Innovation
After years of trial and error in its attempt to connect Western financial institutions with credit-worthy businesses in the Somali region, Shuraako discovered a way to conduct due diligence using traditional governance structures. This approach enabled access to credit for entrepreneurs who previously were unable to grow their businesses or create jobs. Combined with a robust collections system, Shuraako has attained repayment rates of upwards of 96%, a notable achievement for the context.
Shuraako has been driven by innovation since its inception, finding different ways to facilitate loans and business development in the Somali region. In one of the world’s most challenging Fragile and Conflict-Affected Situations (FCS), Shuraako established the partnerships needed to launch two one-of-kind programs: The Nordic Horn of Africa Opportunities Fund (or Nordic Fund) and the Somali Credit Guarantee Scheme.
One Earth Future’s innovation is evident in the fact that Shuraako’s Nordic Fund is the first structured impact investment fund in the Somali region deploying risk capital to finance small and medium-sized enterprises (SMEs) located in Somaliland, Puntland, and South Central Somalia with Sharia-compliant loans and other self-liquidating structures. A particular focus with this historic initiative is on job creation and empowerment of female and youth entrepreneurs.
The $26 million (to date) Nordic Fund is pioneering impact loans as a new development strategy in the Horn of Africa with diversified risk levels, including first-loss funding. Results from its investments in the Somali region indicate a significant economic shift through this investment model that moves away from the grant-based funding that has historically been seen in the region.
By adding risk capital to the Somali region, fostering entrepreneurship, and creating jobs, the Nordic Fund supports a responsible private sector, creating a sustainable business environment and promoting prosperity and stability in the region.
Shuraako’s Low Collateral Murabaha Program, in partnership with the Swedish International Development Cooperation Agency (Sida) and Somali banks, has been a critical fund in the region for providing access to capital for individuals, particularly youth and women, high-risk productive sectors like fishing and agriculture, and SMEs that would traditionally be passed over by banking institutions. Murabaha, also referred to as cost-plus financing, is an Islamic financing structure in which the seller and buyer agree to the cost and markup of an asset. The Low Collateral Murabaha Program provides essential investment to applicants who have the capacity for repayment, but often lack the ability to receive a loan due to limited collateral and other non-financial credit challenges.
The program substantially reduces economic barriers and opens the market to individuals who are often left out of traditional structures of funding, creating a balanced and less hierarchical path to economic growth and opportunity. This creates more jobs, stabilized economies, and a necessary entrepreneurial pipeline for those who are often overlooked by conventional investing. We know that peaceful communities thrive when opportunities exist for everyone, regardless of age, gender, or status, and the Low Collateral program facilitates this process.
