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Cordaid NL
Private Sector Development

Bridging the credit gap for SMEs

Cordaid partner EFTA, a Tanzanian finance company that targets small and medium enterprises in Tanzania, is doing what banks are reluctant to do: bridging the finance gap for small and medium-sized enterprises in developing countries. The Economist recently showcased EFTA’s innovative lending models.

1 trillion USD credit gap

“Small and medium-sized enterprises all over the world grumble about access to finance, but the problem is worse in developing countries”, writes The Economist. Banks are reluctant to bridge the credit gap for SMEs, who are formidable drivers of growth and change. They prefer ‘big-time clients’. Or as one consultant puts it “The poor are being stuffed with microcredit, while SMEs are being starved”. The World Bank put the credit gap for formal SMEs in developing countries at around 1 trillion USD in 2011.

I can say with confidence that without Cordaid’s loan EFTA would not be where it is today.

Michiel Timmerman, EFTA co-founder and Chairman

No need for collateral

EFTA (Equity for Tanzania) is one of those finance companies that steps in to serve SMEs and farmers and thus acts as a badly needed missing link. Their lending model is innovative as it sidesteps the need for collateral. “EFTA offers small businesses hire-purchase schemes for equipment. The business can use the equipment while paying off the loan, but EFTA owns it until the three-year lease period is over”, The Economist explains.

EFTA has created over 2,000 jobs in Tanzanian SMEs which have no access to alternative sources of finance.

A catalytic loan from Cordaid

Cordaid can rightly claim to be part of EFTA’s success. “Cordaid was EFTA’s original lender in 2006, with a 185.000 euro loan. I can say with confidence that without this loan EFTA would not be where it is today”, says EFTA co-founder and chairman Michiel Timmerman. “ The loan was catalytic because Cordaid was prepared to be EFTA’s first lender and to structure it to reflect the early stage of business”, he continues.

Substantial impact

EFTA has created over 2,000 jobs in Tanzanian SMEs which have no access to alternative sources of finance.

Rob Brouns, investment manager at Cordaid: “We have supported EFTA right from the start and continue to do so. Their business model is innovative and sustainable. Their impact is substantial: they create job opportunities, improve people’s access to medical equipment and improve agricultural production methods. Cordaid is proud to be EFTA’s first lender.”

Read more about Cordaid Investments. Or about Cordaid’s projects in Tanzania