Impact investors target social enterprises in East Africa

Tuesday January 30 2018

Clients outside Kisumu Equity Bank branch.

Clients outside Kisumu Equity Bank branch. Social enterprises in East Africa are expected to receive $1.2 billion in funding within the next five years. FILE PHOTO | NATION  

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Social enterprises in East Africa are expected to receive $1.2 billion in funding within the next five years, says a new report.

The report found that social impact investors have so far invested $680 million in Kenyan social enterprises with renewable energy, financial services and Pay as you go providers emerging as favoured investment sectors by social impact investors.

The report titled State of Social Impact Investing in Kenya was jointly done by US-based development finance consultancy firm FR LLC and students of the University of Virginia’s Darden MBA School of Business.

Other sectors receiving financing were healthcare, agriculture, ecotourism, consumer goods and environmental services.

“The research represents a first-time look into the world of social impact equity investments in Kenya. The country is a hotbed for this developing asset class but there is a notable lack of independent research on social impact capital and its role in the market place,” said Charles Gore, one of the co-authors while releasing the report.

According to the report, social impact capital is a growing investment flow in Kenya, representing up to $600 million in shareholdings in over 200 companies in East Africa.


Flow of funds

The report also found that the huge flow of funds towards social enterprises is resulting in other investors such as private equity competing for investee companies, which are in turn driving up valuation of companies.

Competition between social impact investors and private equity funds had driven valuations by two to three times over the past five years.

The report contends that supporting social impact capital’s direct shareholdings in companies in East Africa will require a number of developments in the sector by industry actors and stakeholders to increase the transparency and accountability.

A total of 89 background documents were reviewed and interviews held with 15 representatives of the Kenyan investment and private equity community over a nine-month period.

FR LLC announced plans to deepen and expand the research in the East African region over the next three years and distribute its findings to the East African financial community and governments to broaden the conversation on the benefits and costs of this fast growing social impact financing.

Impact investors are defined as those who invest to generate a beneficial social or environmental impact alongside a financial return—and who seek to measure the social or environmental returns generated by their investments.