september 2014 cordaid entrepreneurs: fostering economic opportunities in fragile contexts 1...

» POSITION PAPER SEPTEMBER 2014

CORDAID’S APPROACH AND TRACK RECORD

ENTREPRENEURS FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTS

SEPTEMBER 2014 © CORDAID

ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTS

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FOREWORD

Nobody would deny that entrepreneurs represent a driving force to tackle fragility and build a socio-economically stable society. Not only because of their collectively generated economic impact, but very much because of multiple spin-offs such as increased employment, skills and spending power for families. But what does an entrepreneur need to be able to build a busi-ness in often extremely difficult circumstances?

Think of South Sudan, think of Sierra Leone. The list of entre-preneurial needs is long – from access to finance, to clear and supportive regulations; from qualified personnel, to exposure to innovations. These needs are pressing even in non-fragile contexts, let alone in areas where society is emerging from a destructive civil war or natural disaster.

In particular, Small and Medium-sized Enterprises (SMEs) are potentially the professional businesses that can fuel an econo-my’s fire. However, they are significantly hindered by a risk adverse and disconnected financial sector with restricted access to capital and a limited range of appropriate financial services and products. The obstacles can seem insurmountable; however, we have seen success stories.

Take the Rural Finance Initiative (RUFI) in South-Sudan for instance. This is a microfinance company that has managed to develop itself in recent years and is currently expanding its activities from microfinance to services for SMEs. Or take the West Africa Venture Fund (WAVF), providing for financial and business development services in post-civil war Sierra Leone. One of their clients, a flourishing tea factory, is starting to conquer the European market.

Many local SMEs simply cannot be successful without embracing problem solving innovations, which often find their incubation abroad. Cordaid acts as a catalyst at the international level by leveraging ideas and innovations that offer potential to local actors and SMEs. The birth of the Babyviewer, one of the success-ful cases described in this paper, is a perfect example of how global entrepreneurs apply 21st century technology to generate social impact and work together with Cordaid to develop via social enterprises.

All the cases in this paper describe the way entrepreneurship can contribute to meaningful social impact and thus to flourish-ing communities in fragile contexts. This often starts at the most elementary level. As Denis Poggo from RUFI puts it, referring to feedback from female clients whose entrepreneurial activities earned them extra income which helped to reduce tensions within the household: “Peace doesn’t come from outside, building peace starts within the family”.

Simone Filippini

CEO Cordaid



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CONTENTS

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. FOSTERING ENTREPRENEURSHIP IN FRAGILE CONTEXTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.1 Focus on fragility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.2 Tackling fragility through entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.3 Cordaid’s approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.4 Inclusive investments in fragile settings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.5 Leveraging ideas and innovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2. FIGHTING FRAGILITY THROUGH INCLUSIVE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Case 1: RUFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Investing in peace in South Sudan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Case 2: SUCCEED, PEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Supporting inclusive development for resilience and lasting peace in Mindanao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Case 3: WAVF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Innovative finance for SMEs in Sierra Leone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

3. PARTNERING FOR INCLUSIVE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Case 4: Innovation: Soil in a bag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Introducing new ways of addressing social challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Case 5: Co-creation: The Babyviewer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Bringing together vested stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Case 6: Social venture: Urban Link . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Identifying gaps in the market and supporting impact driven enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28



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EXECUTIVE SUMMARY

A quarter of the world population lives in societies affected by conflict. Inequality and poverty hit people living in such fragile contexts twice as hard. While the international community is reshaping the future of development coopera-tion, consensus is growing on the importance of focusing international development efforts in fragile and conflict-affected situations.

As inclusive economic growth is a vital condition for reducing fragility and fighting poverty, investing in income generation activities and private sector development is an important strategy for peace. For young people especially, whose wide-spread unemployment is one of the most pressing social challenges facing fragile regions, jobs and opportunities for entrepreneurship are extremely important. Additionally, supporting entrepreneurship among women and empowering them economically similarly is an effective strategy for reducing fragility and rebuilding livelihoods.

Cordaid’s mission is to contribute to the structural social change and transformation that is needed to build flourishing communities in fragile and conflict-affected situations. Cordaid encourages local private sector development in fragile contexts by supporting and advancing entrepreneurship and the activities of small and medium-sized enterprises (SMEs). This support not only helps to create jobs and fight poverty, but also to build trust, reduce inequalities and increase social cohesion within and between communities.

Cordaid’s track record in promoting inclusive business in fragile contexts is based on four principles:

▪ An integrated approach, which emphasizes the need for social change that is embedded within local communities;

▪ A multi-stakeholder approach, which brings together a variety of local, national and international stakeholders;

▪ Partnerships for smart solutions, which are partnerships with innovative organizations worldwide, including the private sector and research institutes;

▪ Blended financing, which seeks to finance smart solutions by bringing together different kinds of financial support (grants, loans, investments).

The fragile contexts around the world where Cordaid works differ a great deal from each other. The local dynamics of fragility determine the choice of interventions, which are always designed and implemented together with local part-ners. Cordaid’s work in the area of entrepreneurship focuses on three cornerstones:

▪ Security and justice: Women’s economic empowerment, Risk reduction, Rule of Law & enforcement

▪ Opportunities: Banking & finance, Markets & value chains, Personnel

▪ Governance and services: Health, Education, Regulations

In 2014, Cordaid created the Stability Impact Fund (SIF), an impact-first investment fund that provides access to finance to entrepreneurs and SMEs operating in fragile contexts. To build the economic and entrepreneurial skills and capacities of its investees, Cordaid also provides conflict-sensitive Business Development Services (BDS). Cordaid will increasingly focus investments on the ‘missing middle’ of small enterprises in fragile contexts. This forgotten target group suffers most from a non-functioning financial sector and a lack of access to capital. At the same time, these small SMEs have a great potential of being powerful contributors to growth and key stabilizers of economies in fragile contexts.

Cordaid pro-actively identifies opportunities to strengthen the potential of local entrepreneurship by connecting local actors to innovative concepts and companies around the world. Cordaid actively searches for partners – companies, technical and academic institutes, impact investors, venture philanthro-pists – to co-create innovations that contribute to solving problems faced by fragile communities. Cordaid also initiates social ventures to realize social goals.

This position paper shows case-based evidence from South Sudan, Mindanao (Philippines) and Sierra Leone, illustrating Cordaid’s multifaceted approach to fostering local entrepre-neurship in complex fragile contexts. The paper also discusses examples of international partnerships for inclusive business that tackle diverse issues including youth unemployment in Ethiopia, maternal death in Sub-Saharan Africa and flooding in Bangladesh.



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1.2 Tackling fragility through entrepreneurship It is no coincidence that half of the world’s poor people live in fragile contexts. Fragility feeds poverty while poverty and inequality in turn breed fragility. Increasingly it is realized that inclusive economic growth is a vital condition for reduc-ing fragility. This points to the importance of fostering entrepreneurship in fragile and post-conflict situations. In its 2014 report ‘Ending conflict & building peace in Africa: a call to action’, the African Development Bank (AfDB) stresses that in countries transitioning out of conflict, the private sector can be a force for stabilization and renewal, creating alternatives to conflict economies based on illicit activity.6 The AfDB recom-mends making investments in income generation activities an early priority, even in the midst of conflict, as a strategy for promoting peace. Other authoritative institutions including the World Bank, the OECD and the European Commission similarly stress the significance of inclusive growth, including in fragile contexts, by promoting entrepreneurship and private sector development in order to combat poverty and fragility.7 The New Deal for Engagement in Fragile States, an initiative of the International Dialogue on Peacebuilding and Statebuilding (IDPS),8 singles out ‘Economic Foundations: Generate employment and improve livelihoods’ as one of five Peacebuilding and Statebuilding Goals (PSGs).9

1.1 Focus on fragilityThe international community is reshaping the future of development cooperation. Though there are differences in opinion about how the issue of peace and security is best incorporated in the Post-2015 Global Development Agenda,1 there is a growing consensus on the importance of focusing development efforts in fragile and conflict-affected situations. The urgency firstly lies with the numbers: according to the World Bank and the OECD, by 2015 a third of the world popula-tion and half of all people surviving on less than $1.25, will live in societies affected by fragility and conflict.2,3 It is expected that by 2025, two-thirds of all poor people will live in fragile states and conflict countries.

Fragility hinders sustainable development. Since the launch of the Millennium Development Goals (MDGs) in 2000, absolute poverty as a percentage of the world population has declined and the lives of many poor people have improved. However, progress on the MDGs has been very slow, if not stagnant, in low-income fragile countries. In these states, fundamental human needs continue to go unsatisfied, for example, women are unsafe and exploited, children are malnourished and unschooled, and communities are divided and insecure. Fragility should thus be tackled to help millions of women, men and children escape poverty and live decent lives in safety.4 Fragility also needs to be addressed because, in a world of global interdependencies, unstable countries and contexts with increasing inequalities between countries undermine global peace and security.

Fragile communitiesCordaid’s mission is to contribute to the structural social change that is needed to build flourishing communities in fragile contexts.

“A fragile community is one in which the social struc-tures, systems, and institutions intended to provide for the satisfaction of fundamental human needs such as subsistence, protection, identity, participation, and understanding are dysfunctional for the purpose. This condition undermines the legitimacy of the social contract between state and society, the governors and the governed. A flourishing community by contrast will be one in which the social structures are specifically designed so that these human needs can be satisfied in a stable and sustainable manner thereby legitimizing the social contract between people and their government.”5

1. FOSTERING ENTREPRENEURSHIP IN FRAGILE CONTEXTS

Transforming economies: the Post-2015 AgendaIn 2000, the Millennium Development Goals (MDGs) were launched. None of the eight MDGs specifically refers to creating employment or fostering entrepreneurship. Times have changed and priorities have too. The UN High-Level Panel (HLP) of Eminent Persons on the Post-2015 Development Agenda13 has singled out ‘Transforming economies for jobs and inclusive growth’ as one of five transformative shifts needed to eradicate poverty. Inclusive growth is considered vital to address the growing inequali-ties within and between countries, which are breeding grounds for conflict and fragility. The HLP has proposed twelve goals in preparation for the Sustainable Development Goals (SDGs) that will be agreed upon by the international community in 2015, including:Goal 8. Create Jobs, Sustainable Livelihoods, and Equitable Growth

▪ Increase the number of good and decent jobs and livelihoods

▪ Decrease the number of young people not in education, employment or training

▪ Strengthen productive capacity by providing universal access to financial services and infrastructure such as transportation and ICT

▪ Increase new start-ups and value added from new products through creating an enabling business environment and boosting entrepreneurship

It is imperative that these goals will be duly implemented in fragile contexts.



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Increasingly it is realized that inclusive economic growth is a vital condition for reducing fragility. This points to the importance of fostering entrepreneurship in fragile and post-conflict situations.

1.3 Cordaid’s approachCordaid encourages local private sector development in fragile contexts by supporting entrepreneurship and small and medium-sized enterprises (SMEs). This support not only helps to create jobs and fight poverty, but also to build trust, reduce inequalities and increase social cohesion within and between communities. For Cordaid, these are crucial steps on the way to building flourishing communities. People are encouraged to take initia-tive based on local needs and priorities and to seize economic opportunities for themselves and their communities. Cordaid’s proven track record in promoting inclusive business in fragile and conflict-affected situations is based on four principles:

▪ An integrated approach, which emphasizes the need for social change that is embedded within local communities;

▪ A multi-stakeholder approach, which brings together a variety of local, national and international stakeholders;

▪ Partnerships for smart solutions, which are partnerships with innovative organizations worldwide, including the private sector and research institutes;

▪ Blended financing, which seeks to finance smart solutions by bringing together different kinds of financial support (grants, loans, investments).

