Establishment and management of a Blended Finance Enterprise Fund
Establishment and management of a Blended Finance Enterprise Fund
Business Model Description
Blended Finance Enterprise Fund (BFEF) will operate to broaden the access to financing for MSMEs through a combination of grant and loan financing. This can be done through venture capital or angel financing that serve as a critical role in private sector development and innovation. The BFEF would attract investors to Belizean MSMEs to support the country's entrepreneurial system.
Expected Impact
It can significantly impact by funding sustainable production and service delivery modes. Also support other kinds of sustainability activities.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Belize: Countrywide
Sector Classification
Financials
Development need
Financial diversification and inclusion are top national priorities for Belize. The diversification and inclusion is also needed to support MSMEs who often lack access to finance and economies of scale to sustain business operations, to promote innovation and to promote sustainability.
Policy priority
Both the National Financial Inclusion Strategy (NFIS) and the Growth and Sustainable Development Strategy (GSDS) speak to the need for increased access to export financing.
Gender inequalities and marginalization issues
In 2019, it was estimated that only 66% of adults had a deposit account (bank or credit union), implying that 34% of adults were unbanked in Belize.
Investment opportunities introduction
The cost of financing for MSMEs is usually high. Often, MSMEs are unable to access the services of commercial banks due to high transaction costs and the requirements needed to obtain a loan from the bank. Due to the risk-averse nature of commercial banks, it is unaffordable for small businesses to access financial assistance.
Investment opportunities introduction
DFC is the only development bank in Belize and, with support from the private sector, can establish a trade finance subsidiary to support trade finance in Belize.
Key bottlenecks introduction
Belize's financial system is underdeveloped, access to credit is challenging particularly for MSMEs
Corporate and Retail Banking
Development need
A Blended Finance Enterprise Fund would broaden the access to affordable financing for business owners and entrepreneurs along all stages of the business cycle while also providing local and international investors with investment opportunities.
Policy priority
Both the National Financial Inclusion Strategy (NFIS) and the Growth and Sustainable Development Strategy (GSDS) speak to the need for increased access to export financing.
Gender inequalities and marginalization issues
MSMEs remain underserved in Belize in comparison to larger and more established firms. MSMEs often lack access to finance and economies of scale, have low levels of penetration into global supply and value chains, and enjoy very little coordinated support from the public and private sectors.
Investment opportunities introduction
The cost of financing for MSMEs is usually high. Often, MSMEs are unable to access the services of commercial banks due to high transaction costs and the requirements needed to obtain a loan from the bank. Due to the risk-averse nature of commercial banks, it is unaffordable for small businesses to access financial assistance.
Investment opportunities introduction
DFC is the only development bank in Belize and, with support from the private sector, can establish a trade finance subsidiary to support trade finance in Belize.
Key bottlenecks introduction
Belize's financial system is underdeveloped, access to credit is challenging particularly for MSMEs
Asset Management and Custody Activities
Pipeline Opportunity
Establishment and management of a Blended Finance Enterprise Fund
Blended Finance Enterprise Fund (BFEF) will operate to broaden the access to financing for MSMEs through a combination of grant and loan financing. This can be done through venture capital or angel financing that serve as a critical role in private sector development and innovation. The BFEF would attract investors to Belizean MSMEs to support the country's entrepreneurial system.
Business Case
Market Size and Environment
> USD 1 billion
7,000 business establishments
US $1.1B in private sector income in 2019
As of 2016, there were 7,000 business establishments in Belize per the Statistical Institute of Belize Business Establishment Survey Report
Indicative Return
5% - 10%
Based on a Blended Finance Enterprise Fund built using Belize MSME figures and extnernal benchmark figures, an estimated 9.6% rate of return was calculated.
Investment Timeframe
Medium Term (5–10 years)
Global investment return window of VC funding is 3.5 years. However, due to the fiscal and financial environment in Belize, returns on a blended enterprise fund (including VC and angel investment) is expected to be medium term.
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
MSMEs remain underserved in Belize in comparison to larger and more established firms. MSMEs often lack access to finance and economies of scale to sustain business operations, to promote innovation and to promote sustainability.
Lack of busienss finance allows low levels of penetration into global supply and value chains, and enjoy very little coordinated support from the public and private sectors.
Gender & Marginalisation
Women entrepreneurs and youth innovators have limited funding opportunities.
Expected Development Outcome
The Blended Finance Enterprise Fund has the potential to provide needed financing for innovation in key industries including agriculture and tourism that can lead to more environmentally sustainable methods of production and service delivery.
Reduce the cost of capital and its obtaining and increase access to the financial market, particularly facilitating the expansion of agricultural exports as well as streamline the procurement of key inputs of production.
Gender & Marginalisation
More opportunities for female and youth entrepreneurs and innovators that can contribute to sustainable business practices.
