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DER Senegal: Innovative Government Funding for African Entrepreneurship

By Guest Writer on December 19, 2018

senegal der entrepreneurs Most of the coverage of La Délégation Générale à l’Entreprenariat Rapide – “la DER” in Senegal fund has been in French, yet the Rapid Entrepreneurship Delegation/the Commission for Rapid Entrepreneurship is an innovative and very proactively deployed fund for young entrepreneurs in Senegal, in technology as well as across a variety of sectors.

Why read on about the DER?

The DER was designed in a forward-thinking manner that contains multiple components that achieve holistic impact.

  • The DER is constantly thinking of the future. It is designed with emphasis on digital, and has clear-sighted and defined motivations for why.
  • The DER design will create spillover effects in different sectors and help offer proof of concepts and lower risk for the private sector.
  • The DER is explicitly investing in financial inclusion at the same time and is pushing the effort of financial inclusion in a very tangible way, with specific engagement with the banking sector.

What is the Rapid Entrepreneurship Delegation fund?

The DER is a fund of 30 billion FCFA ($50 million USD) launched by the President of Senegal to catalyze entrepreneurship all around Senegal, targeting youth up to 40 years and women from 18 years old and up, with no age limit.

Announced in Sept 2017 and formally launched in April 2018, the fund offers four main types of entrepreneur financing. The most innovative are the latter two:

  1. Small Financing: focusing on “smaller, simple economic projects”
  2. Incubation funding: funding incubation, empowerment, or training programs for young entrepreneurs
  3. Equity financing: a corporate finance fund that will offer capital in exchange for equity in a young company, that is validated by external DER partners
  4. Low-interest loans: at 4-5% interest rate with specific focus on certain clustered economic activities or certain value chains

For empowerment or incubator and training projects, applicants can seek up to 500,000 FCFA. Companies can seek 500,000 FCF and more.

How Are DER Entrepreneurship Funds Distributed?

The DER internal investment committee is made up mostly of investment bankers (fund managers, etc.) who bring critical expertise. All the financing is administered through Senegalese banks; the difference is that the state provides lower interest rate, provide a guarantee, and also faster turnaround of about 3 weeks.

Throughout the year, the DER opens up envelopes of money dedicated to certain sectors; for example, artisinal industries, livestock raising, food processing, agriculture production, digital/ICT, tourism.

It also designates envelopes of money for a particular region. For example, in the next tranche of applications, 1 billion FCFA has been set aside for the region of Ziguinchor in the south, and further sectoral envelopes’ plan to be designated in the future in Zinguinchor.

This can assist is drawing the economic attention away from the more developed and urbanized areas, and being more truly national in its goal to promote SME development – and to increase employment – throughout the country, as well as to develop an nation-wide ecosystem of entrepreneurial activity and energy rather than just heavily concentrated ecosystems in the main urban centers.

DER is Catalyzing Employment Creators

According to Pap Amadou Sarr, the director general of the DER in an interview with CIO Mag, for the first tranche of applications for fundingthey received 140,000 applications from across the country.

And just 5 months after the official launch, in August the DER had already disbursed 10 billion FCFA (~16.67 million USD) across 45 departments (departments are like sub-regions in the country’s administration) to 15,000 entrepreneurial beneficiaries

The leadership has taken to calling these entrepreneurs “employment creators.” The President has twin goals of employment creation (200,000 jobs directly and more indirectly, according to their Facebook page) and increasing the rate of banking penetration (“bancarisation”), which is currently at around 20% in Senegal.

The Sept – April turnaround itself is impressive, and once launched it has been implementing without delay. One way the unit keeps things speedy is, they do not require an personal visit for application amounts under 500 thousand FCFA.

4 Impressive DER Investment Innovations

The Rapid Entrepreneurship Delegation is truly innovative as government-supported economic entrepreneurial growth and employment growth endeavor because its forward-thinking design contains multiple components which will effect holistic impact for the future:

1. The DER is constantly thinking of the future.

The programme and the leadership clearly sees these initial, young beneficiaries of the DER funds as taking a part in the future of the DER, for future entrepreneurs.

How do we see this? One is its focus on digital.

This November Senegalese President Macky Sall announced that the DER ‘envelope’ for finance for enterprises in the digital domain will launch in early 2019, and will be 3 times the 1 billion FCFA amount that was originally pledged.

One of the reasons? In the near future “many businesses with be disappearing as a result of the digital transformation”, cited the Senegalese President, who calls on Senegal – and all of Africa – to not miss the digital revolution in the way that the industrial revolution passed it by.

This is a way for Senegal to ride the wave of the digital transformation for greater growth, and employment creation, rather than be overwhelmed and miss out on it.

This is on top of the “Presidential Innovator’s Prize”, un Prix du chef de l’Etat pour l’innovation’, of 20 million FCFA for first place and 10 million for second place, announced at the very first annual Forum Numerique (National Digital Forum) in March 2018.

We see this again in the manner that President Macky Sall explicitly encourages them to take their repayments seriously in a way to continue the DER as a “tool of entrepreneurial promotion and employment.”

