiterate. If the most educated entrepreneurs are not necessarily the owners of the greatest businesses in terms of capital, there is a positive correlation between education and business size as well as business growth in terms of employees.
• Previous experience may be as determining as education and/or complementary for business growth, as it is a common feature of most SGB owners, whether it is experience in their field of activity or in business management.
• In terms of management, all SGBs are managed by their owners, who are not ready to delegate this task to other people. Most SGBs are officially registered, with variations across countries due to diverse national legislations. All SGBs keep accounts, but not always with a professional accountant or electronically.
• A high proportion of SGB owners run several activities at the same time, usually with a single registered company but sometimes with several ones, not always officially registered.
• SGB owners have launched their businesses with their own savings and sometimes family support, but faced strong difficulty in accessing finances for their start-up phase due to collateral requirements. They got access to microcredit only after running their businesses for a few years.
• Growth patterns are diverse: some SGBs started to grow just after business launch while some others did not; some benefited from regular and continuous growth whereas some others encountered fluctuating growth. Nonetheless, all interviewed SGB owners remain growth- oriented.
• The critical factors which enabled SBGs to grow are personal character, especially hard work, perseverance, adaptability and reactivity, and access to finance. In Ethiopia, access to working spaces and premises thanks to a national policy was also determining for microenterprises working in the manufacturing sector.
• Today, most SGBs claim that access to finance remains crucial to enable them keep growing, but a large part of them still face difficulty in accessing the amounts they need, mostly because of collateral requirements. Processing times are also considered as too long. A solution found by Kenyan entrepreneurs is to get several loans at the same time, from different institutions but also sometimes from the same one, which seems inefficient and risky. A lack of adequate financial products for SMEs clearly appears, as neither MFIs nor banks properly serve them.
• With regard to financial services in general, financial needs of SGB owners evolve and become more sophisticated as their businesses grow: they especially need savings accounts but also current accounts and electronic payment solutions. However, microfinance institutions are seldom able to offer such services. This leads SGB owners to resort to several kinds of financial institutions for other financial services than credit, such as mobile banking solution providers in Madagascar or commercial banks in Ethiopia, while credits are still taken from MFIs.
• Another main challenge faced by SGB owners is local competition, especially from the informal sector: as a consequence, not only is formalization determining for SGB owners themselves as it provides them with many advantages such as better image and easier access to suppliers, clients and public services, but also for their competitors whatever their size, in order to avoid market distortions.
• The need for non-financial services appears as less primary compared to the one for financial services. The non-financial needs mentioned, when there are some, concern training, either technical or managerial, and market linkages. However, some SGB owners do not know the agencies or organizations which would be able to provide them with such services. More consistency and innovative partnerships between providers of financial and non-financial services as well as between private and public entities could help SGB owners benefit from such services.

As in most countries, SMEs are crucial for economic growth, development and employment in Sub- Saharan Africa. By relying on five MFIs in Ethiopia, Kenya and Madagascar, this study aimed at better identifying the profiles of small and growing business owners, that is to say of micro-entrepreneurs who managed to turn into very small, small or medium enterprises, and at better understanding their growth paths, success factors and challenges.

On the basis of the results detailed in the previous section, some recommendations can be made in order to foster the development of the MSME sector and facilitate their growth. These recommendations may be relevant for a diversity of actors, from policy makers to all kinds of financial and non-financial services providers. They concern the following issues:

