Sustainable economic development should be driven by the private sector.
Development agencies are using a new generation of tools to “crowd in” private sector investment.
Structural reforms can help make a country’s business climate more attractive by improving governance, labour markets, financial services, and social protection – and by reducing corruption.
Inequality cannot be tacked without addressing the needs of women in financial inclusion, entrepreneurship and other issues
At the first Development Days over 10 years ago, debates focused on how to improve the efficiency of development assistance. Today’s catchwords include “blended financing” and “crowding in” – the latter a reference to attracting private sector funds. Sustainable economic development should be driven by the private sector, according to current thinking.
The European Union’s External Investment Plan (EIP) is emblematic of this approach. It stands on three pillars: (1) mobilising finance, often by using a new generation of tools, including guarantees, risk sharing, and “blending” (mixing grants and loans); (2) providing technical assistance for local authorities and businesses; and (3) improving the investment climate and business environment.
Guarantees and risk sharing can help convince local institutions to make loans to underserved populations that might not seem creditworthy based on conventional analysis. One such initiative in Jordan is designed to help underserved entrepreneurs, notably women and Syrian refugees.
Structural reforms can help make a country’s business climate more attractive by improving governance, labour markets, financial services, and social protection. Reducing corruption is another factor, while better public administration translates into both more and better public services.
Inequality cannot be tackled without addressing the needs of women on several fronts, including financial inclusion and entrepreneurship, notably in the realm of high technology.
The Women in Business programme of the European Bank for Reconstruction and Development (EBRD) provides beneficiaries with access to credit, training, mentoring, and financial products tailored to their needs. It provides guarantees to commercial banks that make loans to women entrepreneurs. It also works with the banks to help them to develop the ability to turn this new group of clients into a profitable source of revenue in the future.
In much of the developing world, women entrepreneurs play a dynamic role in local economies. Yet, male-led firms are more likely to receive funding. That is linked to the fact that men are more heavily represented in the “investor-friendly” high technology sector. Also, women are more likely to work alone, and investors prefer to bet their money on teams rather than individuals. Fempower Africa is a community of women tech enthusiasts who learn from each other, provide mentoring, and organize networking events such as hackathons. It helps members establish unique businesses that are more likely to appeal to investors.
Few budding start-ups need EUR 1 million. Some could launch with just EUR 5000. Small businesses that receive this sort of financing create more jobs per euro than those that benefit from multi-million-euro programmes.
Women entrepreneurs often find themselves hamstrung by the lack of access to financial services. Compared to men, they are less likely to have the proper official identification card needed just to open an account. They have lower levels of financial and digital literacy. And they are less likely to own a mobile phone. Lacking sufficient personal document trails, they are often sidelined by regulatory requirements known as KYC (Know Your Customer) rules designed to clamp down on money laundering. Even when they open bank accounts, many women rarely use them.
Many emerging market governments run high deficits, which they finance at high interest rates. Government bonds are purchased mostly by local commercial banks. Those institutions have little incentive to loan money at lower rates to relatively high-risk small businesses and entrepreneurs.