Financial Innovation and Resource Mobilization (FIRM) Innovation Challenge Briefing Document

Financial Innovation and Resource Mobilization (FIRM) Innovation Challenge

Briefing Document

Adventist Development and Relief Agency (ADRA) Norway and Somalia Response Innovation Lab (SomRIL) with the support of Innovation Norway, are looking for innovative solutions in Somalia to address the financial challenges confronting the impoverished Somali communities by seeking innovative financial solutions from the local ecosystem to bolster the local capacity and stimulate innovative financial solutions.

The financial challenges faced by the vulnerable communities in Somalia are deeply rooted in the

long-standing and intricate Somalia humanitarian crisis. This humanitarian crisis stands as one of the world’s most

challenging and protracted emergencies. Factors underpinning the crisis have collectively wrought havoc on the livelihoods of the Somali people and exacerbated the detrimental impacts of recurring natural disasters, such as droughts and floods.

Through the utilization of a community-led and ecosystem-driven design thinking and doing convenor approach of Response Innovation Lab (RIL), with funding support from Innovation Norway, the Financial Innovation and Resource Mobilisation (FIRM) project has

unpacked the depth and breadth of problems in order to derive innovative solutions from the broader ecosystem. Within this framework, the project has drawn upon SomRIL’s approach to humanitarian innovation, characterized by its pillars of innovation, namely: convening, matchmaking, co-creation, and the generation of evidence from the pilots.

The challenge was conceptualized through two convenors in March 2024 by bringing together both the traditional and non- traditional actors (start-ups, banks and insurance companies, innovation hubs,, academia) to unpack the key challenges in the space of innovative financing and defining the challenge statements to conduct the innovation challenge.

The ecosystem partners who shared their insights in the convenors identified the following problem statements:

– Challenge Statement 1: How might we generate new financing opportunities for grassroot female entrepreneurs in Somalia to expand their business by leveraging the network and resources from the Somali diaspora community and the Somali financial institutions in developing innovative financial models and services?

Some of the key challenges encompassing the aforementioned challenge statements that were unpacked during the convenors are: limited access to identification documents for female entrepreneurs (particularly vulnerable groups), lack of regulatory frameworks for remittance, limited knowledge amongst diaspora on the available banking and investment products in Somalia, high transaction costs incurred during remittance initiation, and lack of investment platforms for diaspora to invest in the local enterprises in Somalia.

What the Program Offers

Application pitch preparation: 1 day pitching bootcamp to prepare shortlisted applicants for final pitching.

Fund: Selection of high potential innovators who receive grants of up to $40,000 each to test their innovation in the field.

Accelerate: 6 month acceleration program supporting funded innovators to grow their solution by connecting them with potential funders, partners and Country Offices who can support implementation. Working with innovators to capture learnings and impact and sharing knowledge. Building and nurturing a community of innovators, alumni and support networks.

Who We Are Looking For

P roblem Statement: How might we generate new opportunities for grassroots entrepreneurship in Somalia by engaging the Somali diaspora community and Somali financial institutions in developing new financial products and services?

While all solution providers are invited to apply, priority will be given to:

• Solutions addressing financial education with a focus on female entrepreneurship • Solutions seeking to help entrepreneurs understand their investment to prevent the risks in their business and gain more profits with favorable financial products from the private sectors?
• Financial Solutions looking to provide risk mitigation/management products to avert losses in the eventuality of disasters?

All solution providers are encouraged to apply.

Eligibility

• Possess a valid registration/certificate of incorporation for operating in Somalia and at least 1 year of operation
• Have proof of a revenue-generating business (total turnover in the case of cooperatives) of at least the equivalent of USD 30,000 for the full year of 2023
• Be a team of at least three full-time members dedicated to the MSME/cooperative, including the founding team
• At least 50% of the founding and/or senior management team must be from Somalia

Selection Criteria

• Level of Innovation: The solution represents something significantly new for Somalia or that exists in other regions
• Impact: impact people affected by humanitarian crises; they receive help for things they have not received help before, or they will receive better and more efficient help
• Organizational Readiness: Proposal is rooted within the Organisation and with managers from the involved offices/units. The project group has the roles, functions, technical expertise and institutions necessary to undertake the innovation. The Organisation has made clear plans for how to develop and implement the innovation
• Scaling Potential: Clearly aims to scale the solution to reach more people, new geographical areas, or new organization
• Financial Sustainability: Clear business model and is financially sustainable

Call Timelines

Annex

Challenge Statement 1: How might we generate new financing opportunities for grassroot female entrepreneurs in Somalia to expand their business by leveraging the network and resources from the Somali diaspora community and the Somali financial institutions in developing innovative financial models and services?