• The role of the government and public agencies. Despite the various measures and policies implemented in each country, the efforts seem insufficient to enable MSMEs to evolve and grow in a proper environment and access the services they need. The variety of definitions of MSMEs within a country, even sometimes their inconsistency or irrelevance, may reflect the lack of attention dedicated to this segment. Even though interesting initiatives have been launched in Ethiopia, especially with regard to the provision of working spaces and premises, public support is inadequate and insufficient everywhere. The legal environment is sometimes constraining, especially in Kenya, where licenses and taxes seem too numerous, let alone corruption, and incentives towards financial service providers to facilitate access to credit for SMEs are missing.
• Access to adequate credit. Indeed, a high share of SGB owners face difficulty in accessing the amounts they need to keep growing. This is mostly due to collateral requirements from the financial institutions currently funding them. Even with clean credit histories, requirements remain too high and processing time too long. The conditions demanded by MFIs seem inappropriate for SMEs, while banks still refuse to serve them: this is the “missing middle” issue often referred to when talking about challenges faced by SMEs. Whereas the trend in public policies is rather to create a proper and supporting environment for start-ups and microenterprises, the same kinds of initiatives in favor of the expansion of small and medium enterprises are missing, and yet SMEs are likely to create more jobs. It could be more relevant to consider microenterprises and start-ups as a part of a value chain which also includes SMEs, and to think about how to ensure access to financial and non-financial services for the whole value chain.
• Access to diverse and sophisticated financial services. Most SGB owners resort to diverse financial institutions in order to make up for the lack of appropriate financial services offered by the institution currently funding them. The Ethiopian case is particularly striking, with SGB owners taking credits from MFIs but all other services such as current accounts and electronic payment solutions from banks. If MFIs or banks are not able or willing to offer all the services needed by SMEs, at least synergies and collaborations between various financial service providers could be created in order to ensure that SMEs are properly served. MFIs could also innovate and scale-up their services to better meet SMEs’ needs, especially by including FinTech solutions, either internally or in cooperation with specialized providers.
• The burden of informal sector. All SGBs are formally registered in Ethiopia and Madagascar, whereas it is not the case in Kenya, where several levels of registration exist. The Kenyan legislation does not seem to efficiently incite SMEs to register. However, more generally speaking, formalization is a key issue, not only because it facilitates access to suppliers, clients and government support for SGBs, but also because it minimizes market distortions: for now, many SGBs have to face competition from other local enterprises which are not always formalized and are not submitted to the same rules and costs, which is definitely an obstacle to their growth. As a consequence, more incentives to formal registration should probably be implemented, not only for SMEs but for all economics actors whatever their size.
• The need for non-financial support. Few SGB owners benefited from non-financial services. If some of them claim not needing any, some others acknowledge that training, either technical or managerial, and business development services (BDS) in general could be useful for their growth. So far, the offer of such services has remained insufficient, inappropriate, and even too costly when provided by private organizations. More coordination between providers of financial and non-financial services and/or public-private partnerships could be solutions to test in order to develop more organized, efficient and quality-driven BDS sectors.
• The need for more knowledge and information about SGBs. The outcomes of studies of this kind may be particularly useful for several types of actors. For MFIs first, they may help them better know their clients, train loan officers, and especially give them some clues to identify SGBs in their existing portfolios but also among their possible future clients. Hence, such studies may provide MFIs with relevant information to implement specific and adapted support dedicated to SGBs, whether for pre-launch phase or post-creation phase. Second, for governments, donors and national or international organizations willing to focus their efforts on job creation, such studies give insight on the segments to target to maximize the potential number of jobs created. As a consequence, more studies with other MFIs, in other countries and other continents should be launched in order to contribute to knowledge creation on SGBs. These studies could also adopt a different perspective by focusing on entrepreneurs’ life stories, and/or deal with complementary issues, such as SGB owners’ resilience capacities and strategies to manage risks and face shocks; this could give food for thought about the needs for other kinds of products and services, such as insurance. These are only suggestions and illustrate the large scope of questions to tackle and research initiatives to launch to keep extending financial inclusion of all population segments.

Development Economy for MSMEs

Human Capital Investment- Unemployment rate Status to the Family level

Tanzania’s Fastest Growing Economies in the World

Market Engagement Strategy

Mention the word “innovation” and most people will think of extraordinary inventions created by solitary geniuses. But the majority of business innovations today are quite the opposite. The companies that generate them thrive on collaboration, a free exchange of ideas and regular interactions with customers and other stakeholders. They innovate not necessarily to revolutionize their industry — although that may happen to a lucky few — but to meet specific objectives and carve out a competitive edge.

