NewswireToday - /newswire/ -
Pretoria, Gauteng, South Africa, 2009/11/27 - Small and medium enterprises (SMEs) supported by GroFin are creating significant value in the marketplace through creating jobs and benefitting surrounding communities.
In the five years since its inception, the company has provided a unique combination of finance and dedicated business expertise to over 160 SMEs across Africa. To date, the growth of businesses under this integrated approach has resulted in over 4,800 personnel being employed by companies in its investment portfolio.
The figures illustrate that GroFin has created and maintained an average of 30 jobs per transaction, the benefits of which are felt far beyond the business itself. Using the IDC / DBSA beneficiary formula, an estimated 77,200 people benefit indirectly from the USD$ 62.8 million of funds currently invested. Over a quarter of those benefitting from the jobs being created and maintained are women.
These figures are a testament to the ability of SMEs to have a long-lasting development impact on local communities. As businesses grow and jobs are created, each business serves as an efficient vehicle of economic growth.
It also provides evidence that GroFin’s pioneering business model is successfully serving the needs of capable business owners through its provision of appropriate finance and ongoing business support.
Although the contribution of SMEs to growing local economies is unquestionable, the SME sector has historically constituted a gap in the financial services market. GroFin refers to this asset class as ‘Growth Finance,’ in which fund managers such as itself specialise in the financing and development of start-up and growth enterprises that are entrepreneur-owned and run.
A new asset class has called for a different approach. Traditional financiers offer finance directly related to the collateral offered by the business owner, with the capital provided by the business owner addressing the risk of the transaction should the business not succeed. However, this dictates that the criteria for investment are volume-driven and inflexible, and little support other than finance is provided.
Such criteria have eliminated a wealth of African SMEs who lack the business skills, track record and collateral necessary to be financed. Whilst individual and smaller businesses are able to obtain microfinance and larger mature companies can access finance via Private Equity or corporate lending, the Growth Finance market remains underserved.
In contrast to traditional financiers, GroFin addresses the needs of the SMEs through viability-based lending, in which neither collateral or a track record is a pre-requisite. Higher value is placed on the entrepreneur’s abilities and the business’s potential, with collateral playing a supporting role and existing as part of a risk-reward relationship.
To mitigate the added risk of supporting a business owner with limited collateral and experience, GroFin forms an ongoing partnership between itself and the entrepreneur. The resulting understanding of the business and the support of its financial and development needs increases the business’s chances of long-term profitability and growth. This success of this model is translated into attractive financial returns, and a suite of social returns, including job creation.
Jurie Willemse, Managing Director of GroFin said: “The African business sector represents an exceptional investment and development opportunity at this time and has illustrated resilience through the economic crises. There are an ever growing number of entrepreneurs in Africa looking to start and grow companies and our viability based model - specifically developed for the African market - makes real returns possible in a segment that is overlooked by most investors.
The performance of GroFin’s model attests to the future of Growth Finance as an attractive asset class that can deliver sustainable financial, social and economic results within a sector few thought of as financially viable.”
In August, GroFin (grofin.com) announced the final closing of the GroFin Africa Fund at US$170 million against a target of $150 million. This will be invested in approximately 500 companies in the 7 African countries it operates in, over a period of five years, making it the largest Growth Finance fund to date globally.