Organizations and projects that had received some of the $40 billion in annual funding from USAID are winding down their work. As leaders they take stock of the damage, some quietly admit that overseas aid was chronically inefficient, unsustainable and often served to entrench global power imbalances. Emerging market entrepreneurs, fund managers and impact ecosystem builders are rethinking how to raise and deploy capital.
Women, in particular, are stepping up with strategies to improve local economic stability, agency and growth for the long-term.
“As a woman, I was struggling to access capital, despite being the [one of the] best performing funds in the market,” Jenni Chamberlain of South Africa and Kenya-based Altree Capital said on the sidelines of this month’s Collaborative for Frontier Finance gathering in Naivasha, Kenya. “I just felt that that wasn’t equitable.”
Altree provides flexible, revenue-based financing and convertible debt to small and mid-sized businesses addressing climate and gender challenges.
“We need to have dedicated pools of capital to ensure that women can grow their businesses,” says Chamberlain.
Fund managers like Chamberlain are threading a difficult needle. They’re trying to meet local entrepreneurs’ need for accessible, affordable and flexible financing, while making the case for such “alternative” investment strategies to risk-averse pension funds, insurance companies and other local asset owners. Their use of non-traditional debt and equity structures can make investors uncomfortable, even if they achieve better outcomes and financial returns.
“It does take a lot of education,” admits Chamberlain.
Altree is looking to raise pension fund capital for its third fund. Just a 1% allocation of African pension funds’ $2 trillion in assets to alternative investments would be a game changer for economic growth, Chamberlain says.
Flexible capital
Coordinated campaigns among African fund managers are seeing results: the National Pension Scheme Authority of Zambia and the National Social Security Fund of Uganda shared with ImpactAlpha plans to launch innovative support programs for small businesses. Ghana’s pension funds are stepping up for local fund managers like Mirepa Investment Advisors.
Female finance experts and fund managers are working to ensure that women and gender considerations are represented as investment attitudes on the continent shift.
HEVA Fund in Nairobi uses alternative credit tools to support entrepreneurs in fashion, filmmaking, theater, content creation and other creative industries. Creative businesses are typically shut out of traditional bank financing. HEVA offers milestone-based debt financing pegged to the value of an artist’s intellectual property, or revenues generated from copyrights and royalties. It just launched two new credit programs in collaboration with Longitude Capital, Kenya Bankers Sacco and others that will provide $5 million in debt to 7,000 creative entrepreneurs, mostly young women.
“We’ve been able to move capital to a sector that previously was not able to access tools like debt,” says HEVA’s Wakiuru Njuguna.
In Ghana, Hamdiya Ismaila founded Savannah Impact Advisory to design, structure and direct capital to local fund managers with a gender-lens.
In Nigeria, Evelyn Castle, a healthcare entrepreneur, built Eha Impact Ventures to make debt and equity investments in women-owned healthcare and food businesses. Funders have shied away from small businesses in the country because of currency devaluation, economic volatility and market-risk perceptions, Castle says. To get capital to businesses in critical but niche sectors, she’s focusing on small foundations, high net-work individuals and mission-aligned donors.
Inch by inch
Using non-traditional debt and equity structures complicates the process of unlocking local capital. But flexible financing that meets local businesses where they are improves a fund’s chance of success, argues Chamberlain. Altree’s portfolio businesses have been able to grow their revenues anywhere between 50% and 250%, she says.
For HEVA, tailoring financial products to artists’ actual income streams has enabled the organization to contain its default rate at about 6%, “which is way lower than what you’ll find even with banks,” says Njuguna.
Castle set up Eha as an endowment that invests philanthropic commitments in the US stock market, then draws down funding.
“We had conversations with people who have philanthropic capital, and the terms that we were being offered were extortionist and on par with, if not higher than, what typical VCs are requesting,” Castle says.
As its portfolio sees success, Eha is starting to bring companies and funders along as co-investors. Last year, MotherFood International in Canada co-invested $75,000 in Amayi Foods, a female-founded food processor that produces West African food products and condiments. Castle is hoping to replicate the model with other mission-aligned investors.
There’s still a long way to go.
“We’re approaching people that want to have an impact – much smaller organizations, small family foundations,” she says. “They’re receptive to working with us because they’re focused on how to make the most impact with as little money as possible.”
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