Sub-Saharan Africa has been experiencing exciting growth. However, the economy in most of the region is still dominated by small-scale agriculture and micro-enterprise, and poverty rates remain high. In Tanzania where we currently operate, over 30% of the population still lives below the basic needs poverty line – around 14 million people.

Tanzania desperately needs more labour-intensive growth to make a noticeable dent in poverty. Only 9% of adults in Tanzania are in paid employment, and a third of these are with the Government or state owned institutions. World Bank research from 2007 showed that outside of agriculture, employment-led growth has dramatically more effect on poverty than productivity-led growth. In order to survive, many people work on their own land (66%) or work alone as ‘micro-entrepreneurs’ (8%). Farmers are among the poorest people in Tanzania, and most of these entrepreneurs do not manage to grow beyond a micro size.

Those micro-entrepreneurs that do have the capability and ambition to grow further are constrained by poor access to finance. Only 12% of business owners in Tanzania can access formal financial services, and only 3% of small formal enterprises use bank debt for investment. 41% of these see access to finance as a major constraint. Within the informal sector, the picture is even starker, with less than 1% of entrepreneurs able to access bank finance. There is a particularly challenging investment gap known as ‘the missing middle’ between $2,000 where microfinance ends and $1,000,000 where smaller-scale private investment begins.

A number of specialist SME investors have started up at the top end of this "missing middle" range using a conventional private equity model, but so far the more challenging space at the lower end of this range, between $2,000 and $50,000, has been largely overlooked. There is significant demand at this level, with exciting scale potential. There are over 60,000 formal enterprises with 2-49 employees and over 230,000 informal enterprises with employees in Tanzania, compared to less than 2,500 enterprises with 50 or more employees. This is also a key development market; this gap presents a critical barrier for many growing businesses, restricting the pipeline of larger businesses, and job creation rates in this investment range are exceptional.

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EFA believes there are many viable businesses that need investment in this range, which could make reasonable returns on capital and make a sustainable impact on poverty. However, this is a challenging size range due to relatively higher transaction costs. Equity investment is usually unfeasible due to resource requirements and the operational challenge of auditing performance.

Over the last 5 years, EFA has developed a standardised, low-cost approach to reach this market. Our approach is based on equipment finance, which allows us to reach this mass-market of grassroots entrepreneurs with the potential to grow but who do not necessarily have much collateral available. We are now seeking for-profit capital to scale. At this stage we expect this to be capital seeking a "double bottom line" of both financial returns and social impact.

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