WALE OGUNSOLA is the head, SMEs and venture capital at Nextzon Business Services Limited, a consulting firm supporting businesses and start-ups. He heads a department that manages Oxfam’s patient capital directed towards supporting a qualifying SME with up to one million Euros. Oxfam, a global organisation committed to fighting poverty, recently handed the management of its debt and equity capital to Nextzon. Ogunsola spoke with ODINAKA ANUDU on the objective of the fund.
You are helping Oxfam to identify SMEs eligible for funding and development. How long have you been doing this?
The programme just started recently. We have been designing and fine-tuning the scheme in the past few months. So it is now ready.
Our job is to help Oxfam originate qualified SMEs that can access the fund of about €100 million. Oxfam is piloting this scheme in Nigeria and we hope it goes on well so that we can increase the stakes.
What key sectors is the fund meant to support?
Majorly, we are looking at high impact-making sectors. We are talking about sectors that create environmental and social impacts, in terms of job creation, growth in wages and all that. These are also sectors that can at the same time generate financial returns.
For the start, we are looking at agriculture and agro-processing. We are also looking at manufacturing in terms of products or solutions with high relevance for women, youth and/or small holder farmers.
We also look at ICT and media as well as recycling and renewable energy, if they have the right technology and can affect Bottom of the Pyramid.
So what is the lending rate?
Well, lending rate is not our key focus. The funding is either equity, debt or quasi equity, depending on what the business case justifies. We will target to make returns on an investment that meets the market rate.
Can you explain what you mean by ‘equity’ and ‘debt’ funding?
Both forms of investment will be patient capital and not the ones that put the entrepreneur under pressure. Payment is important, but sustainability and ability to scale the business is more paramount to Oxfam and to us than the interest rate. The interest rate will be market-driven when it is debt. But when it is equity, we agree on what stake to take. But that will be based on the entrepreneur’s business case.
What is the tenor of the fund? Is it short- or long-term?
Well, it depends on the business case. One of the major challenges of SMEs in the country is not just access to capital, but access to long-term capital. This is why Oxfam funding is one of the solutions we are trying to put into the market.
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What are you looking for in businesses that can make them qualify for the funding?
Amongst other things, we are looking for positive impact potential (social and environmental). The business should demonstrate how it can create jobs and increase wages. You can show that if you get this fund, deploy it into the business, you can become competitive in the industry. We will be quite very strict on governance (both business ethics and corporate governance). For any business to pass the first stage screening, it must demonstrate readiness to comply with these while also generating financial returns
How many SMEs will you support in the short-term?
Within the short-term, we are hoping to work with at least 200.
Will the market rate you spoke about concerning debt funding be single-or double-digit?
Well, the major problem of SMEs is not the cost of funds. SMEs can pay banks’ costs of funds as high as they seem, if they have the right discipline and capacity. But the problem SMEs here face is availability of patient capital.
You have to work with the SMEs to cultivate some level of discipline and required build capacity to run a business positively. These are some of the things we will do with selected SMEs before we present them to Oxfam for investment. We will even agree post-investment action plan with the SMEs for developing their ESG compliance.
So what is the maximum sum a business can get from you?
A business can get up to one million Euros.
Do you hand out this sum without providing any form of mentorship?
That is what we mean when we talk of business development. If you talk of mentorship, it falls under this. It is not about giving money to businesses. Before you give money and start managing risks, you need to de-risk them so that you will be free from managing risks.
There are certain things that must be done by selected SMEs pre-investment. We will work with these SMEs to take actions which significantly reduce their risks.
Is this a national scheme or is it restricted to certain states?
It is a matter of wherever we get the right businesses. People are applying nationwide and we are going to rate them. We start with the pilot and once this works, there is a possibility of raising it.
Who determines what to get? You or the entrepreneur?
SMEs seeking the fund will write the request on the form and we will screen them at various stages.Once they are selected, we will look at their business plans. It is what the business plan says the business needs that we will push forward to Oxfam as an investment case. If an SME says it needs one million but in reality needs 10 million, it will be very clear and we will make a case for N10 million so as not to make it under-capitalised.
Similarly, if you put N10 million into a business that needs one million, it is bound to fail, because it is already overcapitalised and can lead to uncontrolled spending.
How do SMEs apply?
They can fill the application form at www.smecapex.com, which is a portal we are developing to connect investors directly with qualifying SMEs.