Landscape: Somalia is ranked as the 6th most vulnerable country and the 122nd most ready country in the ND-GAIN Matrix, indicating a high need for investment and action1. As per the security threats index2, the latest value from 2024 is 9.7 index points, an increase from 9.5 index points in 2023. In comparison, the world average is 4.87 index points, based on data from 176 countries. Historically, the average for Somalia from 2007 to 2024 is 9.72 index points3. In terms of economic landscape, Somalia’s economy is gradually recovering, with GDP growth projected around 3.7% in 20244. This growth is driven by improvements in agriculture due to better weather conditions, increased remittances, and higher investment. The government is focused on fiscal stability, including increasing domestic revenue and managing debt.

However, Somalia still faces challenges like security threats, climate shocks, and the need for continued support from international partners. Similarly, Somalia’s social landscape in 2024 is complex and marked by both challenges and progress. While ongoing conflict and the impacts of climate change, such as droughts and floods, continue to cause displacement and humanitarian crises, there are signs of resilience and gradual improvement. Access to education and healthcare is slowly expanding, and efforts are being made to promote gender equality and address human rights concerns. However, significant challenges remain, including poverty, food insecurity, and internal displacement, which require continued humanitarian assistance and development efforts.

Somalia’s banking and insurance sector is nascent but developing. Mobile money plays a crucial role due to limited access to formal banking, with Hormuud Telecom being the major player. The Central Bank of Somalia (CBS) is working to strengthen regulations and oversight, including licensing new banks and implementing Basel III standards5. However, challenges remain, such as limited access to international correspondent banking and a lack of trust in formal financial institutions.

While Somalia’s financial sector is still developing, there’s growing interest in innovative financing instruments to address its unique challenges.

• Mobile money: As a major provider, Hormuud Telecom, it’s widely used for remittances,

payments, and even micro-savings, driving financial inclusion in the absence of widespread formal banking. 1 Notre Dame Global Adaptation Initiative (ND-GAIN) 2024

2 The Global Economy 2024 www.theglobaleconomy.com/Somalia/security/security_threats_index/#:~:text=Security%20threats%20inde](http://www.theglobaleconomy.com/Somalia/security_threats_index/#%3A~%3Atext%3DSecurity%20threats%20inde) x%2C%200%20(low)%20%2D%2010%20(high)&text=The%20latest%20value%20from%202024,2024%2 0is%209.72%20index%20points.

3ibid

4 The World Bank Group (2024)

www.worldbank.org/en/news/press-release/2024/06/20/somalia-afe-expects-3-1-percent-gdp-grow-gdp-grow](http://www.worldbank.org/en/news/press-release/2024/06/20/somalia-afe-expects-3-1-percent-gdp-grow) t h-rebounding-from-drought-and-commodity-price-shocks

5International Financial Corporation (2024) www.ifc.org/content/dam/ifc/doc/2024/somalia-country-private-sector-diagnostic-en.pdfic-en.pdf ](http://www.ifc.org/content/dam/ifc/doc/2024/somalia-country-private-sector-diagnostic-en.pdf)●

Crowdfunding: Emerging platforms are connecting Somali entrepreneurs with diaspora and

international investors, facilitating funding for startups and small businesses. Some of the key crowdsourcing platforms in Somalia like Bulshokaab6 and Tarmiya Fund7.

• Blended finance: Combining public and private investment, this approach is being explored to

de-risk investments in sectors like renewable energy and infrastructure, attracting more private capital.

• ImpactInvestment: Initiatives such as Shuraako, a non-profit that helps micro, small, and medium enterprises connect with capital by providing pro-bono support in writing business plans and conducting initial due diligence on potential investments.
• Islamic finance: Consistent with Somalia’s predominantly Muslim population, Islamic financial products are gaining traction, offering Sharia-compliant financing options for individuals and businesses.

One of the important contributors in Somali economy is the in-flow of remittances from the diaspora communities. In 2023, World Bank estimated that approximately USD 2 billion of remittances were received in Somalia which accounts for roughly 25-30% of the country GDP. This highlights their critical importance in supporting household consumption, financing small businesses, and driving economic activity. Further, a recent report from Pangea Trust indicates that almost 80% of the startup capital for small business in Somalia are sent by diaspora primarily residing in Ethiopia, Kenya, Yemen, United Kingdom, and the United States.

Key stakeholders

The major stakeholders in the prospective space of innovative financing in Somalia mapped from the convening exercises are bank and financial institutions including microfinances, insurance companies, mobile money operators and telecommunication service providers, Sharia supervisory boards (SSBs) , Somali Chamber of Commerce and Industry (SCCI), government agencies like Somali Investment Promotion Office (SOMINVEST), Central Bank of Somalia, bilateral and multilateral donors and NGOs, Somali Diaspora Networks, community leaders, and local women’s groups.

