Background

Background

Small and medium sized enterprises (SME) are vital economic drivers, generating much needed jobs (over 50% of employment) and catalyzing commercial activity (up to 50% of annual GDP). In fragile states, job creation is a priority for Governments to foster socio-economic stability, reduce forced migration and combat the radicalization of youth. In Central and South Asia, SME’s are a high priority for governments, yet the support needed for these firms to grow and scale is absent, particularly for bespoke technical asssistance (TA), mentoring and access to tailored and appropriate long-term financing.

In 2015, the Aga Khan Development Network (AKDN) began to assess the landscape of entrepreneurship and SME financing and TA offerings in four priority countries where it has been active for decades – i.e. Pakistan, Afghanistan, Tajikistan and the Kyrgyz Republic – initiating enterprise ecosystem assessments that looked at banks and microfinance institutions, government and donor programs, business accelerators, and SME Funds. Unfortunately, despite risk mitigating schemes, existing financial institutions are not providing the kind of financing required for SMEs to incubate, start and grow; with loan instruments and credit terms that are too short (maximum 3 years), collateral that is too high (100-120%), and standard repayment terms based on predictable cash flows and short grace periods. Standalone efforts to provide SMEs with business development services have been largely supply-driven and detached from necessary day to day business challenges and access to finance. The latest “lean start-up” methodologies that promote iterative business modeling with hands-on mentoring have not been introduced in these contexts. As a result, most start-ups and early stage companies still fail, while existing SMEs get stuck in a low-growth trap limited by little or no access to appropriate financing or TA.