Cordaid focuses on three cornerstones (see visual).

In linking entrepreneurship and inclusive growth to overcome fragility, all above-mentioned institutions point to two vital trends:

1. The widespread unemployment of youth is one of the most pressing social challenges facing fragile regions in Africa especially. Unemployed youth are a severe threat to stability. The fast growing proportion of young people makes this problem ever more urgent. For example in South Sudan and Sierra Leone, 66% and 61% of the population respectively is aged between 15 and 29 years old – compared to 33% in the United States.10 Jobs and opportunities for entrepreneurship are extremely important and can help to draw young people away from conflict.11 However, given that the education of many of these youths was interrupted by conflict, they will need to be supported with training in vocational skills, financial literacy and apprenticeships.

2. Fragility impacts women and men differently and often leads to increased vulnerability for women and girls. At the same time, women play a key role in agriculture, trade and micro-businesses, mostly within the informal sector. Research shows that supporting entrepreneurship among women (through access to finance and training) contributes significantly to growth and job creation.12 In addition, women tend to invest more into their children’s health and education than men. Empowering women economically and bringing them together in cooperatives and small businesses, is an effective strategy for rebuilding livelihoods and reducing fragility.

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Transforming economies: the Post-2015 AgendaIn 2000, the Millennium Development Goals (MDGs) were launched. None of the eight MDGs specifically refers to creating employment or fostering entrepreneurship. Times have changed and priorities have too. The UN High-Level Panel (HLP) of Eminent Persons on the Post-2015 Development Agenda13 has singled out ‘Transforming economies for jobs and inclusive growth’ as one of five transformative shifts needed to eradicate poverty. Inclusive growth is considered vital to address the growing inequali-ties within and between countries, which are breeding grounds for conflict and fragility. The HLP has proposed twelve goals in preparation for the Sustainable Development Goals (SDGs) that will be agreed upon by the international community in 2015, including:Goal 8. Create Jobs, Sustainable Livelihoods, and Equitable Growth

▪ Increase the number of good and decent jobs and livelihoods

▪ Decrease the number of young people not in education, employment or training

▪ Strengthen productive capacity by providing universal access to financial services and infrastructure such as transportation and ICT

▪ Increase new start-ups and value added from new products through creating an enabling business environment and boosting entrepreneurship

It is imperative that these goals will be duly implemented in fragile contexts.



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Education: Access to vocational training is important in (post-) conflict countries where electricians, carpenters, accountants etc. are needed to rebuild the economy. Scarcity of technically skilled labor may result in high costs to recruit from abroad. There should be a focus on equipping young people with the skills needed to contribute to the economy, including entrepre-neurial skills and a positive work ethic (punctuality, conflict resolution and loyalty).

Regulations: Entrepreneurs and SMEs need clear regulatory frameworks and supportive policies that make it easy to start and operate a business, and that also discourage corruption. Such frameworks (e.g. on land and property rights, and taxes) are also important in building trust among business partners and resolving conflicts effectively. Clear and fair regulations also have a positive impact on risk perceptions.

Women’s cooperatives in AfghanistanIn Afghanistan, 80% of the population lives in rural areas and is dependent on agriculture and livestock for their liveli-hoods. However, war and drought have made it difficult for many Afghans to make a living through farming. They lack access to land, markets, credit and agricultural extension services. 1.5 million children aged under five reside in food insecure households. Women play a vital role in small-scale agricultural activities. Their role, however, often goes unacknowledged in conservative Afghan society. In the Balkh province of northern Afghanistan, Cordaid, together with its local partner NPO/RRAA, supports women in establishing cooperatives for carpet weaving and livestock rearing. By collectively buying the raw materials and reducing the need for middlemen, the women involved in carpet weaving can increase their earnings. The extra income is used to feed their families and to enrol their children, especially girls, in school. “There are other important social impacts too,” says Ahmad Salim, Programme Coordinator for Food Security based in Kabul. “Only five years ago, women had no right to leave their houses. Men took all decisions and the women’s role was restricted to cooking and caring for the children. Now that the women are organized under the umbrella of cooperatives, a lot has changed. They can now receive loans and funds for their productive activities. The fact that they earn their own income has gained them more respect from male family members and generally improved their social standing. Many women are now involved in decision-making within the family and community”.

Security and justice: Women’s economic empowerment, Risk reduction, Rule of Law & enforcement

Women’s economic empowerment: Specific constraints faced by female entrepreneurs must be addressed, including lack of security, mobility and access to finance (due to lack of collateral and traditional inheritance systems). Legal frameworks, for example on land ownership and the right for women to sign contracts, need to be adjusted and implemented to provide equal opportunities to everyone.

Risk reduction: Entrepreneurs and private companies will be more inclined to invest if they are confident that risk reduction measures are in place that will support them in case of outbreaks of violence, natural disasters (e.g. flooding or drought) or large-scale health risks (e.g. outbreak of Ebola).

Rule of law & enforcement: Many fragile contexts lack a good working judicial system. Furthermore, for regulations and laws to be effective, they need to be implemented and enforced in a fair and transparent way. This includes payment of taxes, dispute settlement and mediation, and contract enforcement. Both employers and employees need to know what they can expect from law enforcement institutions such as the police.

Opportunities: Banking & finance, Markets & value chains, Personnel

Banking & finance: Entrepreneurs need capital to invest in equipment, supplies and services. In many fragile contexts the banking sector is underdeveloped. The ‘missing middle’ is particularly underserved (see 1.4). Access to finance is vital to SMEs and entrepreneurs, who often do not meet commercial bank requirements on collateralization, formal registration, financial track record, etc.

Markets & value chains: In many fragile contexts, markets do not function well due to insecurity, poor infrastructure and difficult cross-border trade. Gaps in value chains such as poor input sourcing add to this problem. Significant losses occur in the production, storage and distribution stages of agricultural and other value chains. Entrepreneurs often lack relevant market information about costs, markets and quality and availability of inputs.

Personnel: Investing in the competencies of personnel as well as in work ethics are preconditions for enterprise success and sustainability in any context. This is especially the case in fragile contexts as individual needs often supersede social cohesion in the workplace. Business development services (BDS) therefore play an important role in strengthening SMEs for growth and bankability.

Governance and services: Health, Education, Regulations

Health: Healthy people are better workers and more creative entrepreneurs. A stable workforce secures the continuity of business as well as income for both employers and employees. People who have access to affordable health care will be less inclined to lose income from interrupted employment or business due to illness, hospitalization or fatality.

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Women’s cooperative in Balkh, Afghanistan



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Cordaid works in fragile contexts that can differ a great deal from each other. There are countries that as a whole are defined as fragile, such as South Sudan and Afghanistan (category A in figure 1). There are also countries that on the whole are considered safe and stable, but which include areas of fragility (category B in figure 1). An example of this is the Philippines, a middle-income country, which is extremely vulnerable to natural hazards and where the recently ended conflict over the Muslim part of the island Mindanao was a cause of fragility for many years.

Various dynamics of fragility determine the possibilities for fostering entrepreneurship and private sector development. Priorities to boost the economy in category A contexts must be sought in ‘governance and services’ (e.g. access to basic education, vocational training) and ‘security and justice’ (e.g. building of institutions and fair macroeconomic policies). In category B contexts, entrepreneurship can be fostered by promoting ‘opportunities’: making SMEs investment-ready by means of business development services, improving value chains and providing access to suitable investment capital (see chapter 2 for the case of Cordaid’s partners, SUCCEED and PEF, in the Philippines).

Interventions must always respond to the specific local context. South Sudan and Afghanistan, for instance, are both fragile countries, but the possibilities for private sector development in the two countries differ considerably. In South Sudan, opportunities for SME development are only tentative-ly emerging. Due to insecurity and a lack of infrastructure, producing and processing locally is both expensive and risky. The country is highly dependent on imported goods. The unregulated activities of banking, land registration, taxation,

as well as the unpredictability of exchange rates or inflation requires returns of cash flows over a short period. In South Sudan, Cordaid’s partner RUFI provides microfinance loans to farmers and rural entrepreneurs (see chapter 2). Helping people earn a basic income is a strategy for peace in the volatile post-conflict situation. Recently, RUFI started including SMEs in its lending port folio. Supporting basic business skills and financial literacy are crucial for economic development in South Sudan.

Afghanistan, traditionally a country of traders, already offers more possibilities to work on private sector development. Road conditions and electricity are unreliable compared to western standards, but advanced when compared to South Sudan. Afghans trade with neighboring countries like Uzbekistan, Iran and Pakistan. In Afghanistan, Cordaid works successfully with farmers’ cooperatives and women’s cooperatives, which produce handmade carpets that find their way to Middle Eastern markets (see box Women’s cooperatives in Afghanistan). The positive impacts that these cooperatives have on empowerment and social cohesion are at least as important as their impact on economic development.

Generally safe and reliable developing countries (category C in figure 1) are the most suitable for promoting private sector development through social enterprises, innovation and partnerships. These contexts can also be used to pilot inter-ventions that may be successfully implemented in fragile contexts in the future. A prime example of this approach is the case of the Babyviewer ultrasound technology that Cordaid and its international partners have developed and will soon be tested in Ghana or Ethiopia (see chapter 3).

FIGURE 1: CONTEXT SENSITIVITY AND TAILOR-MADE INTERVENTIONS

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SIVE

GRO

WTH

IN

CLUSIVE APPROACH

PART

NERSHIPS

LOBBY AND ADVOCACY


legislation

INCLUSIVE FINANCE


INNO

VATION

OPPO

RTUN

ITIES

GOVERNANCE A

ND S

ERVI

CES

INCLUSIVE FINANCE

INTERNATIONAL

MAR

KETS

Banks & Finance

Personnel

Markt & ValueChain

Health

Education

Company risklegislation

Women's economic empowerment

Rule of law

Regulations

Entrepreneur

INC

LUSIVE BU

SINESS

IN

CLU

SIVE

GRO

WTH

IN

CLUSIVE APPROACH

PART

NERSHIPS

LOBBY AND ADVOCACY


legislation

INCLUSIVE FINANCE


INNO

VATION

OPPO

RTUN

ITIES

GOVERNANCE A

ND S

ERVI

CES

INCLUSIVE FINANCE

INTERNATIONAL

MAR

KETS

Banks & Finance

Personnel

Markt & ValueChain

Health

Education



Rule of law

Regulations

Entrepreneur

INC

LUSIVE BU

SINESS

IN

CLU

SIVE

GRO

WTH

IN

CLUSIVE APPROACH

PART

NERSHIPS

LOBBY AND ADVOCACY


legislation

INCLUSIVE FINANCE


INNO

VATION

OPPO

RTUN

ITIES

GOVERNANCE A

ND S

ERVI

CES

INCLUSIVE FINANCE

INTERNATIONAL

MAR

KETS

Banks & Finance

Personnel

Markt & ValueChain

Health

Education



Rule of law

Regulations

Entrepreneur

■ Category A: Fragile countries

■ Category B: Developing and middle-income

countries with fragile conflict-affected areas

■ Category C: Developing countries

Philippines

Ghana

South Sudan

Financial performance

Soci

al p

erfo

rma

nce



8

1.4 Inclusive investments in fragile settings Access to finance is key to fostering sustainable economic growth. However, in most fragile and conflict-affected situa-tions, the vast majority of entrepreneurs have little to no access to finance. “The business case for conflict-sensitive investments is built at grassroots level, where instability hits hardest and the potential for social impact is at its highest,” says Laure Wessemius Chibrac, Director of Cordaid Investments.

