Background

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Two women at work in cut flower greenhouse, DGGF pilot project in Ethiopia

Private sector investment can be a stimulation for employment, production capacity and knowledge transfer in developing countries and emerging markets.

Projects in these countries, however, often have such a high risk that banks are reluctant to finance them. This is particularly true of projects proposed by Dutch small and medium-sized enterprises (SMEs). The Netherlands has many SMEs that want to invest in or export to emerging markets and developing countries. They often have good, high-quality initiatives that would be of great local benefit.

Not only Dutch entrepreneurs have difficulty financing investments in developing countries. Entrepreneurs in the countries themselves face the same problems. Local businesses that have outgrown microfinance often have little if any access to regular financial services.

DGGF links aid to trade

The DGGF believes it is vital that Dutch and local entrepreneurs work responsibly in emerging markets and developing countries. By linking aid to trade, the DGGF improves access to finance for entrepreneurs in both the Netherlands and developing countries and emerging markets. Entrepreneurs with good proposals that are relevant to development can apply to the DGGF for loans, guarantees and share capital (via intermediary funds). When banks prove unwilling the DGGF can provide Dutch entrepreneurs with direct credit. The DGGF helps increase access to markets and strengthens the financial infrastructure in both the Netherlands and locally.

Priority to women and young entrepreneurs

In addition, the DGGF gives priority to women, young entrepreneurs and entrepreneurs in fragile states. It works with intermediary funds and finances the investment and export plans of Dutch entrepreneurs who also wish to increase access to finance for these target groups. Applications are specifically assessed on a project’s relevance to the target groups. Proposals by Dutch entrepreneurs can be screened on, for example, their gender aspects. This can, for instance, lead to the provision of technical assistance if a project involves local production by women. Technical assistance strengthens direct environmental factors such as training in the production method, primary medical care, the combination of work and childcare/education and equality in working conditions and pay. The aim is to strengthen the economic position of the women directly involved in the investment project. Where a project involves young entrepreneurs or entrepreneurs in fragile states, pro-active technical assistance may consist of, for instance, technical and/or marketing training.

International corporate social responsibility (ICSR)

We aim for the DGGF to combine long-term profit and viability with lasting economic and social benefits. To achieve this ambition both the Dutch and the local entrepreneurs must adhere to standards of international corporate social responsibility (ICSR). The main ICSR principle for the DGGF is that entrepreneurs bear their responsibility for their actions in accordance with the OECD Guidelines. They must be aware of relevant ICSR aspects and risks, and show that they take account of them (for example by having an ICSR policy and incorporating ICSR principles into their systems and procedures). This is checked by the fund managers that administer the DGGF, with the aid of the OECD Guidelines, the IFC Performance Standards and the FMO Exclusion List. This is the CSR framework.

A second key principle is that a project must provide opportunities for improvement. Conditions in low- and middle-income countries and emerging markets are often far from perfect. Where ICSR does not receive the attention it deserves, the fund managers make suggestions for improvement, sometimes in combination with training courses and assistance from the DGGF. During implementation, companies regularly report on their progress in ICSR areas.