FINANCIAL TIMES: Drought ends for Africa's 'unbankable': “…for a few, help is now available in the form of a $5m Uganda "energy fund" set up by the Shell Foundation, the charitable arm of Royal Dutch/Shell. The fund was launched in 2003 as a pilot scheme to assist small and medium-sized enterprises in the east African nation, part of Shell's plan to move away from traditional corporate philanthropy.” (ShellNews.net) 2 March 05

By Andrew England

Published: March 2 2005

Juma Tegu Musafiri, managing director, chairman and founder of Buge Fruits 2000, is a man with big dreams. Sitting outside his home in rural Uganda he describes his ambitious plans to expand his company by developing a domestic market for his dried fruit, accessing regional markets and eventually setting up export lines to Europe and beyond.

"Our food is very nice, it is organic," he says proudly. "We dry it naturally so most of the nutrients are preserved, so we cannot see why we cannot start selling to the populace."

Yet three years ago, the 38-year-old budding entrepreneur did not even have a bank account, and he still has to visit internet cafes to check his company e-mail.

Buge Fruits' "head office" is Mr Musafiri's small, simple house. It is situated off a dirt road, surrounded by pineapple plants and banana trees, and lacks electricity and piped water.

Mr Musafiri's story is typical of businesspeople throughout Africa: men and women running small enterprises, often without access to basic services, with few assets and little chance of building relationships with the risk-averse banking sector. And, without collateral, their chances of moving to the next level are minimal.

But for a few, help is now available in the form of a $5m Uganda "energy fund" set up by the Shell Foundation, the charitable arm of Royal Dutch/Shell. The fund was launched in 2003 as a pilot scheme to assist small and medium-sized enterprises in the east African nation, part of Shell's plan to move away from traditional corporate philanthropy.

The foundation is working in partnership with a local bank, Dfcu, to offer lease financing whereby a company can apply for funding for new equipment. The equipment is paid for by the fund and remains the property of the bank until its value has been repaid, thus reducing its risk.

Mr Musafiri acquired three solar-powered fruit dryers, together worth 38m shillings ($22,350), through the scheme and makes monthly payments of around 1m shillings to finance the "loan" at interest of 17 per cent over five years.

He had approached a bank for a loan once before, but with no collateral - he has no title deeds for his land - he was turned away. The new dryers are more efficient than the smaller, home-made ones he used before and have enabled him to increase his capacity from around 80kg of dried fruit a month to about 200kg and to set a target of 650kg.

As well as using his own fruit, Mr Musafiri buys from local subsistence farmers. He cuts and dries the produce and sells it to Fruits of the Nile, a Ugandan company that exports to Tropical Wholefoods in the UK, where the fruit is used in health foods, snack bars and muesli.

He still faces many hurdles, including heavy reliance on Fruits of the Nile, fluctuating fruit prices and cash-flow problems. But the expansion has spawned new ambitions. "When you are in stress you try to find ways out, so this has started us thinking beyond borders," Mr Musafiri says. "Now we think we can do something better for ourselves."

The fund has also benefited the bank, according to Colin McCormack, managing director of Dfcu Group, by giving it the "confidence to look at SMEs in a more proactive way". Dfcu, which financed half the fund, essentially runs the project.

About 80 SMEs have been assisted so far, Mr McCormack says, adding that it has enabled the bank to go back "to the grass roots" of small business funding.

"Before we would never have known who they were," he says. "We would not have lent to them on a commercial basis because they never had a track record with us or any other prerequisites lenders look for."

The lease-lending aspect of the fund has been critical, he adds, as well as the financing the foundation provides for technical support and to help train farmers in areas such as organic farming.

Fruits of the Nile received 214m shillings from the fund for a freezing container and the building of a new warehouse and Lweza Clays, a tile and brick building company, received 1bn shillings for the construction of a new kiln and modern machinery. Each company has a similar tale: they were previously turned away by banks but are now increasing capacity and employment.

But Mr McCormack acknowledges that the fund is just scratching the surface in a country with an estimated average annual per capita income of $250. Uganda's economy is heavily dependent on agriculture, with many of the country's 24m people reliant on subsistence farming. Just 1.4m of Uganda's 4.5m "working population" have bank accounts, according to Dfcu.

"The fund is not a panacea, but it could help change the mindset of banks and small businesses," Mr McCormack says. "Here, true growth will come through small entrepreneurships, and that's what we have already. We need to get to that next stage and create the value-added chain."

For Shell, the fund is enabling the company to test a new model of development assistance, while also trying to improve the image of multinationals in the eyes of governments and locals, who can be wary. "All energy companies are faced with the challenge that they rarely generate large numbers of long-term jobs, yet that is precisely what local communities and governments increasingly expect," says Chris West, deputy director of the Shell Foundation.

"It makes business sense to pilot new ways of generating and sustaining employment in the SME sector."

Traditional corporate social responsibility, based on philanthropy, was well intended but would never generate long-term sustainable benefits, he argues. "This was an opportunity to test the market and the intention was never to be a one-off, but to scale up."

For other articles in this series go to www.ft.com/goodbusiness