Stability Impact Fund

In 2013, Cordaid created the Stability Impact Fund (SIF). This targeted €40-50 million fund is an impact-first fund that channels a large part of its investments through microfinance institutions (MFIs) and SME funds. MFIs serve micro-entrepre-neurs such as small farmers, traders and market vendors to provide them with access to finance helping them survive on a day-to-day basis. SME funds, such as WAVF in Sierra Leone and PEF in the Philippines (see chapter 2 and 3) usually serve SMEs that have a financing need of over €100.000.

“ The business case for conflict-sensitive investments is built at grassroots level, where instability hits hardest and the potential for social impact is at their highest.”

Laure Wessemius Chibrac, Director of Cordaid Investments.

Cordaid’s ambition is to expand the share of its investments in smaller SMEs – referred to as the missing middle – to 10% of the portfolio of the Stability Impact Fund. This missing middle of small enterprises, which are in need of finance of between €10,000 and 100,000, suffer most from a non-functioning financial sector and a lack of capital. They are a forgotten target

group that is under-served. Foreign investors – the few that do not avoid fragile, mostly (post-)conflict zones – as well as local banks are rarely willing to invest in small businesses due to the higher costs and risks involved. Poor infrastructure, weak human resource skills and a lack of appropriate business development services make the costs of doing business extremely high, also for financial institutions. This is the reason why most investors concentrate on either microfinance or large corporations. Cordaid however strongly believes that it is the missing middle of the small SMEs that have the largest impact, being powerful contributors of growth and key stabilizers of economies in fragile contexts. Financial risks may be high and the management expensive but, when the investment is successful, the social impact is high too.

Total committed amount at Sept. 2014: EUR 8,690,000

PORTFOLIO STABILITY IMPACT FUND

DR Congo

Sierra Leone

South Sudan

(% are based on the committed amounts)

11%

45%

44%

€€€

STABILITY IMPACT FUND60% 10% 30%

IMPACT

MISSING MIDDLE

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

4 rs = 300!

$$@

€€€

€

R.O.I.=%

SEEDSwaterresistant

TOILET

currency protection

capital +BDS training

capital +T.A.

capital +T.A.

€

€ €

€ €

MFI MFI

€€€


IMPACT

MISSING MIDDLE

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

4 rs = 300!

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€€€

€

R.O.I.=%

SEEDSwaterresistant

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currency protection


capital +T.A.

capital +T.A.

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€ €

€ €

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€€€


IMPACT

MISSING MIDDLE

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

DETERGENT

4 rs = 300!

$$@

€€€

€

R.O.I.=%

SEEDSwaterresistant

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currency protection


capital +T.A.

capital +T.A.

€

€ €

€ €

MFI MFI

MICRO INDIRECT THROUGH MFI’S

EUR 250k – 1m

EUR 500 - 10k ACCESS TO FINANCE FOR ENTREPRENEUR

INVESTMENTS SIZE

TA GRANT FOR INVESTEES*

BD SERVICE FOR LOCAL SME*

5 - 10%

EUR 10k - 100k

25 - 40%

EUR 100k – 1m

10 - 20%

SMEs DIRECT

EUR 10k – 100k

SMEs INDIRECTTHROUGH FUNDS

EUR 1m – 5m

FIGURE 2 TARGET GROUPS OF STABILITY IMPACT FUND

* % of investment size



9

Impact first

Financial returns in fragile contexts are bound to be modest given the higher costs of management relative to smaller transaction sizes. The Stability Impact Fund was set up as an impact-first fund. It aims for a rate of return that ensures capital preservation and compensates for euro-area inflation, estimated at 1-2% per year. Investments are often in local currency, which also illustrates the impact-first objective of the fund. Devaluation in many fragile contexts can be so high that denominating loans in euros would inflate the debts of entrepreneurs – a recipe for failure and eventually default. At the same time, it is clear that investments need to be financially viable. “This is the only way to have an impact in the long-term”, says Wessemius Chibrac. SMEs are therefore treated with a conventional investment perspective: they must make sure that operational costs are covered by income and honor their loan commitments. “If we were to be slack on invested companies paying back their loans, we would be guilty of distorting the market,” says Wessemius Chibrac, “addition-ally, in conflict settings it is imperative to be seen to treat clients fairly and equally”. Cordaid acts as a catalyst for additional financing. “Our role is to open the market and prove that investing in fragile contexts is possible. Once we have provided training and access to finance to the small enterpris-es, their increased size might allow them to attract larger investors.”

Impact indicatorsThe direct impact of Cordaid’s SIF is measured amongst others according to:

▪ The number of SMEs that have access to finance ▪ Average increase of income of SMEs, measured through

EBIT (earnings before interest and taxes) ▪ The percentage of new jobs created for youth >35% ▪ The percentage of female micro-entrepreneurs that

have expanded their business > 50%

Indirect impact can be among others assessed by: ▪ Number of indirect jobs created (suppliers, clients,

distribution) ▪ Reduction of imports by investing in the revival of

industries relevant for basic products and services

The selection of the fund’s potential markets is based on Cordaid’s global track record and expertise. Micro, small and medium enterprises will be supported via local financial institutions in South Sudan, DR Congo, North Uganda, North Kenya, Haiti, Colombia and Myanmar as well as in a number of focus countries like Sierra Leone, Burundi, Mindanao in the Philippines, Ethiopia and Guatemala where they will also be financed directly by Cordaid. Investing in fragile states entails long-term commitment, endurance and flexibility. It requires constant monitoring and adjusting to local dynamics. Over the years, local partner organizations and Cordaid field offices have built steady relationships and trust with local communities. Through their in-depth understanding of local issues, political dynamics and markets, they are well positioned to help build the local private sector.

Two-track approach: Finance and BDS

Cordaid’s track record of investing in the missing middle in fragile contexts is based on a two-track approach. The first track consists of the provision of access to inclusive finance (see Figure 2). The second one is the provision of fragile sensi-tive Business Development Services (BDS). Cordaid is convinced both access to finance and BDS are equally important, that they reinforce each other when supporting the missing middle to overcome obstacles to build a business.

Our role is to open the market and prove that investing in fragile contexts is possible. Once we have provided training and access to finance to the small enterprises, their increased size might attract larger investors.

BDS consist of two packages. First, there is a package of base modules that are developed to make SMEs ‘investment-ready’. These modules provide training in general disciplines of business management such as sound financial administration, registration as a formal business, marketing strategies and business planning. Peer-to-peer learning is facilitated as much as possible. The second package, referred to as the BDS+ modules, is designed in response to the needs of SMEs with good growth potential in fragile contexts. These modules are tailor-made, taking into account the size of the enterprise and its level of development. They include training and consultan-cies in realizing social impact, value chain performance, participative leadership, inclusive business and conflict resolution. BDS+ is delivered through local trainers with an extensive business background. To help SMEs learn from the experiences of others, international experts and successful SMEs are involved in the training. Cordaid provides financial support to enable entrepreneurs to hire these experts and makes sure that their SME pays a percentage of that service based on improved performance over time.



10

In fragile contexts, effective solutions to growth challenges are not always close at hand. Ideas and innovations, especially in technology and processes, often need to be sourced from businesses and organizations operating internationally and headquartered abroad. Cordaid actively searches for partners – companies, technical and academic institutes, impact investors, venture philanthropists – to co-create innovations that will contribute to solving problems faced by fragile communities and their entrepreneurs. The partnership itself can take on many forms – for instance a PPP or a social enterprise with a shared ownership structure - as long as it is appropriate to the local context, is viable and, above all, inclusive. By developing these concepts with both local actors and impact-driven organizations from around the world, Cordaid not only seeks self-sustainable solutions to local problems but also strives to make sure these innovations are economically empowering and culturally embedded.

In order to have a broad knowledge of the leading technological ideas and innovations available, Cordaid is engaged with international business networks, social enterprise hubs, trade missions, and outreach. It has participated in several missions with the Dutch Minister for Foreign Trade and Development Cooperation to countries in Africa, South-East Asia and Central America. The idea behind these missions is to encourage both multinationals and Dutch SMEs to engage with local entrepre-neurs. Many international companies have established a social mission statement. Through outreach activities, Cordaid aims to build on these statements and, together with local entrepre-neurs, develop solutions that serve communities living in fragility.

Cordaid also initiates social ventures to realize certain social goals. This can be, for example, by promoting health insurance as part of a health system strategy in Bangladesh (see box Ensure Your Family) or by introducing a youth employment

1.5 Leveraging ideas and innovationsLocal entrepreneurship is the most important factor for generating inclusive growth. Cordaid pro-actively identifies opportunities to strengthen this potential by connecting local actors to innovative concepts and companies around the world. The inclusive businesses14 that result from this are able to expand access to goods, services, and livelihood opportunities for those at the BoP (Base of the Pyramid) in commercially viable and scalable ways.According to the UNDP, “The benefits from inclusive business models go beyond immediate profits and higher incomes. For business, they include driving innovations, building markets and strengthening supply chains. And for the poor, they include higher productivity, sustainable earnings and greater empowerment.”15

Glossary

Inclusive business – refers to the inclusion of people living in poverty into business along the value chain. This term is used by various organizations such as the United Nations Development Programme (UNDP), the World Bank and the World Business Council for Sustainable Development (WBCSD).

Base (or Bottom) of the Pyramid (BoP) – refers to the 4 billion people with an income of 4 USD a day or less who live primarily in Asia, Africa and South America. They are value demanding consumers, resilient and creative entrepreneurs, producers, business partners and innova-tors. Because they are largely excluded from formal markets, their demand for innovative products, services and technologies to meet their needs is largely untapped.16

Public Private Partnership (PPP) - a form of cooperation between businesses, civil society organizations, govern-ments, knowledge institutions and others in which parties combine and reinforce each other’s knowledge and capabilities to enhance the effectiveness of achieving common development objectives. Parties are jointly accountable for activities carried out towards a common direction, using their pooled resources and personnel as well as sharing the risks.

Shared value creation - shared value is a management strategy focused on companies creating measurable business value by identifying and addressing social problems that intersect with their business. The concept was defined in the Harvard Business Review article “Creating Shared Value”.17

Social enterprise/social business/social venture – refers to companies that pursue social objectives as part of their business model, among them fighting poverty. Social enterprises apply business logic to at least cover their costs.

