Africa’s Becoming A Source And Destination For Impact Investing

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By Judith Rodin and Margot Brandenburg

VENTURES AFRICA – In many rural parts of Kenya, smallholder farmers have lacked financing options that would allow them to purchase a milk cow or other tools and inputs that could make their agribusinesses more profitable. The sources of credit available to them, if any, often risked pushing them further into debt, rather than helping to lift them out. In response, the founders of Juhudi Kilimo, with their backgrounds in rural agriculture in East Africa, designed a new approach. The enterprise provides financing to livestock and poultry farmers in the form of loans based on income-generating assets, which can offer lower interest rates than general loans, and accommodate staggered or longer repayment periods. As a result, farmers are able to expand their agri-business and access improved markets for greater wealth creation.

This is just one of the many “impact” enterprises springing up across the continent to provide market-based solutions. Indeed, through our daily work and the research for our new book “The Power of Impact Investing: Putting Markets to Work for Profit and Global Good” – published by Wharton Digital Press – we’ve seen and heard about enterprises that are transforming development challenges into new business opportunities.

A growing and increasingly dynamic cohort of impact enterprises is paving the way for the impact investors that want to finance them. And we believe the rise of impact enterprises will only gain steam as a result of the youth bulge on the African continent. The population of young people is expected to double by 2045. While on one hand, this could be viewed as a major development challenge, it’s also an opportunity to harness greater innovation and leverage the information and communications technology (ICT) boom that is taking place concurrently across the continent. Such mixture of forces has already given way to technologies like mPesa, which enables people without access to traditional banking services to perform financial transactions right on their mobile phones. Or, technologies like Nestle’s CocoaLink, which have empowered cocoa farmers to access new markets, gain information and data about their crops. We can expect more to come.

The growth in African impact enterprises is fueling, but also fueled by, a range and diversity of sources of capital that could be tapped for impact investing. Investors in Europe and the United States have been focused on impact enterprises in Africa. In fact, according to a recent survey by the Global Impact Investing Network (GIIN) and J.P. Morgan of impact investors, more than half reported a focus on impact investing in sub-Saharan Africa, more than any other region. And respondents also plan to increase their allocations in this geography more than any other.

But Africa is now more than just a destination for capital – remittances from the African diaspora are increasingly important, as are the African pension funds and insurance companies that are accumulating pools of capital that could be used more strategically for social and environmental goals, as well as profit. South Africa’s $250 billion in pension fund assets could be just one place to start.

These opportunities also come with challenges. There is still a weak pipeline for impact investments – 46 percent of impact investors surveyed said that few or no deals passed their initial screening, versus 19 percent who said many did. Impact investors thus far have not been either able or willing to provide the money or technical assistance needed to get early-stage enterprises off the ground.

But this may be changing. Regional and local actors are rolling up their sleeves. For example, in 2013, the Rockefeller Foundation and the Tony Elumelu Foundation launched the Impact Economy Innovations Fund, designed to fund projects that harness market-based solutions, foster entrepreneurial ecosystems, and promote the impact investing infrastructure in Africa, with the ultimate goal of benefiting poor and disadvantaged populations and promoting more inclusive economies.

While much more work needs to be done, Africa is joining other parts of the world, including Latin America, Southeast Asia and India as a player in the global impact investing arena, offering the dual possibility of sustainable growth and attractive financial returns.

 

 

Judith Rodin, president of the Rockefeller Foundation, and Margot Brandenburg, fellow at the Nathan Cummings Foundation, are the co-authors of The Power of Impact Investing: Putting Markets to Work for Profit and Global Good, published by Wharton Digital Press.