Micro, Small, and Medium Enterprises (MSME) Advisor – Malawi

Background

The USAID Africa Trade and Investment (ATI) Activity is designed to bolster the U.S. Government’s ability to boost trade and investment to, from, and within the African continent. The continent-wide program is USAID’s flagship effort in support of the Prosper Africa initiative and will expand and accelerate two-way trade and investment between African nations and the United States.

Driven by market demand, ATI embraces innovative approaches to achieve its goals. ATI is designed as a small, core set of centrally coordinated technical and institutional support activities, and a large, flexible performance-based subcontracting and grants under contract facility designed to support the needs and opportunities that USAID Missions and the private sector identify.

Summary of Primary Duties

USAID Kenya and East Africa (KEA) Mission works with the Government of Kenya and the private sector to increase trade among East African countries and globally. The Mission promotes two-way trade and investment linkages between Kenya and the U.S. and help Kenyan and American firms take greater advantage of trade opportunities provided by the African Growth and Opportunity Act (AGOA) and other initiatives. USAID/KEA supports a range of trade-related areas including capacity building, building a private sector enabling environment, better market access, increased food security, and export promotion.

Through ATI, the USAID/KEA Mission will provide technical support to the Principal Secretary’s Office of the State Department of Trade, Kenya by embedding a Senior Technical Trade Advisor.

Purpose

The Government of Malawi (GoM) recognizes the private sector as a key driver of growth, and that development of the sector is important for job creation. Empirical studies have identified that 90 percent of jobs in developing countries are provided by the private sector and recommend that private sector development should be at the core of any response to unemployment challenges. Generally, the private sector in Malawi does not perform efficiently and is characterized by a few large-scale firms and many informal micro and small enterprises (MSEs).

Access to finance has been identified as the main business growth constraint for MSMEs in Malawi. According to the World Economic Forum (WEF) Global Index 2016/2017, lack of access to finance is considered the biggest obstacle to doing business, even more than inflation, corruption and inadequate infrastructure. In Malawi, over 90 percent of financing from banks goes to a handful of large firms that dominate the economy. This level of resource capture is much higher than in most countries and significantly limits opportunities for smaller firms to develop and contribute to the economy. Access to finance to MSMEs is limited by multiple supply factors, including high interest rates, short loan tenors, excessive collateral requirements, and limited products tailored to MSMEs. On the other hand, MSME informality, mistrust of banks and lack of awareness of financial sector opportunities affect demand for formal financial services. In all, this makes it difficult for smaller enterprises and some marginalized groups, including women and youth, to access financing for businesses.

MSMEs’ access to finance is further complicated by weaknesses in the enabling environment and poor financial infrastructure. To mitigate the credit risk, in many cases lenders substitute the lack of information on MSMEs with higher collateral requirements. However, these substitutions have still not sufficiently incentivized banks to lend to MSMEs in environments where contract enforcement is problematic and financial infrastructure is not well developed. Most of the available bank credit is short term in nature as financial institutions rely on short-term deposits to finance lending. Limited maturity transformation affects the provision of longer-term financing that is needed for certain sectors such as agriculture. The capital market is also small and unsophisticated. Rapid growth of bilateral corporate debt transactions would be better served by more market-based instruments (e.g., on the stock exchange), which foster the development of long-term finance through better risk sharing. There is a need for quality long-term assets to match insurance policy holders’ risk-return expectations. Further, specific expertise is needed to support financial deepening and the development of alternative assets that better service the private sector.

U.S. International Development Finance Corporation (DFC) has made available a financial commitment of four transactions under a partnership with U.S. Agency for International Development (USAID) African Union and the African Union Development Agency (AUDA-NEPAD). The new projects mobilize $74 million total to expand access to financing for African micro-, small- and medium-sized enterprises (MSMEs) in Nigeria, Malawi, Tanzania, and Zambia. For Malawi specifically, a $10 million loan portfolio guaranty, made possible with $5 million in DFC exposure, will expand access to finance for small- and medium-sized enterprises, with a focus on the agriculture, clean cooking, fisheries, and sustainable forestry sectors in Malawi, more information can be found here: https://www.dfc.gov/media/press-releases/dfc-collaborates-usaid-and-african-union-support-financial-inclusion-sub.