Building a PPP with Philips Cordaid and Philips have teamed up to establish solar powered community centers in rural and urban deprived areas around the world. By providing low energy public light to off-grid areas, the partners give fragile communi-ties the opportunity to extend productivity by several hours per day. In a PPP with innovative Dutch companies, sports associations, a knowledge institute and the Dutch government, the partners support community centers that function as a meeting place for various activities ranging from sports, education, healthcare provision and a (night) market. What makes these centers unique is that they are financially self-sustainable. Sports fields on one day can be night markets the next. Local traders pay a small fee for a stall fitted with LED lamps that provide more reliable light to sort their fruit and vegetables. They can purchase extra energy for cooling agri-food products. With tailor-made business models these centers can run as social ventures generating income through the use of light, energy and the rental of facilities. Such smart innovations open the market for inclusive businesses targeted at the BoP.



11

Lobby and advocacy

Impact driven businesses and (social) entrepreneurs still face legal or financial obstacles in many countries. Cordaid has a long track record of fighting fragility, as an international civil society organization, and has been a key player internationally in advocating enabling environments and better policies that will benefit communities in fragile contexts. Cordaid is therefore well positioned to promote an enabling environment in which entrepreneurial values and inclusive businesses can flourish. For instance, Cordaid actively lobbies for policy changes that generate a legal environment in which social enterprises are treated favorably to conventional businesses. Authorities are inclined to make reforms if they understand that impact-driven ventures address specific problems and provide goods and services that regular for-profit and public organizations have overlooked. Lobbying encourages public authorities to consider granting fiscal and tax advantages to impact-driven ventures in order to compensate for the disadvantages and higher costs of, for example, providing services to remote areas.

Dutch Good Growth Fund

The need for capital investment in SME development has also triggered bilateral agencies. Because of the risk levels in fragile contexts, financial tools must be supported such as guarantees, first loss options and currency loss absorption. An example is the Dutch Good Growth Fund (DGGF). DGGF supports Dutch SMEs, together with entrepreneurs in emerging markets and developing countries, by offering a source of financing for development-relevant local investments and exports. The DGGF was launched by the Dutch Minister for Foreign Trade and Development Cooperation on 1 July 2014 and intends to allocate 25% of its investments to fragile areas, women and youth.

strategy in Ethiopia (see chapter 3). To support these initiatives, Cordaid has built a social business incubator together with business innovators at the organization Enviu. In this incuba-tor, Cordaid actively scouts for impact-driven business ideas among its local partners and internationally. Those ideas that show potential to become scalable social business concepts receive support from both a specialized group of Cordaid staff and from the business developers at Enviu. Together, they validate impact and business assumptions and, if they consider the business model viable, the social enterprise is incubated, piloted and introduced to funders such as venture philanthro-pists and impact investors.

Ensure Your FamilyIn partnership with Enviu, Cordaid has introduced novel financial and insurance products for the family members of migrants who remained in the country of their origin. In response to the growing amount of remittances sent home each year by the diaspora community, the initiative touches a pressing need: the social venture allows mi-grants to make sure that their financial support covers important life events of their family and ensures that their family is well protected in case of unforeseen circumstanc-es. Using an online platform, members of the diaspora can directly insure their families and help them become more financially equipped, starting with the organization of affordable access to quality health care. The platform will be first introduced to Bangladeshi migrant communities and their families, with the ambition to replicate the concept in various high out-migration and fragile contexts.

Ph

oto

Ph

oto

shelt

er

Bangladeshi family insured by migrant family members


ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTS CaSE 1: RUFI

12

million South Sudanese who fled their country during the long drawn-out civil war between North and South Sudan (1983-2005). He received the opportunity to study in Scotland. After 2005, when peace was signed between the Sudan People’s Liberation Movement and the government in Khartoum, Poggo went back to southern Sudan. He and several of his friends found jobs in the development business in a shattered country that needed to be rebuilt from scratch. Members of their extended families who had stayed behind during the war kept knocking on their doors for help. Poggo recounts: “My friends and I discussed this and we said ‘we don’t want to become a charity ourselves’. We had witnessed how two decades of war and humanitarian interventions had made many of the South Sudanese dependent on aid. We were concerned that their passive mentality would stand in the way of building our country. To us, the best way to contribute to restabilizing a post-conflict society is to encourage the private sector”. And thus they invested their own savings and spent their evenings, weekends and holidays on building the new company, along-side their jobs. “At first we encountered resistance,” says Poggo.

In July 2011, South Sudan became an independent nation. The challenges are huge: two decades of war have left enormous gaps in the physical and social infrastructure of the country. The eruption of violence in late 2013 showed how vulnerable the country remains to a relapse into large-scale conflict. Government capacity is weak, basic social services are scarce and civil society organizations are young and inexperienced. Most people are active in the informal sector and the majority of the rural population are subsistence farmers. Economic opportunities exist but are hampered by the absence of appropriate financial services and infrastructure. In 2008, Denis Poggo and five friends registered a microfinance com-pany, the Rural Finance Initiative (RUFI). They opened an office in Kajo Keji town, on the border with Uganda. Since 2010, Cordaid has been supporting RUFI with funds and capacity building.

Building a business, building a countryThe idea to start a financing business was triggered by the entrepreneurs’ own experience. Denis Poggo is one of four

2. FIGHTING FRAGILITY THROUGH INCLUSIVE BUSINESS

CaSE 1: THE RURaL FINaNCE INITIaTIVE (RUFI)INVESTING IN PEaCE IN SOUTH SUDaN

Ethiopia

KenyaUganda

MalakalBentu

aweil

Warab

Rumbek

Yambio

Bor

Torit

Juba (RUFI)

Wau

Sudan

Central african Republic

Democratic republic of Congo

INVESTING IN ENTREPRENEURSHIP IN SOUTH SUDAN, CORDAID’S FOOTPRINT

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ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTSCaSE 1: RUFI

13

skills development in the country, and local people are less inclined to leave their jobs if things get tricky, which is always a possibility in this fragile country.” The resident advisor set up the Management Information System, educated the staff in using it and trained a locally recruited CEO. “His support for the organization was invaluable,” says Poggo. “By bringing in experience and knowledge of financing in other parts of the continent and the world, Cordaid has broadened our horizons and deepened our understanding of this business.”

Restore trust through financial inclusionProviding access to capital for small entrepreneurs in South Sudan is vital for building the country’s economy. But it is also vital for peace. “At this critical stage of our country’s develop-ment, nothing is more important than people being able to earn a basic income,” says Poggo. “Without this prospect, it will be very easy to revert to a war economy. After all, the one thing that our youth has learned in the past decades is to fight.” RUFI wants to help build a foundation for financial inclusion in post-war South Sudan. Most people in the rural areas are isolated from the mainstream economy. Farmers and small entrepreneurs have no access to finance from commercial banks. RUFI’s belief is that financial inclusion will help to restore trust and social cohesion in a country that was bitterly divided. More than half of RUFI’s clients are women. They are good at paying back their loans and they invest the little extra they earn into their families and especially in their children’s education. The government of South Sudan is regularly late in paying salaries of civil servants. “When this happens, immedi-ately we see crime going up,” says Poggo. “People have no back up. However, if family members can bring in a little bit of cash this gives some leeway and releases people from taking the criminal route.” RUFI has received feedback from its female clients that the company’s work contributes to better relations within the household. While some husbands may feel threat-ened by their wives’ increased independence now that they earn their own income, the extra money, which is so very needed, helps to reduce tensions in most households. “To us this is very encouraging,” says Poggo, “peace doesn’t come from outside, building peace starts within the family.”

“The notion of microcredit was new to most people. They asked, ‘we are poor, why don’t you just give us the money, and why do you ask for interest?’ But we stood our ground and explained that living on handouts is not a way to build one’s future. Gradually some people came to appreciate our approach”.

Cordaid began its support for RUFI in 2010 with a grant of € 55.000 for agricultural lending.

“ Financing farmers and rural entrepreneurs who have no access to commercial banks will help to strengthen the country at its foundations. People will once again be able to dream, make plans and act on them. It will mean more income and being able to think ahead, which in turn, will translate into more stability.”

Resi Janssen, Investment Manager at Cordaid.

In 2010, RUFI opened a second branch in Nimule and in 2011 a liaison office was opened in Juba, the capital of the newly independent state. The company was growing and needed more capacity. In 2012, Cordaid funded a capacity building program that included training of office and branch managers, loan officers, finance managers and accounting staff. The support also included some essential assets such as printers, software packages and solar panels to avoid high costs of diesel genera-tors for electricity supply. RUFI today has 21 staff and serves around 1700 clients. “It is unlikely that without Cordaid’s support, we would have achieved this,” says Poggo. A vital contribution was the technical expert that Cordaid provided who spent a full year as resident advisor at RUFI’s Juba office. As two decades of war have left an entire generation deprived of education, many companies in South Sudan are forced to recruit staff from Kenya and Uganda or from overseas. RUFI, in contrast, aims to hire local staff and train them. “It’s both less costly and more sustainable,” says Poggo. “We contribute to

The Rural Finance Initiative (RUFI): investment partner in South Sudan RUFI was established in South Sudan in 2008. South Sudan remains a volatile country and the recent crisis has affected the work of RUFI as many clients fled the country. In more stable regions of the country, however, the organization is still going strong. RUFI started with an asset base equivalent to US$ 7,500 in October 2008. Its portfolio by December 2013 was:

▪ Total assets: USD 1,930,114 ▪ Gross outstanding portfolio: USD 1,572,225 ▪ Number of clients: 2,154 ▪ Number of borrowers: 1,893 ▪ Percentage of female clients: 61% ▪ Percentage of rural clients: 69% ▪ Current repayment rate > 96% ▪ Number of staff: 20 (10 female, 10 male)

Ph

oto

Co

rdaid

Small entrepreneur in South Sudan


ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTS CaSE 1: RUFI

14

business opportunities. With so many people on the run, the transport sector profited. Additionally, people investing in emergency housing for the refugees needed loans to import cement for instance. In the areas that received many of the refugees, shops had to restock three times a month instead of once, leading to shopkeepers and traders turning to RUFI for loans to import merchandise from Uganda. RUFI will continue with its SME lending program and hopes that some of its microfinance clients can gradually transition into becoming small profitable businesses, as that would indicate a significant developmental milestone.

Challenges for SMEs in South Sudan ▪ Access to capital: Banks are hesitant to lend to SMEs

arguing that, given the weak legal system, it is nearly impossible to enforce repayments. Additionally, there is no registry which banks can utilize to place a mortgage or caveat on any potential security offered to secure a loan.

▪ High cost of operations: South Sudan is a net importer of goods and has no national power grid. The high cost of power, renting, importing from the surrounding region with foreign currency, as well as hiring employees hampers the growth of SMEs.

▪ Limited professionalism: Most SMEs operate on trust and employ family members rather than professionals. This limits growth and can easily hide fraud within the enterprise.

▪ Limited government support: While there is a Private Sector Unit in the Ministry of Finance and Economic Planning, the support that it gives is limited and does not help the growth of SMEs in the country to a great extent.

Entering the SME marketFrom its start, RUFI focused on providing microfinance mostly to traders, vendors and farmers. In 2013, the company also started including SMEs in its lending portfolio. “The potential development gains of SME lending are bigger”, explains Poggo, “as SMEs help to create jobs and deliver an impact in terms of skills and knowledge transfer.” However, he says, the risks are larger too. If SMEs default on paying back their loans, this can mean a considerable loss for a relatively small company such as RUFI. The potential risk of investing in a post-conflict country became clear in December 2013. An alleged coup d’état resulted in massive killings in South Sudan. By the beginning of January 2014, the population of Juba was halved. The fear of the recurrence of violence and lootings led to many of RUFI’s clients being forced to scale down or close their businesses. The loans to people who fled the country, who may not return soon, will have to be written off. “We can do little else but to accept this loss,” says Poggo. Interestingly, the demand for loans from SMEs increased after the recent conflict. The few commercial banks that had been financing SMEs immediately stopped these lending programs and several of the businesses turned to RUFI.

