Exposing the Missing Middle: A New Impact Investment Fund for SMEs

In the developing world, it's tough for small and medium-sized enterprises to raise capital. An innovative new fund hopes to change that

I recently asked Tony Muljadi, co-chair of the 13th annual Social Enterprise Conference, which will be held this weekend at Harvard University, what the message was behind this year's conference theme, "Innovation, Inclusion & Impact." In regard to "inclusion," he said, "The very poor have access to microfinance and the rich have access to traditional banking, but there's this missing middle—small and medium-sized enterprises whose needs aren't being met."

Indeed, the concept of social inclusion in general and the "missing middle" in particular has become an increased area of focus among social entrepreneurs. And now, thanks to the new Small Enterprise Impact Investment Fund (SEIIF), impact investors will have a chance to help this financially neglected yet developmentally critical enterprise group.


A joint initiative between the international development agency Oxfam and the Geneva-based asset management group Symbiotics, the SEIIF is being billed as the "first fund of its kind...offering investors both measurable social impacts and financial returns, with relatively low risk."

Roland Dominicé, the chief executive of Symbiotics, said that the new fund "seeks low risk through high diversification and clear exits, which offers investors both breadth and diversity in terms of models, geographies and activities." According to their website, Symbiotics has funded over 400,000 micro-, small and medium-sized enterprises (SMEs) since it launched in 2004, "particularly those active in areas related to food, homes, jobs and energy working in a sustainable manner."

The fund, which is currently seeking investors, has a target size USD 100 million after three years and will focus on high-impact, low-risk debt and equity instruments, with an eye towards capital preservation and realistic returns.


SMEs typically employ 10-250 workers and are generally considered to make up the principal infrastructure of modern economies, providing society with a continuing parade of innovation. But in developing countries, it's a different story. While microenterprises have been getting increased support—in particular following the success and notoriety of Nobel Prize winner Muhammad Yunus, the microcredit pioneer who founded Bangladesh's Grameen Bank—the slightly larger SMEs across the developing world have been left to fend for themselves, finding it hard to raise capital. The idea behind the SEIIF is to address this issue through the market mechanisms of an investment fund.

"The private sector has a critical role to play in lifting people out of poverty and has the potential to drive huge SME growth in developing countries at a scale that is simply not possible for traditional development finance institutions to achieve on their own," said Barbara Stocking, chief executive of Oxfam. "Impact investing is still a relatively new concept for both financial markets and the development community. Oxfam has long talked about the role the investment industry could play in poverty eradication, but now we've decided to prove it. As well as providing capital to an under-served market, the SEIIF's biggest job will be demonstrating success and leading the way for a new wave of impact investment centered on SMEs in developing economies—helping them become an asset class in their own right."


According to the Organisation for Economic Co-operation and Development (OECD), SMEs account for over 95 percent of companies in OECD countries. They also generate two-thirds of employment and are primary new job generators. At a 2009 OECD capacity building seminar in Trento, Italy, the group noted that "overnments play an important role in stimulating more and stronger business start-ups, and in enabling companies to modernise and grow."

That may be so in the developed world of the OECD. But in the developing world, it's clear that government support of SME growth is far from adequate, even as they are increasingly being recognized for their poverty-alleviating potential. "A general consensus has emerged around the key role that small and medium enterprises...can have in reducing poverty and achieving the MDGs in African countries," asserts the African Development Bank Group (AFDB), in a statement in November about the African Guarantee Fund, set up in 2009 to stimulate SME growth across the continent by providing guarantees to African financial institutions. "African SMEs historically lack access to finance, and this is likely to be exacerbated by the effects of the financial and economic crisis on the continent."


SMEs also can't compete on the legislative level like large businesses can. In a 2008 policy brief for the OECD and the New Partnership for Africa's Development (NEPAD), Ross Herbert, a governance research fellow at the South African Institute of International Affairs, noted that SMEs "cannot afford to evaluate laws or lobby government. As a result, SME concerns are often neglected." He also pointed out that "ecause of their size, depth of staff and wealth, large enterprises often have disproportionate influence on economic regulation."

Could the emergence of funds like the SEIIF help to counter such imbalances? Stephen Acheson, the director of Standard Life Investments, sees the potential, saying that the new fund "has the ability to assist many embryonic and small businesses and in doing so generate wealth, employment and economic growth in areas where business potential has historically been constrained due to a lack of affordable capital."

In addition to spreading the quite compelling concept of "low risk, high return," the SEIIF could provide a useful collaborative model for the investment community and not-for-profit development organizations. SEIIF investment committee member Gavin Stewart, the former chief executive of Resolution Asset Management and Ignis Asset Management, said that the fund is "an innovative and exciting way to bring together the private sector skills of a specialist player and the knowledge and experience of Oxfam in the impact space. The long term potential benefit from proving that you can invest successfully in this area is massive."



Muljadi, Tony. "Tony Muljadi: An Exclusive Justmeans Q&A, Part 1. February 14, 2012. Accessed February 23, 2012.
Symbiotics Group. "SEIIF - OXFAM and Symbiotics Target Investment Industry with New SME Fund." January 23, 2012. Accessed February 22, 2012.
Symbiotics Group. Unique Track Record. January 29, 2012. Accessed February 23, 2012.
Ibid., 2.
Organisation for Economic Co-operation and Development. Capacity building seminar: Supporting SMEs in a time of crisis: how to choose the right actions (Trento, Italy). June 23, 2009. Accessed February 23, 2012.
African Development Bank Group. "African Guarantee Fund for Small and Medium-sized Enterprises." November 15, 2011. Accessed February 23, 2012.
Herbert, Ross. "Challenges Of Structuring a Productive Investment Climate: Executive Summary." South African Institute of International Affairs. December 11, 2008. Accessed February 23, 2012.
Ibid., 2.

image: Peul women in Paoua, Central African Republic. In Paoua, women receive help from the Danish Refugee Council to set up small businesses. (credit: hdptcar, Wikimedia Commons)