Voices from the Finance and Investment Network: MEDA
Mennonite Economic Development Associates (MEDA) is an international economic development organization that creates business solutions to the challenges presented by long-standing poverty. Through USAID INVEST, MEDA and a consortium of partners are testing approaches and providing practical solutions to help female entrepreneurs access finance in Rwanda and Kenya. Katelynn Folkerts, a program manager at MEDA, discusses the consortium’s unique approach to women’s economic empowerment in East Africa, the major barriers facing female entrepreneurs, and the importance of robust technical assistance.
By Carol Chanik, INVEST Communications Advisor
Mennonite Economic Development Associates, commonly referred to as MEDA, has been operating in the international development sector for nearly 70 years, working in over 70 countries to bring a unique approach to project design that integrates technical assistance and access to capital. Specializing in innovative finance, MEDA was keen to work with USAID’s Gender Equality and Women’s Empowerment Hub and INVEST on a project to facilitate women’s economic empowerment.
“At its core, this is a research project. Our job is to generate data,” Katelynn Folkerts, a program manager at MEDA, explains. “Data can make a huge difference in women-led businesses accessing finance; it increases their understanding of the funding options available to them and it increases the investment partners’ understanding of what makes women-owned and -run businesses investment ready.” USAID partnered with MEDA to test approaches and build a practical evidence base that can help women entrepreneurs overcome barriers to finance in Rwanda and Kenya via a multi-pronged, consortium-based approach.
MEDA worked with Criterion Institute, a finance-focused think tank, to develop a research agenda and report on the challenges faced by women-owned small and growing businesses. “Criterion is a leader in the gender lens investing space,” says Folkerts. “They’re strong on analyzing power dynamics, specifically regarding gender.” Through a series of stakeholder and expert interviews, Criterion is helping MEDA to understand how the provision of technical assistance is improving the investment viability of women-owned businesses. “Their skillset as a research thought leader has been important for this project because it’s hypothesis based. It’s all about learning and creating an evidence base from which to act.”
MEDA also partnered with Business Partners International (BPI) East Africa, a leading investment fund in the region. Through this partnership, MEDA identified two types of women-run small businesses: those that were not invited to submit a business application to BPI’s investment fund, referred to as touch-point businesses, and those that were invited to apply, but were not approved by the fund, referred to as second chance businesses. Through a third partnership with Volta Capital, a technical assistance and business development provider, MEDA established the “Second Chance Success Window.” Consortium members developed trainings and offered technical assistances plans for both touchpoint and second chance businesses to collect data in line with the research agenda established by Criterion.
Twelve selected touchpoint businesses received light technical assistance and support packages intended to improve their success rate for receiving financing from banks, microfinance institutions, or alternate financiers. Six second chance businesses were then selected to receive in-depth, pre-investment, tailored technical assistance which will address the constraints that led to the rejection of their initial application. “So, what the Second Chance Window did was say, “Okay, we have these women-owned companies. They were denied funding at their first request for a variety of reasons. What would happen if they got the technical assistance that they would have gotten if they were successful?” explains Folkerts.
At the end of the project, five of the six second chance businesses were eligible once more funding from BPI. “MEDA and BPI each provided $1 million USD as loan and equity funding for the selected women-owned and -operated businesses,” adds Folkerts. “We’re giving these women-run businesses a second chance at success that they normally wouldn’t have.”
One such second chance business was Slice and Cakes, a woman-owned bakery based in Kigali, Rwanda. Through MEDA’s project with USAID, BPI identified two simple factors that contributed to Slice and Cakes’ initial rejection. “They just needed to expand their product line and offer trainings to their bakers and chefs to assist with product expansion,” explains Folkerts. “They also needed an international health and safety certification. When these two fairly simple, fairly straightforward fixes were made through technical assistance, Slice and Cakes was approved for BPI financing.”
Of course, not all barriers are so easy to overcome. “We like to group barriers into three buckets — supply side (funders), demand side (businesses), and ecosystem challenges,” says Folkerts. On the supply side, many of the investment products available are not suitable for small-sized women-owned businesses. “They tend to grow at a slower pace and can’t absorb the high amounts of capital offered as a minimum by investors,” explains Folkerts. “We need to meet these businesses where they are at, instead of labeling them as not ready for investment.”
On the demand side a lack of confidence in the business’s viability or an understanding of how to obtain additional capital leaves women-owned businesses in the lurch. “Many of the light touch and second chance companies we spoke to only approached banks for funding. They hadn’t even considered investment capital,” offers Folkerts. “They don’t think they’d be competitive for funding, so they simply don’t apply. It’s our job to overturn that thinking.”
Most difficult of all are the societal structures keeping these businesses from succeeding. “An example of this is having to have your husband sign for a loan, or simply not allowing women to get a loan themselves,” says Folkerts. “Another huge barrier we found is the amount of time and energy it takes for women to start a business. It’s quite a bit more than what is required of men just because of all the norms they must address from day one. It’s less encouraged for women to start businesses, there’s less support, they own less land, and they tend to have less capital.”
By bringing this evidence base of barriers to light, MEDA and its consortium partners hope that more investors will be willing to work with women-owned businesses. “When women-owned or -led businesses finally get to the point where they’re able to approach an investor, they’ve already overcome so much,” says Folkerts. “If investors like BPI don’t do their research, they can easily miss all the effort these women have had to put in just to get there, and they can miss ways that they as funders can actually address some of these challenges. We’re happy to be helping create that visibility.”