“ Peace doesn’t come from outside, building peace starts within the family.”Denis Poggo, Board Secretary, RUFI

“You have to be very cautious in a volatile context such as ours,” says Poggo. “You need to understand the dynamics of conflict and how this affects the market, and be able to ascertain who is trustworthy and who is not.” But RUFI did not shy away from this challenge. While its Juba branch was affected by the conflict, some of its clients in Kajo Keji and Nimule saw new


ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTSCaSE 2: MINDaNaO

15

No peace without developmentThe peace deal has given hopes of a new future to the people of Muslim Mindanao. However, Cordaid’s local partner, Sustainable Cooperation for Equitable Enterprise Development Inc. (SUCCEED), warns that lasting peace depends on whether inclusive and sustainable economic activities will be created that benefit the region. “As long as there is no economy that is respectful of the diverse local communities’ rights, their culture and their environment, rebel forces will always find new recruits among the poor and exploited,” says Joselito (Penpen) Libres, CEO of SUCCEED. The organization approached Cordaid in late 2012 with the idea to conduct case studies of successful economic initiatives in Mindanao, in order to collect best practices of inclusive

In March 2014, after 17 years of negotiations, a peace accord was signed between the government of the Philippines and the country’s largest rebel group, the Moro Islamic Liberation Front (MILF).18 Since the 1970s, various groups have been fighting for more autonomy or independence of the island Mindanao, where most of the country’s five million Muslims live among a majority of Christians. The conflict has led to more than 120,000 deaths. The 2014 peace deal orders the creation of an autono-mous political entity in western Mindanao, called Bangsamoro. Bangsamoro will receive a fairer share of revenues from the region’s natural resources as well as having budgetary autono-my, a parliamentary form of governance and shariah courts. In exchange, The Liberation Front agreed to give up arms as well as its demand for a separate state.

CaSE 2: MINDaNaOSUPPORTING INCLUSIVE DEVELOPMENT FOR RESILIENCE aND LaSTING PEaCE

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INVESTING IN ENTREPRENEURSHIP IN THE PHILIPPINES, CORDAID’S FOOTPRINT

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as fertilizer or seedlings. The cooperative serves as a vehicle for poverty alleviation among the poor Muslim communities in Maguidanao province. At the same time, the cooperative is a vehicle for peace. The interaction that it encourages between members from different backgrounds helps to promote dialogue and unity. The experiences and the capacities that women gain through their work for the cooperative are empowering too. Several of them have come to play crucial leadership roles in conflict resolution.

Turning policy to practiceIn December 2013, SUCCEED presented the findings from the case studies at a conference in Davao City, Mindanao, to more than 100 participants from the private sector and Chambers of Commerce, civil society organizations, academia, religious groups, government agencies and donors. Subsequently, the regional government of the Autonomous Region of Muslim Mindanao (ARMM), MILF and the Bangsamoro Transition Commission (BTC) invited SUCCEED to share its expertise and provide input for the region’s new economic policy. “For decades the armed struggle was the MILF’s main focus,” says Libres. “Now as the peace agreement has to be implemented and they have to dismantle their militias, they realize that not having a comprehensive economic policy is a weakness.”

Based on the action research and the proposals from partici-pants at the conference, SUCCEED came up with a list of recommendations for the crafting of the Bangsamoro Basic Law (BBL), which was formally submitted to the Chair of the BTC in February 2014. The recommendations reflect that there is an important role to play by all stakeholders. NGOs can provide training in financial literacy, business skills as well as conflict resolution skills. Local government can create an enabling environment for local businesses – through enforcement of law and regulations, service delivery, revenue collection – and support pilot activities using tax revenues. Cooperatives provide important services to their members – credits, farm inputs, marketing, etc. – and at the same time build social capital and cohesion among and between divided communities as they are a microcosm of the diverse demo-graphic and religious makeup of the region. The private sector has the ability to offer employment and supply contracts to large numbers of people and thereby to boost people’s

development. The research was to be used to support the peace process between MILF and the government and to formulate policy recommendations for the new leadership of the region. “We appreciated their idea,” says José Ruijter, policy officer at Cordaid, “especially because SUCCEED insisted on conducting participatory action research rather than an academic study. Given the political momentum of the peace talks at the time, we gathered that thorough evidence-based lobby on economic policy for the post-conflict society could prove to be a catalyst for change.”

“ As long as there is no economy that is respectful of the diverse local communities’ rights, their culture and their environment, rebel forces will always find new recruits among the poor and exploited.”

Joselito (Penpen) Libres, CEO of SUCCEED.

Cordaid supported the research with funds and training, and recommended to take into account the context of socio-politi-cal conflict in all activities. The researchers were trained in peace and conflict dynamics, and their links to economic development. They interviewed key informants and conducted focus group discussions that involved men and women from Muslim, Christian and indigenous communities in the region. This was done to stimulate joint reflection on which economic strategies can help tackle the roots of conflict and achieve inclusive peace. “The Philippines is a middle income country and not categorized as a fragile state,” says Ruijter, “but the Muslim area of Mindanao certainly has characteristics of fragility. The decades-long conflict is more than just a back-ground to the local situation, it is a symptom of underlying structural weaknesses.” The research confirmed that it is the lack of economic and employment opportunities for marginal-ized communities in Muslim Mindanao, poor access to basic services and justice, and poor participation in economic and political governance (particularly over land) that has resulted in the persistence of armed conflict.

The case studies showed that initiatives for economic development can be successful when they take into account the social realities of the fragile post-conflict situation.

For example, the Women Rural Improvement Credit Cooperative (WRICC) in Maguindanao province (one of the case studies concerned) provides livelihood opportunities to 1,000 ex-combatants and supporters of the recent armed struggle by using the leaves and stems of the water lilies that grow along the Liguasan Marsh to make handbags and other handicrafts. The cooperative also provides credit to its female members, but does not impose an interest because this is contrary to the teachings of Islam. WRICC usually provides credit in kind, such

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Women showing the handbags they made from water lilies


ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTSCaSE 2: MINDaNaO

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The project combines the promotion of economic capacities - especially for smallholder agriculture, private sector development, and democratic accountable governance - with local processes of conflict resolution and peace building.

“ Social enterprises in rural areas rely on local resources to drive the local economy and create employment. They can help households have a sustainable income.”

Ric Torres, Program Manager PEF

Fragile climate Cordaid’s co-sponsor of SUCCEED’s December conference was the Peace and Equity Foundation (PEF). PEF, also a Cordaid partner, was established in 2001 to manage a 1.3 billion pesos endowment fund, which has since grown to 2.2 billion pesos (approximately USD 50 million20). PEF primarily invested in microfinance institutions in its first ten years. Since 2011, it has focused on investing in social enterprises that help rural households gain better incomes and move out of poverty. “Microfinance is very important to help the poorest people survive, but on its own it is not enough to eliminate poverty,” says Ric Torres, program manager at PEF. “Social enterprises in rural areas rely on local resources to drive the local economy

livelihoods in a sustainable manner. All these activities brought together help to build inclusive economic growth and development. They promote social cohesion in what have long been highly divided communities.

Libres adds: “In essence it comes down to the principle that the exploitation of resources in Muslim Mindanao - like land, water and minerals - should serve the development of the Bangsamoro population. This is only possible if the population has a say in economic decision-making, can significantly participate in economic endeavors, and substantially benefit from it.”

Active participation from civil society is therefore also needed in the formulation of the Bangsamoro Development Plan (BDP). This plan, which is drafted by the Bangsamoro Development Agency (BDA) - with support from the World Bank, other donor agencies and the government of the Philippines - defines short- and medium-term strategies for the recovery and development of the Bangsamoro. “Without the involvement of broad local civil society this plan will have limited roots in the communities, will lack ownership, and the economic activities it will promote will not be as inclusive as desired,” says Libres, who in June 2014 was elected in the Mindanao People’s Caucus (MPC)19 council of leaders. Cordaid continues to support SUCCEED’s advocacy activities and is funding a pilot project that has recently started in three municipalities in the provinces of Maguindanao, Sultan Kudarat and Lanao del Sur.

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MAGIRCO banana chips factory


ENTREPRENEURS: FOSTERING ECONOMIC OPPORTUNITIES IN FRAGILE CONTEXTS CaSE 2: MINDaNaO

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since 2012. MAGIRCO has used the MP3 loans for acquiring machinery and equipment as well as for a study on plant improvements. But even if business is going well and the political conflict in its part of Mindanao may have ended, MAGIRCO has little time to rest on its laurels. Torres explains: “China is the company’s primary customer, buying 70% of MAGIRCO’s banana chips. However, whenever there is a dispute between our two nations over the disputed South China Sea, China stops buying. MAGIRCO is therefore keen to explore other export markets.”

Sharia lendingIn early 2013, using MP3 funds, PEF started providing a new financial instrument in Muslim Mindanao: sharia lending. This method of investment is compliant with the Islamic context and culture of the region. “Our consultations found that there are many financial institutions and investors working in Muslim Mindanao, but very few of them have been successful in sustaining their investments or seeing them grow,” says Torres. PEF, in partnership with the Muslim institute Al Qalam and with the federation of Muslim scholars, realized that sharia-compliant lending would fulfill an important need for this region that is home to the poorest communities in Mindanao. Torres: “According to Muslim law, it is haram (forbidden) to ask for interest or riba. So our invest-ments do not take the form of loans, but of equity. PEF becomes a shareholder of the cooperative or business that we invest in. If they do well, we become part of the success, if they fail, we become part of the failure.” It is a whole different way of working. Normally, when companies or borrowers do not pay back their loans, there is always the option of going to court or foreclosing their collateral or properties. Torres: “With sharia lending, you become part of the community, you are no longer an anonymous capital provider. When things go wrong, you don’t go to court, but you come together and study why things went wrong together with the local Imam and Sharia Council.” PEF is now supporting six groups in Mindanao with sharia lending. Two of them are women’s groups who provide sharia-compliant microfinance to women entrepreneurs themselves. They are involved in different businesses such as soap making, bakeries, corn production or the cultivation of seaweed. This close involvement also means that PEF supports these groups with capacity building and business plan development. It has brought in the experience of the Association of Islamic Accountants to train the groups on how to prepare financial statements that are in line with sharia banking rules. Torres considers sharia lending in Mindanao an appropriate approach to allow for responsible impact investing and inclusive growth in the culturally and politically sensitive area of Mindanao.

and create employment. They can help households have a sustainable income.” PEF supports projects across the Philippines and also works in Mindanao. However, Torres emphasizes that it is not Mindanao alone that suffers from fragility. “The increasing source of fragility in the Philippines is climate change and this affects the entire country.” The Philippines is among the 10 countries worldwide most prone to natural disasters. Helping poor communities and social enterprises become more resilient to climate change is therefore a key element of the poverty reduction efforts of PEF. Since 2011, with co-funding from Cordaid, PEF has built up its experience of financing social enterprises that operate in a context vulnerable to natural disaster. In 2015, PEF and Cordaid will set up the Social Enterprises Fund (SEF) together. This fund will invest in social enterprises that develop climate-smart agricultural projects, such as the planting of typhoon resistant palay seeds, the use of coconut husks for bioengineering, the production of seedlings for mangrove forests to protect coastal zones, and the promotion of renewable energy and technolo-gies for community-based enterprises that reduce carbon emissions. In the aftermath of Typhoon Sendong, which hit northern Mindanao in December 2011, Cordaid and PEF created a guarantee fund that allowed 3,174 displaced households to buy land and to build safer houses. Experts in disaster risk reduction from Cordaid together with PEF also assisted the displaced families in setting up community associations to deal with the agencies that provide necessary public utilities and permits.