2. The DER design will create spillover effects in different sectors

The design of its financial instruments really do fill a very real gap for small businesses, the kind of financing that is notoriously difficult to get administered by the private sector or even development banks; the amounts are so low and require such oversight that it makes the administration time-consuming, or expensive.

The DER financial instruments are flexible and designed for early-stage entrepreneurs (limit interest rate to 5%; minimum term requirements for guarantees; fast deployment – under 1 month.) By providing a guarantee to financial institutions (FIs) that handle the administration of these loans, the FIs are able to build low-risk relationships with new clients, and often in new sectors as well as develop more expertise in serving both the sectors and underserved companies.

3. The DER is explicitly investing in financial inclusion.

The DER has financial inclusion policy, which is to significantly increase the number of bank account and the overall national rate of ‘bancarisaion’ (% of a population that is banked.) The DER requires all beneficiaries to have bank accounts, and they receive their funds into them.

Customers receive SMS notifications when the funds have been received to their account to keep the updated; this also helps them especially if they are not used to using a bank. The DER has partner with all the major banks in Senegal as well as MFIs, and Credit Mutuels.

This gives banks customers and allows these new customers – entrepreneurs – to build a relationship with these financial institutions. As banks find themselves in a direct position serving these customers, they will be more incentivized to develop appropriate products to build them as loyal customers, and it will at a lower risk thanks to an initial vet.

This is pushing the effort of financial inclusion in a very tangible – and motivating – way.The leadership even says outright that they want the DER to “incite financial sector actors” to further develop more inclusive services offerings, and contribute more to the start-up sector and employment creation,” and to “help to reduce the early failures of young companies.”

4. The DER invests in SMEs as real drivers of employment creation

It’s different funding mechanisms reflect this belief.This is further evidenced by its quick disbursement. This unit is wasting no time to get these entrepreneurs off and going, and what is more, even if they fail, the large boost is what really starts an ecosystem, and an ecosystem as a whole is what gives entrepreneurship visibility and makes it thrive.

In the interview with Pap Amadou Sarr, he gives a very compelling description of how the DER should function and serve Senegal’s entrepreneurs and future SMEs:

The DER is a hybrid institution straddling the public and the private sector that aims to meet the needs of young women and men entrepreneurs of Senegal

It is a cocktail of training, formalization, financial inclusion, technical and financial support for young people and women entrepreneurs in Senegal.

It also aims to strengthen the capacities of these entrepreneurs to support them in terms of initial training and to develop the entrepreneurial spirit among Senegalese youth throughout the country.

What is next for Senegal’s start-up environment?

Although less developed than some other African tech start-up ecosystems (Ghana, Kenya, Uganda, Nigeria), today there is a burgeoning energy in the Senegalese start-up environment, especially the tech environment.

At the policy level, one of the more exciting and innovative developments that a number of policy advocates are aiming for is a ‘Senegal Start-Up’ Act, likely inspired by the recent ‘Start-up Act’ in Tunisia (a few resources here and here).

In Tunisia the act was just passed in April 2018, thus too early to know about its efficacy or any real economic effects. But there are strong indications that Senegal may follow in its footsteps. Given the momentum and leadership in the digital and start-up and entrepreneurship domains, this makes sense.

Earlier this year there was a Dakar Policy Hackathon supported by the AfDB, World Bank, and i4policy.org. Sixty participants got in a room and, working together through a series exercises, identified 7 main areas for solutions, and defined specific policy recommendations under each area (totaling 23.) The outcomes of the Hackathon can be downloaded here. (It is a quick and informative read for anyone interested.)

It is true that Senegal has a presidential election coming up in February 2019, and true that in the months preceding an incumbent’s election, all too often lots of money gets spent on grand projects in lieu of attracting votes. That is not to say that this money is mis-spent. The DER deployment is certainly swift, but the real impact is destined to be seen farther in the future and certainly further past February 2019. Its design reflects forward-thinking innovation in government funding for entrepreneurship regardless of its timing with the political cycle.

By Jill Shemin, consultant and advisor in digital financial services and business model development in emerging markets and ICT for development impact. She is currently based in Senegal.

Filed Under: Economic Development, Government
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3 Comments to “DER Senegal: Innovative Government Funding for African Entrepreneurship”

  1. Patrick Fine says:

    The absence of any discussion about how the performance of the fund is handled leaves the impression that this is more about distributing funds than investing in viable commercial activities. It would be interesting to see the break down between large and small loans and their geographic distribution since in the past geographies with large concentrations of supporters of the ruling party have received favorable treatment prior to a national election.

    • Jill Shemin says:

      Hi Patrick, point well taken. As the fund deployment is less than a year old, we will have to be a bit more patient in evaluating performance of the fund. It seems it is yes about kick-starting commercial activities, but not all necessarily at a huge-scale level, and some at more regional level versus national level. That is part of why it is interesting; they it provides for funds at different kinds of levels – different ‘viabilities’ if you will. Not every investment will be a successful long-term enterprise, that is for sure, but that is also acceptable in stimulating entrepreneurship. The rate is not 100%.

      If you follow their Facebook page they post frequently about the amounts given in different departments (regions), as you noted that interests you.

  2. Jill Lagos Shemin says:

    Thanks @ICTWorks for supporting this kind of news!

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