$30m SME investment firm established in East Africa

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[DISRUPT AFRICA: TOM JACKSON] A group of international investors have partnered to establish the US$30 million investment company Business Partners International East Africa (BPI EA), which will provide funding and support for SMEs in a number of sectors in the region.

Risk finance firm Business Partners, the World Bank’s investment arm the International Finance Corporation (IFC), Dutch impact investor Stichting DOEN and the Dutch development agency FMO have all put in US$6 million for a 20 per cent share in the company, with the remaining 20 per cent held by the Swiss Investment Fund for Emerging Markets (SIFEM) and Canada-based Mennonite Economic Development Associates (MEDA).

BPI EA aims to encourage entrepreneurship, facilitate job creation and contribute to small enterprise development by providing access to risk capital funding, technical assistance and mentorship to SMEs in East Africa. Value of transactions will range from US$50,000 to US$1 million.

Mark Paper, chief operating officer (COO) of Business Partners International (BPI), said the company has recognised the need to expand into other African countries having been focused on South Africa.

He said there was enormous potential for the new company, especially in targeting family-owned SMEs are a large target audience.

“In a global context Africa is rich in opportunities, yet investment in local business has been constrained and access to finance remains a growth-constraint for many SMEs. SMEs typically fall into a gap between large corporations served by mainstream financiers and micro-enterprises served by microfinance institutions,” he said.

Paper said this problem could be particularly acute for family owned businesses, which comprise up to 95 per cent of SMEs in developing countries.

“A large number of family owned SMEs are caught between informal sources of capital and commercial lending tools such as banks and private equity,” he said.

“Private equity firms often refrain from lending to these SMEs as they either too small, or prefer not to deal with the complexities of doing business with a family management team rather than a board of members. This is however the area that Business Partners Limited specialises in, and exactly the service offering we are working to expand across Africa.”

BPI has established and managed various SME funds in Madagascar, Kenya and Rwanda since it established its presence in Africa in 2004. It raised a similar US$30 million fund for Southern Africa in April of last year, which has so far approved 20 investments to the value of US$6.67 million in SMEs in the region.

“BPI EA will initially focus on investments in East Africa, namely Kenya, Rwanda and Uganda, but we foresee that in the short-to-medium term we will include other countries, and will aim to make this new vehicle the way in which all investments are concluded in Africa,” said Paper.

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