Investing in MindanaoCordaid has worked with PEF on the Mindanao Partnership Project for Peace (MP3) since 2008. This 100 million Philippine pesos (USD 2.8 million)21 joint Cordaid-PEF fund invests in microfinance institutions and increasingly also in agri-based social enterprises in Mindanao. It provides loans to coopera-tives and strengthens them through capacity development and business development services. In this fund, vulnerability to climate change is also integrated into the operations. Torres describes: “We have 27 active MP3 clients. Together with the Ateneo de Davao University Tropical Institute for Climate Studies, we are now training them to have a Disaster Risk Reduction policy and plan of action.” In this way, PEF tries to ensure that the jobs it helps create are not washed away with the next flood. One of the MP3 clients is the Magpet Agro-industrial Resources Cooperative (MAGIRCO), which processes more than 40,000 kilos of bananas into unsweetened banana chips on a daily basis. MAGIRCO is located in the conflict region of Mindanao, which makes it especially relevant as the enterprise provides direct jobs for 120 people from local villages, the majority of whom are women, and assures a regular market for 1,600 banana farmers who are mostly from indigenous communities. MAGIRCO is a good example of what PEF envisages with its support for social enterprises: a business that earns a profit and fulfils a social mission too. Creating local employment is MAGIRCO’s main impact, but the coopera-tive also focuses on being socially and environmentally aware in its production processes. The bananas are fried in locally supplied coconut oil, using rice husks as fuel to heat the oil. The more than 24,000 kilos per day of banana peels, are transported back to the farms to be turned into organic fertilizer. PEF has invested considerably in this enterprise

MP3 portfolio ▪ Size of fund: 98 million pesos (USD 2.2 million) ▪ Number of clients: 27 partner organizations that have

reached out directly to at least 5,000 households and have created 600 jobs locally.

▪ Average size of loan: 5 million pesos (USD 113.715) for cooperatives, 3 million pesos (USD 68.229) for NGOs

▪ Return on investment: 3 to 4% ▪ Repayment rate: above 90%


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In 2014, Cordaid obtained a 25% share in WAVF, a unique investment fund for SMEs in Sierra Leone and Liberia. WAVF was established in 2010 by the International Finance Corporation (IFC), which is part of the World Bank Group and encourages private sector development in developing countries. The IFC usually invests in multi-million dollar projects; its investment in WAVF reflects the growing importance attrib-uted to the role that SMEs play in creating jobs and fostering inclusive economic growth. WAVF’s investments are between USD 100,000 and 500,000. For entrepreneurs in the two West-African countries, this size of capital is very difficult to obtain from commercial banks, which impose interest rates of over 20% on their clients and consider the overhead and risks on such relatively small sums to be too significant. Additionally, commercial banks in these countries commonly work with asset financing rather than financing based on the assessment of viable business plans, which clearly limits the opportunities for new entrants and start-ups.

In 2002, a decade-long violent civil war in Sierra Leone came to an end. The war was a result of state collapse, extreme poverty in rural areas and a clash between a younger generation that lacked economic opportunities and an elite of elderly men that ruled the country politically and economically. Sierra Leone’s economy has grown at an average rate of 6% per year since the end of the war and with a nascent democracy in place, the country, though still extremely poor, is moving away from fragile state status.22 The increasing political and economic stability has improved Sierra Leone’s investment climate. The country recently jumped from number 163 to 142 in the World Bank’s Doing Business Index, making it one of the top reform-ers of countries on the list.23 Investment has started to flow in, boosting the mining sector in particular. Sierra Leone’s private sector is highly dependent on large-scale investments in extractives and agriculture. It is a skewed pyramid, with a very broad base of 80% of all businesses in the country being survival-oriented microenterprises.

CaSE 3: WEST aFRICa VENTURE FUND (WaVF)INNOVaTIVE FINaNCE FOR SMEs IN SIERRa LEONE

INVESTING IN ENTREPRENEURSHIP IN SIERRA LEONE, CORDAID’S FOOTPRINT

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problems. This approach proves to be much more effective than sending an external expert round to check on the financial health of the company.” In addition to providing trained personnel, WAVF invests a lot of time and effort in coaching entrepreneurs and start-ups. This means taking a very hands-on approach and walking them through all steps of the business. “Many entrepreneurs are anxious to grow as fast as they can,” says Dr. Oboh. “But in the long-term, it often pays to pace growth so that you can manage it.”

Private equityWAVF chooses to be closely involved with the operations of its investees. This fits with the type of finance it provides, private equity. WAVF becomes a shareholder of the enterprises it supports. In West Africa, this is a relatively new form of finance. Oboh: “It was hard for investees to come to terms with the concept of giving up a share in their business in exchange for finance. With private equity, you don’t just provide funding but are a partner in their business too. This means someone will set demands and point out problems that the entrepreneur may have overlooked. Entrepreneurs need time to adjust to that. It’s not just a case of ‘give me the money and let me get on with my business!’” And yet the close engagement of the Fund that comes with the provision of private equity is a great advantage in post-conflict settings. It ensures a high degree of knowledge transfer and capacity building, which is needed to stimulate private sector development in fragile contexts. In a country like Sierra Leone, Sascha Noé stresses, start-ups and SMEs require specialized approaches. “WAVF is very creative in offering them tailor-made advice and services. Together with the SME, they come up with ideas to make sure that the investment is socially and financially beneficial to the owner, the investor and often to the wider community too.” An example of this is WAVF’s investment in the poultry sector of Sierra Leone, which had been decimated by the civil war. As a result, 90% of all the eggs and chickens consumed by the population had to be imported from overseas until recently. “The revival began in Freetown,” Dr. Oboh explains. “We helped farmers with the investments needed for chicken feed and chicks. That set the ball rolling and now some 400 farmers are participating in what has become a community venture. It has also led to wider social improvements, such as a water project to supply the community with clean water. So in addition to saving 2 million dollars in egg and chicken imports and creating many jobs, the investment is also creating positive effects throughout the community.”

Coaching entrepreneurs and start-ups means taking a very hands-on approach and walking them through all steps of the business.

Miracle treeBy providing private equity, WAVF becomes part owner of the company of its investee. However, the original owner retains a strong say regarding the future strategy of the company, as can be shown by one of WAVF’s investees, the tea factory Morvigor Ltd in Freetown. The company was founded and is led by Eva Roberts, a trained medical doctor who lived in the United

Sharing a visionCordaid decided to invest in WAVF primarily because of its target market segment. Providing finance to SMEs that by and large have no access to capital is vital in post-conflict settings where SMEs play an important role in creating employment.

“ If you want fragile and post-conflict areas to stay stable, you need to make sure that the 25 to 45 year old age group has jobs. If they can earn a decent living, they will be much less inclined to get involved in criminal activities or to take up arms.” Sascha Noé, Investment Manager at Cordaid

Second reason for Cordaid to invest in WAVF is that its operat-ing principles coincide with Cordaid’s vision on how to stimu-late entrepreneurship in fragile contexts. WAVF does not simply give out equity or loans, but supports each and every one of its investees with technical assistance and coaching. Noé: “The intensive guidance that WAVF provides is vital for success in countries such as Sierra Leone and Liberia.” The strict social, environmental and governance selection criteria that WAVF maintains, helps ensure that the investments ‘do no harm’.

Key figures WAVF ▪ Total size of the fund: USD 18 million ▪ 28 SMEs financed to date ▪ USD 360,000 average investment ▪ 1,050 jobs created ▪ Cordaid share in WAVF: 25% or USD 4.5 million

Training the workforceA major bottleneck for the development of the SME sector in Sierra Leone is the lack of access to capital. “Many people lost their livelihoods during the war and were eager to start up again once peace had finally returned,” says Dr. Anthony Oboh, Fund Manager of WAVF. “However, the overall infrastructure was bad and the financial infrastructure in particular was basically non-existent. So budding entrepreneurs with promising ideas had nowhere to go for finance.”24 Other major obstacles are the lack of technically skilled manpower and skill gaps in basic numeracy, literacy and the command of English. Work ethics are also a problem. The coping strategies that people acquired during the years of violent conflict – distrust-ing others, fending for yourself, satisfying immediate needs rather than working towards medium term goals – appear to have made many workers lack basic work values such as punctuality and service orientation.

WAVF has responded to the gaps in education by training a pool of young men and women as financial managers. The start-ups and companies that WAVF invests in are obliged to include one of these trained managers on their payroll. Sascha Noé: “This has a double advantage: the investee is assured of good finan-cial advice and management, while WAVF has eyes and ears in the company and can thus respond very quickly in case of


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supermarkets all over Freetown and opportunities for export to Germany look promising. When operating at full capacity, the factory will employ 21 people, while the business provides indirect employment to 500 people throughout the value chain, including farmers and distributors. Eva Roberts made it clear to WAVF from the start that, while grateful for the capital, she is not interested in selling her company. Her ambition is to buy back WAVF’s shares in the future and remain a family company. To make this possible, they agreed that Roberts’ part of the profits is not paid out but put aside as savings to enable her to buy out WAVF in the future. A creative solution that few mainstream equity funds would have been eager to implement.

Kingdom during the war and returned to Sierra Leone in 2007 when business conditions began improving. The company is one of the rapidly increasing number of businesses set up by Sierra Leoneans from the diaspora. These entrepreneurs, many of them women, share several specific strengths. For example, they are often well educated, have been exposed to Western management principles and are less sensitive to pressures from the extended family to share resources or give jobs to family members. The Morvigor company processes herbal tea from the leaves of the Moringa oleifera, dubbed ‘miracle tree’ in both Africa and Asia because of its many health benefits. WAVF has invested USD 265,000 in the company, which enabled it to purchase a drying and packing facility necessary for tea processing. Moringa tea is now available in shops and

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Morvigor Ltd tea factory in Freetown, Sierra Leone


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Small innovation, huge impactAs the soil bags are filled not only with sand, but with a mix of seeds that can grow and flourish alongside the dikes, this invention can change the practice of water management in rural areas threatened by cyclones and seasonal floods. Initially the concept was developed for the Dutch market. The first experiments took place at a testing site in the Netherlands, which proved successful and spurred the interest of national and international water management institutions. Cordaid became aware of this innovative technological solution and initiated consultations to introduce it to the flood-prone regions of Bangladesh.

In the past, dike breaches in Bangladesh have caused salinization of the rice paddies from the resulting mix of fresh and salt seawater. This has destroyed villages’ rice yields, cutting seasonal income in times of flooding.

