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Smart Financing in the Pacific


Peter M. lives and works in Auki, the capital of Malaita Province, in the Solomon Islands.  He’s a beneficiary of the Rural Development Programme (RDP) a $30 million initiative co-financed by the World Bank, AusAid, European Union and IFAD, which has been supporting remote communities, rural populations and small businesses since 2009. Peter's core business is collecting copra from local suppliers, crushing and bagging it for animal feed or pressing and processing it into soap bars. In 2010 he received a Supplemental Equity Facility (SEF) grant of $6K, matched it with his own $6K and secured a collateral-based loan of $18K from a local commercial bank. He invested the total - $30K – in a new processing machine. Peter’s been making rapid progress since making the investment, having recently repaid his loan, he collects copra from 10 regular suppliers, had sales worth around $47K in 2010, $54K in 2011 and he predicts a similar increase of around 10-12% in 2012. In his words “… without the SEF probably the bank wouldn’t have given me a loan … now I’m making decent money and I’m ready to expand again … this time I probably have enough of my own money to invest.”

The SEF is smart because it uses quite small amounts of programme funds to leverage relatively large sums of private – business and bank – money. But it is also smart because it relies on the banks to screen applications, in accordance with both programme and bank criteria, and to manage the repayment of loans; this reduces the programme management costs to a minimum, which is significant because the costs of managing programmes in the Pacific tend to far exceed those in other developing parts of the world.

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Thanks for this description and example of how the Supplementary Equity Facility is working in SIRDP. You contributed to something similar during the design of our Tonga Rural Innovations Project, (TRIP). can you describe what the most important differences are between the two project arrangements and how they respond to the specific project and country contexts?.

Posted on 11/18/12 10:40 AM.

The mechanics of the Supplemental Equity Grant (SEG) in Tonga and Supplemental Equity Facility (SEF) in the Solomon Islands are more or less the same. The main difference is with the targeting: the SEG is targeted at businesses that already are or have the potential to be operating in project supported communities; and the SEF supports businesses irrespective of whether or not they are operating in project supported communities. Is this significant? I think so – in Tonga it is possible to support for instance communities wishing to grow vanilla say with fencing material, agricultural implements, etc. under the Community Development component of the project and at the same time support vanilla processing businesses with a SEG to enable them to buy produce from the same communities under the Business Development component. One of the issues in the Solomon Islands is that there is not link between the SEF activities and other activities under the project; while the project has supported farmers with technical advice on for instance establishing bee-hives it has overlooked the possibility of using the SEF to support processors and or traders to buy their honey.

Posted on 11/19/12 5:09 AM in reply to Chase Palmeri.

Your example of Peter M. is interesting, especially because the formal banking sector is involved.
Do you think there is anything special about Peter M. that has enabled him to interact successfully with the formal banking sector? If so, what factors can you identify?
Also are there women you know about whom you can write similar success stories? It would be interesting to have some of those stories too, since empowerment of women in the context of interaction with authority figures like bankers is an issue worldwide.
And finally, with respect to you last point above, in you response to Chase's question, does the lack of SEF support to processors and traders to buy products like honey have a specially significant impact on women?

Posted on 12/17/12 3:11 PM in reply to Dan Vadnjal.

Peter is 1 of more than 60 persons that have received a SEF. He is typical of the SEF recipients I have met - entrepreneurial-minded, has some but limited amounts of his own capital, has some collateral to put against the loan, has a bank account (but not necessarily with the bank from which he received the SEF-supported loan). But just how typical he is, and the extent to which the SEF has supported women entrepreneurs, needs a closer look and will be the subject of a forthcoming evaluation of the SEF. Regards your last point, the disjuncture is not between SEF and support to traders and processors but rather between the SEF and other parts of the project that provide technical support. I suppose, though, if women are more likely to be involved with honey, and there has been a lack of support to honey producers either through the SEF or any other part of the project, then the likely conclusion is that the project has not given enough attention to women's interests.

Posted on 12/17/12 4:43 PM in reply to Tora Galway.