The African Development Bank (AfDB) has signed a €5 million equity stake in an impact investment firm seeking to grow small businesses and create jobs in sub-Saharan Africa, the bank announced on 8 June.
Its stake will enable access to financing for businesses that face financial exclusion in the region. The Paris-based firm, Investisseur & Partenaire pour le Développement 2, provides equity, quasi equity and debt to businesses typically hindered from approaching banks for investment.
It is expected to use the AfDB’s input to launch 10 funds, which under its managing firm Investisseurs & Partenaires (I&P) could reach more than 500 small business in countries such as Senegal, Cameroon, DRC, Ghana and Madagascar.
A report by I&P in 2015, titled The First Sponsor of African Impact Funds, highlights the employment gap in Africa, where it states “public administrations tend to cut their budgets while large companies are reaching a phase of slower growth”. It adds that contributing factors such as the fall in commodity prices and China’s slower rate of expansion means SMEs “stand now as the best job providers and driving forces towards higher value-added activities.”
Small businesses that stand to receive financing via the funds require investment of anywhere from €30,000 to €300,000 over the next ten years, according to the AfDB. Providing that investment could create as many as 15,000 jobs, 30 percent of which are expected to integrate women into the labour market.
Each fund comprises capitalisation of around €2-€5 million, of which the firm will take a stake of up to 30 percent. The remaining 70 percent, according to AfDB, will be raised locally “through the manager’s established network”.
The economic, environmental and social impact of each investee company is be measured by I&P according to metrics collected every year from company staff, clients, suppliers and, where tax contributions apply, the state. The company also points to its “open source” model, which it says allows projects to be scaled up by being easily replicated by other fund managers.