Primary SDGs addressed
8.1.1 Annual growth rate of real GDP per capita
8.2.1 Annual growth rate of real GDP per employed person
8.3.1 Proportion of informal employment in total employment, by sector and sex
-2.7% annual growth rate of real GDP per employed person (2019)
-15% growth rate of gross national income per capita in Belize (2020)
About 42.1 percent of all employed persons were in informal employment. More than half of these persons were self-employed and three out of every five jobs in informal employment were held by males. A combined 40.3 percent of informal jobs were found in the ‘Wholesale and Retail trade; Repairs’ category and the ‘Agriculture and Related Activities’ category.
5% annual growth rate of real GDP per capita
5% annual growth rate of real GDP per employed person
9.3.2 Proportion of small-scale industries with a loan or line of credit
"Belize: Small firms with bank credit, percent of all small firms 2010: 43.7 % Bank credit to the private sector as percent of GDP 2020: 63.77%"
10.1.1 Growth rates of household expenditure or income per capita among the bottom 40 per cent of the population and the total population
-15% growth rate of gross national income per capita in Belize (2020)
5% growth rate of national income per capital
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Indirectly impacted stakeholders
People
Outcome Risks
Not all VC funding opportunities may be completely in line with sustainability objectives
Impact Risks
Execution risk - Activities are not delivered as planned and do not result in the desired outcomes. This is possible if the VC fund is unable to attract investment to build capital
Impact Classification
What
Alternative finacing options being explored
Risk
Fund may also support activites not line with sustainability issues
Impact Thesis
It can significantly impact by funding sustainable production and service delivery modes. Also support other kinds of sustainability activities.
Enabling Environment
Policy Environment
Generating jobs and livelihoods and promoting economic growth is a top priority for Belize and is identified as such in the following policy documents: Belize's Growth and Sustainable Development Strategy, Plan Belize, Horizon 2030 and the Economic Recovery Strategy
Financial Environment
Fiscal incentives exist in the business process outsourcing (BPO) industry through reduced taxes. Venture capital and angel investing facilities could support additional growth within the BPO industry in Belize to exploit market opportunities in a global market projected to grow by US $40 billion between 2021 and 2025.
Incentives also exist for export oriented enterprises through the DPA program administered by BELTRAIDE and overseen by the Ministry of Finance. Through the DPA program, exporters can enjoy duty and excise tax exemptions for production inputs used in the manufacture of exportable goods.
Regulatory Environment
VC/ Angel Funds would have to abide by national AML/ CFT regulations. In addition, capital exchange controls may cause some timing issues with the repatriation of funds, in the case of international investors. There is currently no antitrust or competition legal regime in place in Belize
Marketplace Participants
Private Sector
Individuals or collectives that would invest in VC/ Angel Fund portfolios for financial return Investment firms and fund managers , Responsible for structuring VC/ Angel Funds and screening candidates for funding
Government
Ministry of Finance - Responsible for national financial and investment policy BELTRAIDE - Responsible for promoting and supporting business friendly business and investment policies Development Finance Corporation (DFC) - National development bank responsible for on-lending for development purposes
Multilaterals
Include multilateral lending agencies such as the Inter-American Development Bank (IDB), the World Bank, and the Caribbean Development Bank (CDB) which can provide funding
Non-Profit
Responsible for identifying, promoting and supporting sustainable development priorities that can inform sector and industry prioritization (e.g. renewable energy production)
Target Locations
Belize: Countrywide
References
- (1) National Financial Inclusion Strategy Drafting Committee (2019) Belize National Financial Inclusion Strategy 2019-2022 https://www.centralbank.org.bz/docs/default-source/4.8-national-financial-inclusion-strategy-(nfis)/belize-nfis-_final.pdf?sfvrsn=f1c68c35_2
- (2) Statistical Institute of Belize https://sib.org.bz/
- (3) Government of Belize. (2016). Belize Growth and Sustainable Development Strategy. Ministry of Economic Development. Retrieved from https://observatorioplanificacion.cepal.org/sites/default/files/plan/files/BelizeGSDS.pdf
- (4) BELTRAIDE MSME Strategy Report (2012). Retrieved from https://www.beltraide.bz/
- (5) Creating Your Own Angel Investor Group: A Guide for Emerging and Frontier Markets https://openknowledge.worldbank.org/handle/10986/21081
- (6) Building Early Stage Funds in Emerging Markets and Development Countries https://documents1.worldbank.org/curated/en/752791585031387319/pdf/Building-Early-Stage-Funds-in-Emerging-Markets-and-Developing-Countries-Insights-and-Learnings-from-the-Market-Place.pdf
- (7) PitchBook Benchmarks as OF Q4 2020 https://pitchbook.com/news/reports
- (8) BELTRAIDE: Public Policies for the Internationalization of SMEs in Belize (2019) http://www.sela.org/media/3219006/public-policies-for-the-internationalization-of-smes-in-belize.pdf"