Other Development Partners (DPs) in the country have initiated interventions to foster the development and growth of entrepreneurship, but gaps remain. For the most part, these programs have focused on specific value chains and/or sectors with limited demographic coverage – for instance targeting graduates of the Technical and Vocational Education Training (TVET) and hence have not had a national level reach and impact thus far.

Objectives

A key observation identified is the lack of technical capacity available to assist responsive loan application forms/documents to source access to finance. Additionally, some investment ready applications are rejected because of their failure to correctly package and present the required information and documentation in the format that the Financial Institutions require.

The objective is to engage a consultant to support a cohort of 30 MSMEs for investor readiness technical support. An essential requirement is for MSME applicants is to have access to technical assistance (TA) to ensure that the MSME all loan applications are in fact investor ready (financial statement/governance structure/ collateral availability/cash flow affordability, amongst other, and that business applications are not start-up businesses but already operationally established).

Responsibilities

ATI is seeking a consultant with available capacity and relevant experience to support the Malawi Buy-in to increase the investor-readiness profile of identified/selected MSMEs and facilitate the fundraising process to selected Financial Institutions.

The key responsibilities include:

• Identify the investment readiness of 30 MSMEs collaboratively with the Malawi Buy-in and develop a workplan, following the on-boarding process, including a brief analysis of the risks and challenges of this assignment.
• A clear understanding of the terms and conditions required by targeted Financial Institutions within the STTAs network to receive loan applications, based on the minimum standards that an SME must meet.
• With the understanding that targeted Financial Institutions require, collect, and analyze business, organizational, financial, and operational information, and data from MSMEs.
• Select 15 qualifying MSMEs and identify and understand their capital needs of the assigned MSME pipeline, advise on the gaps that need to be closed towards investor readiness, and the funding options available.
• Provide a shortlist of suitable funders and lead an engagement with potential funding partners.
• Select 10 MSMEs to be facilitated for funding applications and train and coach the management team of MSME on the fundraising process, what to expect, and how to close the deal.
• Select and train three Financial Institutions on SME needs and how best to provide specific loan products that suit these needs (long term funding and fair collateral ask).
• Coordinate the Financial Institutions due diligence process with selected MSMEs, assist and advise in the negotiation of the proposed loan transaction and towards the technical execution of the closing agreements (non-legal).

Deliverables

1. A pipeline of 30 MSMEs identified and evaluated for qualifying criteria; 15 MSMEs short listed in terms of qualifying loan application criteria; and 10 MSMEs facilitated to selected Financial Institutions for funding application.
2. Work plan that includes initial assessment of MSMEs outlining the technical areas of support.
3. Monthly narrative reports and status update on work done each month (new MSMEs identified, investor readiness support made, loan applications made, feedback received, amongst other). These reports should also provide a brief analysis of the risks and challenges posed in the delivery of this assignment.
4. Prepare a summary deck of the terms and conditions required by identified Financial Institutions to receive loan applications that include the various documents, and the minimum loan application standards required for the MSMEs to meet.
5. Prepare an assignment report highlighting lessons learnt, insights identified, and improvement or suggestions to assist MSME in subsequent capital raisings. Recommend in the assignment report investment readiness improvement plans for MSMEs and Financial Institutions, that will focus on key business sectors: and impact measurement.
6. At least 10 export ready and investment ready MSMEs that have received facilitation to actively apply for financial support from instruments such as DFC or loan applications to commercial banks within the period of consultancy.

Required Skills

• ATI anticipates that the individual consultant(s) will possess the following skills and experience.
• At least seven years of experience working with MSMEs in Malawi and demonstration of how this experience has translated to success for the MSMEs supported (include specific, measurable outcomes where applicable).
• Demonstrated experience in supporting companies in the Agriculture/Agribusiness sector(s) to increase their level of investment readiness and facilitated the fundraising of commercial capital from local/foreign investors or concessional financing/matching grant funding.
• Demonstrated experience and identified network working with Financial Institutions catering for MSME loans.
• Track record in supporting MSMEs to raise concessional capital (grants and zero-interest loans) and commercial capital, showcasing engagements and deals closed.
• Solid track record in working with MSMEs in Sub-Saharan Africa.
• Elaborate understanding of the impact investment space in Sub-Saharan Africa, with a network of active investors in the ecosystem.

Reporting

The Consultant will report to the Activity Manager and work closely with the Investment Specialist.

ABOUT DAI

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