COMMENTS & INSIGHTS

2022 saw continued growth in Argidius’ impact and the cost effectiveness at which this is achieved. Our learning agenda has allowed us to discover what works best to help entrepreneurs grow. This includes evaluating the design and implementation of  advice, training and support. This learning is being leveraged to improve the effectiveness of much larger bilateral donor agencies, ministries and institutions.

This year’s review focusses on a related but different type of leverage: access to finance. Projects supported by Argidius have leveraged almost €2 billion in finance for SMEs, at a ratio of €30 for every €1 of Argidius support, and €7.9 to €1 factoring in contributions levered from our project co-funders. In today’s tightening fiscal space, it’s more important than ever that each euro generates as much impact as possible.

This chapter highlights four key lessons required to address capital constraints that hold back the growth of SMEs, and the crucial job creation and inclusive economic development which they drive.

A quick history

Argidius was one of a number of players who made a valuable contribution from the 1960s into the 1990s supporting the emergence and establishment of microfinance (now called financial inclusion). This effort involved significant levels of grant and subsidy to develop new financing models and institutions. The financial inclusion sector is now largely self-sustaining, with established products in the world’s investment markets.

Microfinance targets microenterprises, which represent a family of businesses formed of necessity. Microenterprises serve highly local markets with replicative business models and tends not to employ anyone beyond the owner or their immediate family members. Microenterprises also provides important sources of income for their low income proprietors.

Microenterprises’ cousins, the SMEs, represent a family of businesses that are opportunity driven and comprise a wide variety of business models. SMEs are key generators of formal employment and productivity gains vital for the inclusive economic transformation of emerging economies.

The financing of SMEs, especially in their early stages of development, has not yet received the same level of attention as microfinance, and remains a critical challenge in many countries. Not least because SMEs are the primary drive of productive formal employment which is key to addressing poverty. The International Finance Corporation estimates that SMEs have an unmet financing need of $4.2 trillion.

Significant leverage

Access to finance has been an important theme as we have sought to understand how entrepreneurs are best supported to grow their enterprises and create new, productive jobs that are so vital in countries with rapidly expanding young populations. Over the last nine years, we’ve funded and collected data from 98 projects implemented by 65 different partner organizations. These projects have worked with 74,500 enterprises and have cumulatively contributed to significant growth: €1.9 billion in incremental revenues; €1.8 billion in finance mobilized to support realized and future growth; and 46,600 new full-time jobs created. Job creation has increased 50% since 2021, a product of both measurement improvements and the delay we see between revenue and headcount growth.

This work, including both Argidius’ contribution, and the contribution of a wide set of co-funders, has cost in total €226 million. This represents a portfolio wide ratio of €7.9 in finance mobilized for every €1 of cost. The ratio jumps to 30:1 when considering Argidius’ sole contribution. Most major development finance institutions achieve a finance leverage ratio of between 0.5 and 2.