Blog
Geethanjali Jagannathan
Scaling MSME Finance in Creative Industries
Welcome to our latest blog post where we delve into the fascinating world of SME financing.
During our webinar on February 26th, our guest speakers highlighted the immense potential of creative industries in driving economic growth, creating employment, and fostering innovation. They underscored the financing challenges faced by this sector despite its potential and the need for tailored financial products, de-risking mechanisms, and collaborative efforts to unlock capital for creative SMEs. The discussion also emphasized the importance of integrating creative industries into broader economic planning and policymaking to ensure sustainable growth and development.
Significance of Creative Industries
Creative industries encompass a wide range of sectors, including media, fashion, sports, entertainment, and creative technology. These industries use culture and creativity as primary inputs to produce outputs with commercial value. They are rapidly growing in regions like Africa, Asia, and Latin America.
They have a significant impact on GDP, employment, and economic diversification, particularly in emerging markets. The rise of digital platforms has particularly contributed to creating clear revenue pipelines in the sector. The global creative industries sector generates approximately $2.25 trillion annually and employs around 29.5 million people, with a substantial portion of these jobs held by youth and women.
Creative industries have a multiplier effect, where the injection of capital circulates actively within the economy, benefiting various sectors such as production, catering, and costume design. They offer unique employment opportunities, particularly for women and young people, and play a significant role in regions like Africa (Africa's creative economy is growing at 14% per annum).
Challenges
Despite its potential, this sector faces significant challenges in accessing finance because of perceived high risks by financial institutions (due to the intangible nature of its assets), lack of collateral-based financing models, limited financial literacy among creative entrepreneurs, and informality in the sector. Many creative workers operate outside the formal economy, which limits their access to finance, skills, and markets.
There is a need for development finance institutions to help mitigate these barriers by de-risking investments, strengthening the capacity of banks, bringing informal workers into the formal economy and providing technical assistance to creative entrepreneurs.
Key Solutions to Scale MSME Finance in Creative Industries
Risk Sharing Tools
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Providing risk-sharing tools to encourage banks to lend to MSMEs in the creative sector.
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These tools help mitigate the perceived high risks associated with lending to creative industries.
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Capacity Building
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Strengthening the capacity of banks to lend to the sector by creating credit assessment frameworks and providing advisory services.
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Providing technical assistance to creative entrepreneurs to improve their financial literacy and business management skills.
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Tailored Financial Products
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Developing financial products that cater specifically to the needs of creative industries, such as IP-backed loans, invoice factoring and export credit financing.
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Offering equity financing options through entities like Panics Creations Incorporated, which invests in intellectual property and creative businesses.
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Market Access Programs and fundraising business opportunities
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Facilitating access to international markets for creative entrepreneurs through programs like the Creative Africa Nexus and partnerships with organizations like BPI France.
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Organizing trade missions and business delegations to connect creative MSMEs with global markets and investors
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Leveraging intermediaries to help connect creative entrepreneurs with markets, networks, and provide lobbying and research support.
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Public-Private Partnerships
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Collaborating with governments to create favorable regulatory environments and provide incentives such as tax rebates for investors in the creative sector.
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Engaging in public-private partnerships to develop infrastructure and skills needed for the growth of creative industries.
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Scaling MSME finance in creative industries requires a multifaceted approach that includes risk-sharing tools, capacity building, tailored financial products, market access programs, public-private partnerships, and the support of intermediaries and networks. By addressing these key areas, it is possible to unlock the full potential of creative industries and drive economic growth and development.
- International Finance Corporation
- BPI and the French touch
- CANEX Creations Inc. at Afreximbank
- Birimian Ventures
- EuroQuity