Perhaps most important, however, is that innovative companies do not outsource this function to a department or committee. Nor do they hastily come up with an innovation plan when the corporate strategy calls for it. Rather, for them innovation is a way of life. It is what they do. And to do it well, they change whatever needs
to be changed, whether it’s their organizational structure, their business processes, or even their core products or services. Yet this doesn’t happen randomly: leading companies do follow a process to innovate. Our research has found that this tends to be a spiraling, iterative approach that embeds innovation in every aspect of the organization.

The circle in the middle (Innovation spiral) shows how companies can gain competitive advantage, which is typically the purpose of innovation. The following are the components of the spiral:

Areas of innovation
Organizations typically innovate in three areas: products and services, processes, and business model. Our research shows that although product and service innovations certainly help businesses obtain a competitive edge, business model innovation tends to confer more lasting benefits.

Innovation process
Innovation has, up to now, typically followed a three- step process — idea creation, development and exploitation. Our research reveals a major shift in how leading companies go about innovation today. Intuition is the process of obtaining ideas, from anywhere and everywhere. Socialization happens when the idea is discussed and debated with other people, formally and informally. After this process of ideation, the resulting idea goes through development and exploitation. In the spiral approach, innovation doesn’t always need to start at the intuition phase but can start anywhere in the framework. If there are unanswered challenges at any stage, then the process can go backward until the issue is resolved. For example, new products may be rolled out and tested on consumers before the next phase of development, usually involving customer feedback or user experiences.

External collaboration
The most innovative organizations collaborate throughout the process to access diverse internal and external expertise. This involves working with customers, investors, suppliers, governments, financial services, competitors, academics and other companies.

Innovation enablers
These are the internal factors necessary for the innovation spiral to work. At the top are leadership mindset and culture: organizational leaders must be innovative and take risks to achieve competitive advantage. Once innovation is embedded in the culture, seven other key factors need to be aligned to allow innovation to flourish: people and skills, technology, infrastructure, organization and governance, risk management, measurement and key performance indicators (KPIs), and funding.
The right column (Business outcomes) shows that companies innovate to achieve five key business outcomes: profitable growth, customer engagement, business sustainability, productivity and business agility. The challenge is to focus on all of these outcomes together, rather than favoring one over another, which compromises the ability to anticipate change and drive growth.

Entrepreneurship oriented toward high growth
in the formal economy is a nascent phenomenon in Tanzania , particularly in the technology subsectors targeted in this assignment. Only a handful of entrepreneurs were identified, and nearly all of them were in the very early stages of development. Furthermore, other stakeholders interviewed identified many factors that contribute to the lack of robust entrepreneurs, but they nearly all confirmed that such high-growth entrepreneurs in the sectors were few and far between. The key points listed below summarize the observations gained on the biggest barriers
to angel investment in high-growth technology entrepreneurs in Tanzania:

1. There are few business mentors and no active angel investors. There are few successful entrepreneurs to guide and inspire new entrepreneurs. Stakeholders identified the lack of success stories of entrepreneurship in traditional sectors, much less in technology, as a primary inhibitor to interest from potential entrepreneurs.
2. The natural resources “curse” is inhibiting technology sector growth. With the discovery of abundant natural resources, the focus of investment and the majority of economic activity have been oriented toward developing companies to supply the value chain of large enterprises to displace import substitutes. Stakeholders indicate that while there has been some success, these companies are generally not innovative. Furthermore, stakeholders indicated that there is a considerable challenge to source domestic inputs, as small local producers do not have sufficient negotiating power nor quality control standards to sell to large extraction companies.
3. A critical mass of medium-size businesses does not exist. Tanzania has megaprojects and large companies, very few medium companies, and a large amount of small informal businesses (nearly 90 percent of the private sector). This results in small businesses being unable to join the value chain to eventually sell products and services to large companies, who largely rely on foreign suppliers. Stakeholders confirmed that part of the reason for this is that most entrepreneurs prefer staying small and informal to stay unnoticeable and not show public success
   so they don’t have to become the provider
   for family and friends. They would rather launch other small informal businesses than grow the initial one. The absence of medium companies to play a convening and distributing role exacerbates broken value chains between small producers and large client companies.

