Toespraak van minister Ploumen over het Dutch Good Growth Fund

Toespraak | 01-07-2015

Ladies and gentlemen,

Forty million entrepreneurs are looking for 800 billion dollars. That's about the shortest summary I can give of why we're here today. Over the past 25 years the world economy has made giant leaps forward, and some poverty-stricken countries have become middle-income countries. But a large share of their populations are not benefiting from this growth. And inequality is growing.

One of the main reasons for this is that an estimated two and a half billion people have no access to financial services. They can't borrow money, no matter how brilliant their ideas are and how hard they're willing to work. This is why there are almost no small and middle-sized enterprises in low- and middle-income countries.

The whole middle segment is missing. There are no figures on just how much this problem costs the world, but the figure can scarcely be overestimated. Because in developed countries it’s precisely this middle segment that's the engine of the economy. This is where two-thirds of the new jobs are created.

That doesn't happen in low- and middle-income countries. And that's a shame. This is because of the risks associated with investing in SMEs. Or more accurately: the perceived risks. There's a big difference between risks and perceived risks; I try to make this especially clear to banks. Because banks want certainty. They have a preference for borrowers they already know, borrowers that have proven themselves. They prefer investments in the safety of the Netherlands or the rest of Europe. In companies with a track record of high profits.

These preferences may sound sensible. But they’re misconceptions. They’re expressions of what scientists call 'familiarity bias'. This means that people trust what they know and who they know. Familiarity evokes positive feelings, and that makes us underestimate financial risks.

By contrast, we tend to overestimate the risks of the unknown. So we act on the basis of emotions and rules of thumb. That's not entirely illogical. After all, it's difficult and time-consuming to collect and assess the relevant information on risks. But it’s extremely harmful and costly if even banks act on the basis of prejudice. It’s reasonable to expect a bank to do the opposite: to make a calm, intelligent assessment.

The Dutch Good Growth Fund is aimed at encouraging and influencing calm, intelligent assessments. Of course doing business in developing countries is riskier than in a country like the Netherlands. It’s no accident that many of these countries rank near the bottom of the Ease of Doing Business Index of the Worldbank. But by working together, we can mitigate those risks. And we must. Because the missing middle segment has major consequences. It creates a gap between supply and demand. It means there’s a huge imbalance in the relationship between the potential of millions of intensely motivated people with energy and ideas and the realisation of that potential. It means that those millions of people are now completely frustrated. As every business person knows, where you have situations this absurd, you also have opportunities. Because high risks imply high yields. It’s precisely in countries like these that initial capital of a few hundred dollars can generate returns a hundred or a thousand times greater.

The Dutch Good Growth Fund provides financing that the market, wrongly, does not offer. It looks for business cases whose risk is seen as high, even as too high. The fund aims to mitigate those risks, thus encouraging investments that will give entrepreneurs and their ideas a chance to prove themselves. We believe in their potential.

We launched the Dutch Good Growth Fund precisely one year ago today, and it's attracted a lot of interest. So far, we've had applications from almost 200 intermediary investment funds, and another 200 Dutch entrepreneurs. One of those entrepreneurs was Obado Obadoh from Kenya, as we just saw in the short video. He was young, ambitious and had a good business case. But no bank was willing to finance his dream. Because young also means no track record. DGGF is a founder investor of the GroFin SGB Fund. Thanks to GroFin, Mr Obadoh was able to start two restaurants in Nairobi. His business is going well, and he has another restaurant due to open in two months. His companies employ 75 permanent staff, and more than half of them are women. Including in senior management positions.

There are currently 22 DGGF transactions under way. Seven of them are with investment funds working in 20 countries with at least 500 local SMEs, helping to create 4,000 extra jobs. This includes more than 100 SMEs owned by women. Half of these SMEs are owned by young entrepreneurs. If we also take DGGF's leverage effect into account, and consider the total impact of all investors in these funds together, then we are talking about roughly 2,000 companies and more than 30,000 jobs being created in the next few years.

The Good Growth Fund also makes financing possible for Dutch entrepreneurs. Because it's not only entrepreneurs in developing countries who find it difficult to get funding. First we look at whether a regular bank could finance the enterprise. If that’s not the case, we try to get involved and help. So far, 15 entrepreneurs should create an extra 6,000 local jobs with financial help from the fund. Around 4,000 of those jobs will be performed by women, some in senior positions.

One of these Dutch entrepreneurs is Mr Timmermans. His yarn spinning mill has helped ensure a stable income for many Ghanaian farmers. In the past, Ghana produced only raw cotton. And since the price of raw cotton fluctuates, it was impossible to guarantee a stable income for the local industry. Thanks to the creation of the yarn spinning mill, the supply of cotton will increase and become steadier. This improves the prospects of cotton-producing farmers in the area, many of whom are women. We expect the number of affiliated farmers to increase. And some of the growth will benefit the farmers who are already affiliated. Both these trends will increase the number of jobs in the region. And in addition, the farmers receive training, with a special focus on safety measures.

The DGGF is also there for social entrepreneurs. For them it is even harder to get financing. Although they do aim to make profits, that's not their core priority. Their priority is social impact. For that reason, banks see social enterprises as even riskier than regular SMEs. An example is Tony's Chocolonely. Many of you probably know Tony's. Their mission is one hundred per cent slave-free chocolate. Besides producing delicious chocolate they make the lives of cocoa farmers a little bit better. In 2014 Tony's was voted one of the year's top entrepreneurs, and they have built a market share of eight per cent. Yet they still find it hard to finance their ambitions because they pay farmers more than their competitors do. We are currently talking with Tony's Chocolonely and their bank to see how we can help them. I hope this motivates other social entrepreneurs to apply to the DGGF as well.

Ladies and gentlemen,

Let me conclude. I'm not here to ask you for charity. And I'm not asking you to take unacceptable risks. But I am asking you to seize the opportunities before you. Because the opportunities are there. Precisely in the places you may find less familiar or less obvious. Don't trust your first instinct – it's not always the right one. Risks really can be opportunities. Opportunities for SMEs. Opportunities for the financial sector. Opportunities for local economies in developing countries. Opportunities to get good growth going.

Thank you.