End users ofthe solution

The empathy mapping exercise and user persona exercise enabled the FIRM project team to develop profile of prospective users of the innovative financing solutions. The typical age-group of the female entrepreneurs

from 27-35 residing in Somali towns like Baidoa primarily engaged in small scaled enterprises (cake shops, small eateries, Heena and beauty shop, grocery stores) seed-funded by remittance money from their friends

and families residing abroad. The key challenges are increased transaction cost of running business due to taxation by government and other actors, lack of credit facilities to expand business offerings, too many middle-men in the loan borrowing process, difficulty in accessing government ID cards to access credit and financial services, and lack of insurance for business. The end users are often educated until high-schools or have some form of formal education and often perceive relatives living abroad, TikTok and Facebook celebrities and successful Somali women entrepreneurs are their role model.

6.

www.somrep.org/bulshokaab-crowdfundingwdfunding](http://www.somrep.org/bulshokaab-crowdfunding) 7 https://shaqodoon.org/tarmiye-fund-crowdfunding Annex 2: Ecosystem Overview

1. Current Initiatives in Somalia:

2. Shuraako (One Earth Future)

   • Since 2012 in Somali peninsula – works in conflict-affected areas and underserved small and medium enterprise (SME) markets to develop a more resilient and responsible private sector. o More than 1,700 jobs created; investments in 13 sectors; 174 businesses invested; USD 19.4 million invested o Current fund: The Nordic Horn of Africa Opportunities Fund
     • Innovative impact fund is deploying risk capital to finance small and medium-sized enterprises (“SMEs”) located in the Somali peninsula with a focus on job creation and empowerment of female and youth entrepreneurs

3. Tarmiya Fund (Shaqadoon)

   • Shaqodoon, Premier Bank and HarHub have created the Tarmiye Fund to continue to build on existing efforts in combating chronic unemployment among youth.
     • Supports Somali youth entrepreneurs that are unable to access traditional financing mechanisms o Startups, small business owners, marginalized women and aspiring emerging entrepreneurs o Equity financing, mix of Sharia-compliant loans and grants, needs-based training and business development services
     • 124 Businesses Supported, 191 Jobs created, USD 433,738 disbursed

4. Bulsho Kaab (Shaqadoon)

   • The first Somali-based crowdfunding platforms for communities and initiatives across the Somali regions
     • Communities are able to channel their collective efforts to realize common projects that matter to Somalis
     • Built on an initiative of SomRep—Somali Resilience Program
     • Submit your project > Collaborate with experts > Start raising awareness and funding > Complete your project

   • Gargaara

• Facilitates access to finance for Micro, Small and Medium enterprises (MSMEs) o Facilitating access to finance for women and youth business entrepreneurs
  • Large Loan Windows; Micro and Small Loans Window; and Parallel (Third-party) Financing Window o Focused sectors: Livestock, Fisheries, Agriculture, Education, Energy, Health, Manufacturing, Travel & Tourism

1. Enterprise Development Unit(EDU) Somali Network

   • Access to finance is provided through a credit facility targeting SMEs in partnership with IBS Bank o By UNIDO
     • Since 2019

2. UPSHIFT Innovative Livelihoods

   • UNICEF microfinancing scheme with various implementing partners
     • Social innovation and entrepreneurship programme for marginalised and disadvantaged youth o Programme combines social innovation workshops, with mentorship and seed funding grants for business startups
     • Seed funding and grants

3. Renewable Energy & Adaptation to Climate Technologies in Sub-Saharan Africa Programme o Qualifying companies will receive between US$100,000 and US$1.5 million of pure grants, awarded upon the achievement of mutually agreed milestones

   • Support transformational business models adapted to target markets in order to accelerate access to low cost, clean energy i.e. cleaner fuels, cook stoves, alternatives to grid power
     • Support innovative ideas that stimulate next generation approaches in the renewable energy sector o Support commercially viable companies and markets in target countries, out of which 25 percent will be women owned and/or managed

4. Impact Investments

5. Iftiin Foundation: social enterprise established in 2012 to bring members of the diaspora and locals together by teaching leadership skills to young people in Mogadishu and connecting entrepreneurs to funders

6. Shuraako Initiatives: a non-profit that helps micro, small, and medium enterprises connect with capital by providing pro-bono support in writing business plans and conducting initial due diligence on potential investments

7. Somaliland Business Fund/Development Fund: offers matching grants to eligible small businesses to enable them to purchase physical assets and/or acquire business development services.

8. Remittances

• USD 1.6 billion remittance flow in Somalia 2020
• Top Somali diaspora host countries (Ethiopia 23%; Kenya 22%; Yemen 14%; UK 8%) o 35% of Somali GDP
  • 80% of the start-up capital for small businesses in Somalia are sent by the diaspora o Projects where diaspora are engaged: Bulshokaab; Finn-Partnership; Diaspora Project Support with DRC; Somali Agrifood Fund; Somali Diaspora Program Forum

Submission

Interested individuals and firms should submit their proposal in English and by email to [email protected] on or before 25th October 2024.

Email title should be; – Financial Innovation and Resource Mobilization (FIRM) Innovation Challenge Briefing Document

responses received after deadline shall not be considered. Only the final selected candidate will be contacted.