5. The risks associated with entrepreneurship and, to a lesser extent, angel investment are not assuaged by strong trust in counterpart stakeholders. Aversion to risk was reported at every level of the ecosystem. Entrepreneurs do not trust wealthy individuals or catalytic agents and fear having their idea or business stolen. Wealthy individuals do not trust local entrepreneurs and domestic economic growth to provide returns.
6. The government lacks a united vision and clear strategy for the development of the
   key high-growth sectors. The government
   is struggling to create and follow a clear national strategy on the development of the technology sector and innovation. This is due to a prioritization of basic poverty alleviation through sectors such as agriculture, education, health, and infrastructure. There is a clear
   lack of operational coordination between all actors in supporting early-stage technology companies, leaving entrepreneurs hanging along the development path.
   entrepreneurship oriented toward hIgh growth In the formal economy Is a nascent phenomenon In mozambIque, partIculary In
   the technology subsectIons.
7. There is a general lack of financial and managerial skills. From the available
   statistics and the interviews conducted, most entrepreneurs that do access initial capital mismanage it due to a lack of financial literacy and management skills. Personal pressing financial problems were also indicated as a cause of low financial discipline in management terms. Due to this, examples of seed funding usually did not translate into business results. There are Business Development Services (BDS) solutions available, but these are either too expensive for entrepreneurs to afford, led by a nonexpert in a governmental agency, or are a short-term generic training insufficient
   to improve managerial skills. Stakeholders indicate that technical skills are sufficient.
8. Financial instruments tailored for early-stage financing for technology are not available. The allocation process of available early-stage financing for start-ups through grants and loans is insufficient. However, stakeholders indicate that the technology sector is perceived as particularly high risk and low return,
   hence few options are available to potential entrepreneurs for early-stage initial capital beyond grant programs. Microfinance is quickly accessible. However, stakeholders indicate that rates are unaffordable for a start-up. Grant programs exist, but they have had very limited success in providing resources to start-ups.
9. The lack of growth financing for a small number of tech SMEs inhibits growth potential of start-ups. There is a genuine lack of growth financing for start-ups that are looking to grow into small or medium businesses, although it should be noted that these are very few in number.
10. The policy environment does not adequately promote entrepreneurship and investment in the tech sector. The cost of doing business—registration and licensing, opening ank accounts, obtaining and enforcing intellectual property protection, paying taxes and accessing information—is high for entrepreneurs. Outdated policies in rapidly changing subsectors such as mobile technology and the absence of guidelines in relatively nascent areas, including biofuels and e-commerce, stunts progress in the tech sector and inhibits the growth of technology entrepreneurship. While the government seems to recognize the employment potential through entrepreneurship, its initiatives are under- capacitated and are not actively supporting technology entrepreneurs.

Unmet Needs and Support Gaps
Entrepreneurs in Tanzania face particular difficulty overcoming key challenges in their path to establishing profitable businesses. In addition, the pool of growth-oriented entrepreneurs is quite small, and technical skills among that pool are limited. Chief among the challenges facing this small group of entrepreneurs is weak mentorship, coupled with a lack of coordination between support programs. The absence of real co-working space, and the focus on business plan competitions, can have the effect of making entrepreneurship more of a game than a career, particularly in the absence of a clear “next step.” Stakeholders indicate that most entrants into entrepreneurship are from wealthy, well- connected families and will most likely revert to government or international employment after tinkering for a while.

Furthermore, market research and other business services are either of low quality or are prohibitively expensive.

Unemployment rate and Economic Growth

Upfront the long term of Public Investment to Macro-economic Growth

Our Health System And Macroeconomic Growth