“Improving SMEs access to finance and growth perspectives through venture capital financing: a case study of GroFin Rwanda”

Abstract

Small and Medium sized enterprises (SMES) are the backbone of all economies and are a key source of economic growth and dynamism. Rwandese SMEs have little access to finance, which thus hampers their emergence and potential growth. In fact, most SMEs in Rwanda don’t often meet condition set by financial institutions, which sees SMEs as a risk because of poor guarantees and lack of information about their ability to repay loans. Venture capital funds were identified as one possible way of addressing SMEs shortage of capital. The purpose of this research was then to analyze the ability of venture capital funds to improve SMES access to finance and growth perspectives with a more than finance solution. We made a qualitative and quantitative evaluation based on interviews among Grofin-backed businesses in Rwanda. Discussions were also held with some key players supporting certain initiatives, both public and private, aiming at SMEs facilitating access to finance in Rwanda. The general conclusion is that Grofin do have a substantial positive impact upon the access to finance and development of supported firms. Both subjective statements from venture-backed businesses and objective data of their performance render clear positive effect. 95% of investee companies responding to the survey said that they would either have not existed, be closed down or would have developed at a slower pace. Evidence is found that both funding and managerial assistance explain the superior performance of Grofin backed companies. 80% of respondents declared the financier involvement in their business is a lot or very much. 65% of the respondents declared an increase in their sales during the period under financing. Following the evidence found of the positive impact of venture capital funds on SMEs access to finance, a suggestion is made to policy makers to provide incentives to stimulate that activity. The government should also continue to invest in infrastructures to improve the business environment while Entrepreneurs must do more to improve the investment readiness of their businesses.