Gerdien Seegers elaborates: “We first sought technical univer-sities willing to cooperate on the pilot. Their academic valida-tion was essential in pushing our efforts forward. We then ensured that our strategic partner in the field, Caritas Bangladesh, was willing to cooperate on this new challenge. Working locally, Caritas was able to quickly select the most viable testing sites, arranged the necessary permissions from the Bangladesh Water Development Board, and engaged their local engineers to reconstruct the sites in preparation for the arrival of the soil bags.”

After consultations with local authorities and the involved villages, the pilot started in Bangladesh in November 2013. In the Netherlands, the bags are usually filled with the use of machines. In Bangladesh, however, Caritas was able to hire four hundred people from the adjacent villages to fill 40,000 locally produced jute bags with sand and local seed mixes. As the jute bag is a product that requires minimal training and has no need for expensive machinery, it proved an accessible and cost-friendly solution, especially in such fragile areas.

Validating for changeThe introduction of new technologies and ideas is not always easy, however. The water management sector is long estab-lished and works with techniques that have been tried and tested. Introducing an alternative that differs from convention

Cordaid worked with Delft University of Technology and Wageningen University to develop a pilot repairing damaged dikes in Bangladesh using a biodegradable soil bag. Cordaid partnered with the innovative Dutch company Green Soil Bag, which introduced the idea of a jute bag filled with soil and a mix of seeds as a cheap alternative to improve the quality of damaged dikes. This innovation can offer great relief in fragile contexts. “The bag has the advantages of being cheap and accessible, the dike construction provides local jobs, and the grass can be used as fodder for animals,” explains program manager Gerdien Seegers.

Plastic sand bags are traditionally used to protect villages from overflowing dikes. However, the bags are often a hazard to the environment and/or require heavy machinery and their related costs. After the threats of floods have passed, the bags filled with sand need to be cleared or would otherwise take years to degrade, damaging the environment. The Dutch inventor Jean Paul de Garde developed a bio-degradable soil bag that contin-ues to protect fragile areas long after they have been stacked one on top of the other: the sackcloth bag decomposes, the roots of the grass seeds inside provide extra support to the dikes, and the resulting grass can be utilized for various purposes.

3. PARTNERING FOR INCLUSIVE BUSINESS

CaSE 4: INNOVaTION: SOIL IN a BaGINTRODUCING NEW WaYS OF aDDRESSING SOCIaL CHaLLENGES

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Repair of embankment in Bangladesh


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The way forwardThe initiative resulted in over 40,000 biodegradable bags being placed along the southern delta region of Bangladesh, covering an area of over 10,000 square meters of dikes, which protect two villages against floods. Eight weeks after the placement of the soil bags, grass grew two meters high on the dikes with strong rooting. Following this initial successful pilot, new projects have been planned with the Government of Bangladesh, the Bangladesh Agricultural Research Institute (BARI), the Bangladesh Water Management Board and the Institute of Water Modeling. With the academic support of Delft University, the next phase aims to provide the required validation for scaling of the initiative across and beyond Bangladesh’s flood prone regions, to countries such as Myanmar.

requires compelling evidence and the lobbying skills of local organizations and government departments.

At the start, questions were raised whether this innovation actually responded to an existing need. In addition, alternative ‘green’ solutions to flood prevention required new alliances and methods. This is a shift that not all stakeholders are willing to take without firm evidence and validation. Despite this, the Dutch approach of ‘Building with Nature’25 has great potential in flood prone regions and this type of eco-engineering is starting to gain momentum in the field. The involvement of respected academic institutions, as well as the trusted reputa-tion of Cordaid, helped to convince the stakeholders to take on this challenge.

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Results of a dike construction with Green Soil Bags


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“ The collaboration with Cordaid makes it easier for us to get an idea of people’s real and most urgent needs. The organization has long-term experience and a good reputation with mother and child projects as well as a large network of trusted contacts in the field. A good relationship with the end users of a product, in this case primarily nurses and midwives, is important for the verification of ideas and concepts, and leads to the quickest and best results.”

Guido Geerts, Director Delft Imaging Systems

“Companies developing innovative products usually aim at the western market first, and then introduce an adjusted version in Africa. However, our partner organizations in developing countries and the clinics we support there are much better served by medical equipment that has been specifically designed for them,” says Nathalie Popken. This was the very reason for linking up with DIS: the company focuses primarily on markets in developing countries and takes local needs as the starting point for product development. The partnership also has important advantages for DIS.

CaSE 5: CO-CREaTION: THE BaBYVIEWER BRINGING TOGETHER VESTED STaKEHOLDERS

The lack of access to health care seriously affects the life chances of mothers and their newborns in the fragile contexts where Cordaid works. In fragile regions of Afghanistan and the Democratic Republic of Congo for instance, only a minority of pregnant women have access to antenatal care. Health facilities are either too far away, too expensive, destroyed by gunfire or corruption, or inaccessible due to unsafe roads. “Every day, 800 women worldwide die due to complications during pregnancy and delivery,” says Nathalie Popken, Business Development Manager at Cordaid. “99% of these deaths occur in developing countries, in particular in remote areas. The knowledge and technology to prevent these deaths exists, but the difficulty is ensuring women’s access to affordable and quality care.”

Local needs are the starting pointDuring a Dutch trade mission to Ghana in April 2013, Cordaid staff met with the director of Delft Imaging Systems (DIS), a Dutch company working on medical imaging systems and e-Health software. Soon after, the two parties joined hands with a concrete project in mind, to develop portable ultrasound equipment. Ultrasound is an effective solution for identifying complications and risk factors during pregnancy. Cordaid and DIS realized that if they were to offer a useful technology for remote and fragile areas, three criteria needed to be met: first, the technology needed to be low-cost; second, in order to bring care closer to people it needed to be mobile; and third, given the lack of professional health personnel in such areas, it needed to be robust and easy to use.

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A minority of women in fragile regions have access to antenatal care


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On to the marketBefore product development started, Cordaid conducted a feasibility study in northern Ghana in cooperation with a Dutch consultancy firm. This involved a market survey and interviews with gynecologists, midwives and medical assis-tants. The assessment clearly showed the potential of integrat-ing the innovative ultrasound technology into the existing health system to improve obstetric health care. Costs are an important factor: while the ultrasound technology used in hospitals across the world costs between US$10,000 and 100,000, this device can be manufactured for as little as US$500. Now that the prototype hardware and software are ready, the next step will be the pre-clinical testing of what has been dubbed the ‘Babyviewer’. This will take place in Ghana, Malawi or Ethiopia in late 2014. Thirty devices will be produced for this testing phase, which is to gather valuable information for improvements to the technology. If all goes well, DIS and Cordaid will establish a social venture to bring the Babyviewer to the market, which potentially includes any country in the world where access to antenatal care for pregnant women is hampered by poverty or fragility. DIS will be responsible for marketing, selling and delivering the Babyviewer, while Cordaid will complement these efforts by also making use of its own distribution channels. Cordaid’s primary role in the social venture will be to maximize the social impact of the technol-ogy. “Up-scaling the use of the Babyviewer to earn back the development costs is important,” says Popken, “but it is more important for Cordaid to make sure that the final product suits the exact needs of the users because only then will it have the desired impact: the early detection of prenatal complications and the prevention of unnecessary deaths.”

Smart innovation for easy use DIS had contacts with researchers at the School of Electrical and Electronic Engineering at Newcastle University, who had developed a prototype of a low-cost, portable ultrasound probe in 2011. The device is roughly the size of a computer mouse and works in a similar way to existing ultrasound scanners, i.e. it uses pulses of high frequency sound to build up a picture of the fetus or unborn child. The USB device can be plugged into any computer or tablet to show these pictures on the screen. Due to its size, it is very suitable for use in remote and sparsely populated areas: health workers can easily carry the device with them while visiting pregnant women. Taking this prototype probe as the starting point, DIS has been working on developing suitable software together with the Diagnostic Image Analysis Group (DIAG) at the Radboud University Nijmegen in the Netherlands and Fraunhofer MEVIS in Germany. The Computer Vision software package that has been developed can automatically detect the gestational age of a fetus from the ultrasound image. With most ultrasound technology, this requires the user to freeze the image and set markers with a cursor on the femur and head of the fetus, after which the computer calculates the gestational age. “The fact that the novel software does not require this human interven-tion makes it easy to use,” says Popken. “Midwives and birth attendants can use the device effectively with a minimum of training, which is very relevant for the contexts where Cordaid works.” Researchers at DIAG and Fraunhofer MEVIS are currently investigating more challenging computer aided diagnostic (CAD) algorithms for the automatic detection of prevalent risk factors associated with the large number of maternal and neonatal deaths such as breech, multiple gestations and placenta previa. If successful, these will be integrated into the software.

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idea of setting up a recruitment agency was born: a social venture where ambitious young people are matched with employers in search for a reliable workforce. “However, the pilot taught us that the only way this initiative could become financially independent, was by transforming it into a com-mercialy viable, yet social recruitment and selection agency”, says Inge Bouwmans, Program Expert Urban Matters at Cordaid.

Africa’s youth population will double in the next 30 years from 200 million to 400 million people.

Matching slum CVs with multinationalsUrban Link moves beyond the traditional approach of vocation-al training programs by organizing job opportunities for young people with ‘slum CVs’ at international corporations. Often traditional courses allow for personal growth and skill en-hancement but are rarely connected to professional develop-ment goals or opportunities on the real job market. Local Urban Link coordinator Teshome Shibru explains his organization’s approach. “Youngsters leave the course with a new skills set, but are then challenged in finding a matching job. In essence, Cordaid wishes to focus less on training the ‘many’, but on building career opportunities for the motivated.” Recruitment of the young working population is conducted in close cooperation with community-based organizations such as churches and community projects dealing with the urban youth. These long-standing partners of Cordaid know the community well. They help to identify those young ‘achievers’ who want to invest in themselves and who can become role models for others once they have obtained a good job.

Booming Addis Ethiopia is characterized by a promising investment climate and Addis Ababa is a fertile starting ground for Urban Link due to its regional hub status for international companies seeking local employees. In a market scan, multinationals such as Heineken and international SMEs dealing with agro-products, indicated the need for reliable staff and were willing to invest in local personnel that were motivated, coached and fitted their requirements. In addition, they realized that working with a recruitment agency operating as a social enterprise would add value to their own local business model and would strengthen their own license to operate.

Triple Win Urban Link does not try to serve a single purpose, but aims to meet a demand from various angles: creating employment opportunities for an emerging young population, satisfying market demand for a motivated workforce. By modeling this

In Ethiopia’s capital city, Addis Ababa, 60% of people between 15 and 24 years old are unemployed and cannot meet basic living standards. The main cause of these high unemployment numbers among the city’s youth is the missing link between the capacities of young people and the requirements of local employers. Cordaid identified a growing demand for skilled and motivated employees, and has introduced the social venture “Urban Link” as a response to a problem that is common in many fast growing cities across the globe. With Addis Ababa’s first recruitment agency of its kind, Cordaid aims to match urban youth with employers to help them get a job, hold on to it, and build a career.

