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What are Development Finance Institutions?

  • Khanya Okumu, Enterprise and Supplier Development Specialist, sits down with Entrihub and talks Development Finance Institutions (DFI).

    Click here to access a comprehensive directory of DFIs listed in Entrihub.

     

     

    See Part 2 and Part 3.

    Question 1: What are DFIs?

    Khanya: A DFI is essentially a Development Finance Institution and the role of DFIs is really to address developmental needs together with sort of an ecosystem of creating employment and job creation to address whatever needs in the country are. So, for South Africa we've got DFIs that are focused on agriculture. We've got DFIs that are focused on corporate and commercial businesses and we've got DFIs that do a mix. But essentially, it's about Enterprise Development which is both funding and support. That's the work of a DFI.

    Question 2: What types of DFIs are there?

    Khanya: The main ones would be within government mainly because it's one of government's fundamental elements to drive development. So, it's their responsibility to be seen to be providing upliftment in the communities in which they serve. On the other hand, probably somewhat as a result of CSR [Corporate Social Responsibility] or CSI [Corporate Social Investments], some DFIs have come about within corporates. So, their roles are linked to government but different in the sense that they are not mandated to provide funding to any of those businesses as a part of what they do, as part of responsible business.

    Question 3: Do DFIs fund specific industries only?

    Khanya: It is for all industries but there are DFIs that have a specific focus. For example, if you think about food security in South Africa- it makes sense that is that there's particular focus on agriculture. Right from primary agriculture to agri-processing because of the value chain benefits that you're able to get from there; and then of course the solidification of food security. But also, when we're talking about development, we don't just want farmers. Yes, farmers are good but you also want to diversify and be able to fund franchisees, to be able to fund someone who has any commercial type business. So, I think in the different pockets of the different sectors there are DFIs that are playing in all of those spaces.

    Question 4: Are all DFIs the same?

    Khanya: It's not about the funding not being there but it's about understanding the right DFI for you. So, for example, if I'm in agriculture- there are specific DFIs that focus purely on agriculture. So, it makes sense to go there because they have the right level of expertise, because that's what you want from a DFI. There's the hand-holding part that I mentioned earlier, where the support that they are able to give you would be far better suited as opposed to a generalist, for example. But, on the other side it's important to understand that as a DFI the view is to be a partner in the business and that can be little challenging for entrepreneurs who kind of you know what they want to achieve and want to go for it, and they're just looking for funding- which can be a tricky you know field to manoeuvre but from a DFIs point of view is also part reporting on impact. Impact means different things to different people, but at a high level we're talking job creation. We're talking an ecosystem of development which is widespread. It's not about one person and that job that's been created but that job that's been created enables three learners to go to school. Enables the support of a family and so that's the view that we're building that development is not only about this one job but it's about how that one job impacts a community. And that's the story that DFIs are telling.

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