Enterprise Funds: An Innovative and Underutilized Tool of U.S. Foreign Policy by Cornelius Queen (F’19)

by tuftsigl
Jul 20

For the second summer in a row, I have the privilege of interning at the Egyptian-American Enterprise Fund (EAEF), which is helping drive private sector growth in Egypt. The EAEF helps grow the private sector by investing in businesses that create jobs, improve Egyptians’ quality of life, and promote financial inclusion.

In Egypt, access to finance presents a critical challenge to growing the economy. According to the country’s central bank, only around one in three Egyptians have bank accounts. With limited access to financial services, both businesses and consumers struggle to obtain credit that can grow their companies and improve their standard of living.

Expanding access to financial services is critical to promoting economic development and inclusive growth in Egypt. This is especially relevant for addressing the country’s burgeoning youth population, almost 30 percent of who are unemployed, according to Egypt’s government statistical agency. Why? Because expanding access to credit for private businesses and small and medium-sized enterprises (SMEs) is critical to creating new jobs.

By way of background, enterprise funds were first established by President George H.W. Bush in the early 1990s to help the newly independent countries of Eastern and Central Europe transition to market economies.

Enterprise funds are U.S. government seeded investment funds that help promote private sector development abroad and advance U.S. foreign policy objectives. Enterprise funds function much like private investment funds in that they can invest equity capital into private companies to help them scale and reach new markets.

Unlike traditional private investors though, enterprise funds have a dual mandate: 1) to generate financial returns and 2) promote economic development in host countries. What’s more is that these financial returns can actually be returned to the U.S. Treasury once the enterprise fund is liquidated.

In effect, enterprise funds pay for themselves, while simultaneously creating development.

In 2011, President Obama reintroduced the concept of enterprise funds when he established two new funds in Egypt and Tunisia to help address the underlying economic issues that ignited these countries’ revolutions.

EAEF’s first two major investments were in Fawry, an electronic payments platform, and Sarwa Capital, a consumer finance company. Fawry helps expand financial services to Egypt’s large unbanked population by offering mobile wallet services and allowing citizens to pay their bills through the company’s 65,000 collections points across the country.

Sarwa, on the other hand, extends credit to Egyptians, including many first-time borrowers, to pay for household expenses as well as to SMEs (small and medium sized enterprises) to help grow their businesses. To multiply its impact, the EAEF has also seeded two new venture capital funds, which invest in SMEs and entrepreneurs, who can create additional employment opportunities.

As the Trump administration seeks to leverage the private sector to advance its foreign policy priorities, enterprise funds could become an integral component of U.S. development strategy.

The administration’s current effort to consolidate U.S. development finance activities, including certain USAID programs, into a large Development Finance Corporation (DFC) to increase private sector-led development offers a unique opportunity to scale up enterprise funds.

These funds represent effective public-private partnerships that leverage the expertise of the private sector to advance important government initiatives. There is even growing support among impact investment funds to invest alongside enterprise funds, which they view as having a similar mandate. Certain impact investment funds could soon join a new wave of enterprise funds to leverage government funding and bring new technology to emerging markets.

Private sector investment is needed to help fill the gap between project costs and shrinking public spending. This will be critical to achieving global development priorities, including the U.N. Sustainable Development Goals (SDGs). What better way to do that than by using enterprise funds that can advance U.S. development goals while also returning money to the U.S. taxpayer? 

*Note: While Cornelius is not being funded in his summer internship by the Institute for Global Leadership, he wrote in reference to Alice Ursini’s blog on “The Impact Investing Landscape in Italy”, posted on July 2.