In this ‘MSME Champions’ interview, Agustín Vitórica, Co-CEO of GAWA Capital, explains the impact investment firm’s approach to supporting small and growing businesses in Latin America, Asia and Africa. ‘MSME Champions’ is a series of interviews capturing the expertise and experiences of individuals and institutions supporting enterprises in the missing middle of agriculture, as part of an advocacy campaign for the International Day for Micro, Small and Medium-sized Enterprises (MSMEs) on 27 June 2024.
The International Day for Micro, Small and Medium-sized Enterprises (World MSME Day) is an opportunity to reflect on the key role of enterprises in the missing middle of agriculture. Please tell us why and how GAWA Capital supports their growth.
Over the past 15 years, our focus has been on investing in microfinance and similar institutions with the reach to support MSMEs in emerging markets. These enterprises constitute the majority of businesses in such regions, drive job creation, and serve as crucial drivers of economic growth. While agriculture remains a vital sector in many emerging markets, small-scale agriculture often faces barriers to accessing finance due to perceived risks associated with farming activities and weather fluctuations.
Through the technical assistance facility within our Huruma Fund, we have implemented transformative measures in the products, processes, and personnel of our invested institutions. This enables them to extend lending services to agricultural MSMEs in a financially sustainable manner. By catalysing this transformation within the local ecosystem, we ensure a continued flow of capital to MSMEs even after we exit our investments.
Please describe some of the challenges your institution faces when lending to agricultural MSMEs. What are some of the innovative approaches you use to navigate them?
When a financial institution hesitates to lend to agriculture MSMEs, overcoming the high risk perception becomes the most significant challenge. However, by leveraging technical assistance resources, as outlined above, this challenge can be addressed without jeopardizing the institution’s activities. Additionally, we encounter various other obstacles related to MSMEs, including the following:
- Lack of adoption of new inputs and techniques by MSMEs that we solve through comprehensive training programs.
- Addressing the lack of awareness among MSMEs regarding available solutions including climate adaptation measures. We overcome this challenges by organising extensive outreach initiatives.
- Tackling cultural or social barriers within communities that may hinder MSMEs’ willingness or ability to adopt new practices. We solve this challenge through collaboration with our investees and local communities. This collaboration allows us to give voice to community concerns and incorporate them into the design of tailored solutions.
What message would you like to share with donors, commercial banks and other players that hesitate to lend to agricultural enterprises?
I would emphasize to donors that the financing gap for agriculture MSMEs is huge and that private capital is crucial in filling this void. Donors can play a pivotal role by investing in catalytic instruments such as first-loss capital or return enhancement capital, which would make investment proposals more appealing to private investors.
Furthermore, I would encourage commercial banks to form alliances with MSME financing institutions to access this lucrative market through co-lending agreements. Such partnerships leverage the expertise of these institutions to generate business for both parties.
Lastly, I urge private investors to carefully consider the transformative impact of investing in funds dedicated to financing agriculture and MSMEs. With a range of blended finance options offering attractive risk-return profiles, these investments not only address pressing global challenges like inequality and climate change but also enhance sustainability efforts, providing investors with a compelling narrative to share with stakeholders.
I would add a call to action on this International Day for Micro, Small and Medium-sized Enterprises: let’s unite our efforts and pool resources to unlock the potential of agriculture MSMEs, driving inclusive growth and fostering resilience in emerging market economies!
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About the Champion
Agustín Vitórica has been dedicated to impact investing since founding GAWA in 2009. Previously, he held the position of Managing Director at Dalbergia, one of Spain’s largest family offices, where he worked for almost 10 years focusing on Venture Capital & Private Equity investments. Formerly an auditor and consultant to financial institutions at Deloitte, Agustín holds an MBA from the Kellogg School of Management and has played a key role in supporting the development of the Impact Investing sector in Spain. He enjoys spending quality time with his family whenever possible in the North of Spain.