The launch of an ideaThe idea for Urban Link did not have its origins in Ethiopia but in Cape Town, South Africa. Here, Cordaid worked closely with community-based organizations in the informal urban settlements and, together with the multinational Virgin, started a project to offer employment opportunities to the local youth. With the support of the EU, an initiative was launched that focused on providing young people with internships, in this case at Virgin’s sports studios, while offering them formal training in skills they lack that they might require for future job opportunities. Motivated young people were recruited from the urban slums and the pilot resulted in the foundation of a Sports Academy where personal fitness trainers were schooled and matched with potential employers.

Cordaid knew there was an abundant supply of youngsters motivated and willing to move forward from its previous experiences of working in city slums, and with youth and church organizations. Over the years, Cordaid also learned that addressing youth unemployment pays off. It was merely a matter of finding an entry-point to bridge the gap between supply and demand. The Cape Town pilot was a success and the

CaSE 6: SOCIaL VENTURE: URBaN LINKIDENTIFYING GaPS IN THE MaRKET aND SUPPORTING IMPaCT DRIVEN ENTERPRISES

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Unemployed youth in Addis Ababa, Ethiopia



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ambitions”, says Teshome Shibru. Young people are easily tempted to switch jobs when offered a higher pay at another company. “Urban Link tries to convince companies to give us the responsibility to motivate their workforce.”

“ We convince companies to throw away their stick and focus on the carrot instead”Teshome Shibru, Urban Link coordinator Cordaid Ethiopia

With Urban Link, Cordaid started a social venture that can reach scale and can be replicated in other countries where Cordaid works to fight youth unemployment. The first market scans in countries as diverse as Haiti, El Salvador and Kenya are being prepared.

recruitment agency as a social enterprise that is financially sustainable and even profitable, it fills a gap in the market. Cordaid not only matches young people to jobs but also shows them the advantages of a long-term commitment . By focusing on three tiers of the job cycle (getting a job, keeping a job and growing in a job), Urban Link helps them to improve their livelihoods. By having a job and contributing to society, young people will have a more meaningful life and will be less inclined to engage in harmful activities such as substance abuse and delinquency. In the end, community members will experience that their youth are a valuable asset in their community, rather than a nuisance. In the long term, Urban Link helps to increase social cohesion in urban settlements.

For companies, the benefit is clear as using the services of Urban Link helps to prevent high staff turnover. “Some companies say that they are not making any profits because of their current workforce that has little motivation and no



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11 World Development Report 2013, Jobs http://siteresources.worldbank.org/EXTNWDR2013/Resources/8258024-1320950747192/8260293-1322665883147/WDR_2013_Report.pdf

12 african Development Bank, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Ending_Conflict_and_Building_Peace_in_africa-_a_Call_to_action.pdf; WDR 2012, Gender equality and development.

https://siteresources.worldbank.org/INTWDR2012/Resources/7778105-1299699968583/7786210-1315936222006/Complete-Report.pdf

13 United Nations, a new global partnership: eradicate poverty and transform economies through sustainable development. The Report of the High-Level Panel of Eminent Persons on the Post-2015 Development agenda. New York 2013; http://www.un.org/sg/management/pdf/HLP_P2015_Report.pdf

14 The World Bank describes inclusive business as “... Inclusive business models are helping companies turn underserved populations into dynamic consumer markets and diverse new sources of supply. In the process, companies are developing product, service, and business model innovations with the potential to tip the scales of competitive advantage in more established markets as well.” from IFC, accelerating Inclusive Business Opportunities, 2011 (p.2)

15 UNDP, Creating Value for all: Strategies for Doing Business with the Poor, 2008 (p2.) http://growinginclusivemarkets.org/media/gimlaunch/Report_2008/GIM%20Report%20Final%20august%202008.pdf

16 Prahalad, C. K. (2006) The Fortune at the Bottom of the Pyramid. Pearson Education, Upper Sadle River NJ. http://www.cs.berkeley.edu/~brewer/ict4b/Fortune-BoP.pdf

17 Porter, Michael and Mark Kramer, Creating Shared Value. Harvard Business Review. January/February 2011. http://www.waterhealth.com/sites/default/files/Harvard_Buiness_Review_Shared_Value.pdf

18 In October 2013, the Framework agreement (FaB) was signed by the Government of the Philippines and the MILF. In March 2014, the Comprehensive agreement of the Bangsamoro (CaB) was signed, which includes the FaB and four annexes, i.e. revenue and wealth sharing; power sharing; transitional arrangements; and normalization

19 The MPC is a broad network of grassroots organizations and NGOs in Mindanao that is in the forefront of accompanying the peace process between the MILF and the Government of the Philippines.

20 Exchange rate September 2014.

21 Exchange rate September 2014.

22 Sierra Leone ranks 177 out of 187 on the Human Development Index of Human Development Report 2013 http://hdr.undp.org/en/2013-report. It is unlikely to meet any of the Millennium Development Goals (MDGs) before 2015.

23 http://www.doingbusiness.org/data/exploreeconomies/sierra-leone/.

24 This and other quotes by Dr. Oboh are taken from an article by Karen Jochems published at http://www.upsides.com/interview/business-partners-just-financiers/

25 de Vriend, Huib et al (2014) ‘Building with nature’: the new Dutch approach to coastal and river works. Proceedings of the ICE – Civil Engineering, 167(1): 18-24

1 The UN Open Working Group developed the Zero Draft listing 17 Sustainable Development Goals to be attained by 2030. The 16th proposed goal relates to fragile states: “achieve peaceful and inclusive societies, access to justice for all, and effective and capable institutions”. http://sustainabledevelopment.un.org/focussdgs.html The UN High-Level Panel of Eminent Persons on the Post-2015 Development agenda proposed twelve goals, of which goal 11 is ‘Ensure stable and peaceful societies’; http://www.un.org/sg/management/pdf/HLP_P2015_Report.pdf. Cordaid stresses that it is of eminent importance that the Post-2015 agenda mainstreams and integrates matters of peace, security, stability and people’s safety across the whole framework. Introducing a specific goal on peaceful societies is vital but not enough; https://www.cordaid.org/en/publications/focus-fragility/

2 World Bank, World Development Report 2011. Conflict, Security and Development. Washington 2011. http://siteresources.worldbank.org/INTWDRS/Resources/WDR2011_Full_Text.pdf

3 OECD, Fragile States 2013. Resource flows and trends in a shifting world. Paris, 2012. http://www.oecd.org/dac/incaf/FragileStates2013.pdf

4 Cordaid, Focus on Fragility. Position paper, The Hague, November 2013. http://eudevdays.eu/sites/default/files/Cordaid_position_FocusonFragility_new.pdf

5 This is how Cordaid defines fragility. Other often used definitions of fragility for instance include the OECD’s definition: “A fragile region or state has weak capacity to carry out basic governance functions, and lacks the ability to develop mutually constructive relations with society. Fragile states are also more vulnerable to internal or external shocks such as economic crises or natural disasters. More resilient states exhibit the capacity and legitimacy of governing a population and its territory. They can manage and adapt to changing social needs and expectations, shifts in elite and other political agreements, and growing institutional complexity. Fragility and resilience should be seen as shifting points along a spectrum” (OECD 2012, Fragile states 2013: Resource flows and trends in a shifting world).

6 African Development Bank, 2014, Ending conflict & building peace in Africa: a call to action. High Level Panel on Fragile States, p.17 http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Ending_Conflict_and_Building_Peace_in_africa-_a_Call_to_action.pdf

7 World Bank, World Development Report 2011. Conflict, Security and Development. Washington 2011; World Bank, World Development Report 2013, Jobs, Washington 2013; http://siteresources.worldbank.org/INTWDRS/Resources/WDR2011_Full_Text.pdf OECD, Fragile States 2013. Resource flows and trends in shifting world. Paris, 2012; European Commission, a Stronger Role of the Private Sector in achieving Inclusive and Sustainable Growth in Developing Countries, Brussels, 13 May 2014 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX%3A52014DC0263&qid=1400681732387&from=EN

8 The IDPS is comprised of the g7+ group of 19 fragile and conflict-affected countries, development partners and international organizations. Cordaid hosts the global secretariat of the Civil Society Platform for Peacebuilding and Statebuilding (CSPPS).

9 The other four PSGs are: Legitimate Politics, Security, Justice, and Revenues & Services. http://www.newdeal4peace.org/wp-content/uploads/2013/01/new-deal-for-engagement-in-fragile-states-en.pdf

10 https://www.census.gov/population/international/data/idb/informationGateway.php

NOTES

http://siteresources.worldbank.org/EXTNWDR2013/Resources/8258024-1320950747192/8260293-1322665883147/WDR_2013_Report.pdf



http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Ending_Conflict_and_Building_Peace_in_Africa-_A_Call_to_Action.pdf






http://www.un.org/sg/management/pdf/HLP_P2015_Report.pdf

http://growinginclusivemarkets.org/media/gimlaunch/Report_2008/GIM%20Report%20Final%20August%202008.pdf

http://growinginclusivemarkets.org/media/gimlaunch/Report_2008/GIM%20Report%20Final%20August%202008.pdf

http://www.cs.berkeley.edu/~brewer/ict4b/Fortune-BoP.pdf

http://www.cs.berkeley.edu/~brewer/ict4b/Fortune-BoP.pdf

http://www.waterhealth.com/sites/default/files/Harvard_Buiness_Review_Shared_Value.pdf

http://www.waterhealth.com/sites/default/files/Harvard_Buiness_Review_Shared_Value.pdf

http://hdr.undp.org/en/2013-report

http://www.doingbusiness.org/data/exploreeconomies/sierra-leone/

http://www.upsides.com/interview/business-partners-just-financiers/

http://www.upsides.com/interview/business-partners-just-financiers/

http://sustainabledevelopment.un.org/focussdgs.html

http://sustainabledevelopment.un.org/focussdgs.html



https://www.cordaid.org/en/publications/focus-fragility/

https://www.cordaid.org/en/publications/focus-fragility/

http://siteresources.worldbank.org/INTWDRS/Resources/WDR2011_Full_Text.pdf


http://www.oecd.org/dac/incaf/FragileStates2013.pdf

http://eudevdays.eu/sites/default/files/Cordaid_position_FocusonFragility_new.pdf






http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX%3A52014DC0263&qid=1400681732387&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX%3A52014DC0263&qid=1400681732387&from=EN

http://www.newdeal4peace.org/wp-content/uploads/2013/01/new-deal-for-engagement-in-fragile-states-en.pdf

http://www.newdeal4peace.org/wp-content/uploads/2013/01/new-deal-for-engagement-in-fragile-states-en.pdf

https://www.census.gov/population/international/data/idb/informationGateway.php

CARE.ACT.SHARE.LIKE CORDAID.

about cordaid

Cordaid is based in the Netherlands and has country offices in 11 countries. It has been fighting poverty and exclusion in the world’s most fragile societies and conflict-stricken area’s for a century. It delivers innovative solutions to complex problems by emphasizing sustainability and performance in projects that tackle security and justice, health and economic opportunity. Cordaid is deeply rooted in the Dutch society with more than 300,000 private donors. Cordaid is a founding member of Caritas Internationalis and CIDSE.

contact

Ingrid HagenDirector Corporate [email protected]

Laure Wessemius-ChibracDirector [email protected]

Peter van PoortvlietDirector [email protected]

Cordaid the NetherlandsLutherse Burgwal 102512 CB The Hague+31(0)70-31 36 300www.cordaid.org