How can locally managed SME investment funds can help close a USD 330 bln financing gap, and how can DFIs and impact investors best work with them?
Small and growing businesses are the backbone of economies in frontier markets across Africa. They create jobs, strengthen local supply chains and spark innovation. Despite their critical role, these businesses face a $330 billion funding gap – this can hold back entrepreneurship and slow economic development.
The latest report (the 6th in our Foundations of Growth series) explores how locally managed SME investment funds can help close this gap, and the ways development finance institutions (DFIs) and impact investors can work with them.
The publication shares the experiences of two organizations that are tackling the funding gap in different ways.
Lessons from IPDEV’s model
Investisseurs et Partenaires (I&P) has pioneered locally rooted investment funds through its IPDEV approach. By training fund managers, enhancing governance and attracting local investors, IPDEV has enabled investments in nearly 60 African SMEs. This has helped drive revenue growth, job creation and has unlocked follow-on funding.
Insights from the Collaborative for Frontier Finance (CFF)
The Collaborative for Frontier Finance is an initiative that aims to accelerate access to finance for small and growing firms. It has been tracking small business growth funds (GFs) that are filling the “missing middle” – enterprises too large for microfinance but too small or risky for banks and private equity. With flexible financing tools and hands-on support, GFs are helping businesses grow faster than the broader economy, creating quality jobs and advancing gender equity.
These two perspectives on local investment funds provide considerations for impact investors in frontier markets and can help shape the conversation on mobilising capital into local funds to support private sector development.
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The Foundations of Growth series of publications shares the trends, lessons, challenges, and opportunities of investing in frontier markets in Africa. The series is aimed at helping development finance institutions, donors and impact investors develop their strategies for operating in these markets.
ARIA, a joint initiative we began with BII (with Proparco now onboarded into the intitiative) aims to address systemic barriers in frontier markets in Africa. Market creation is a pivotal ambition in our 2030 Pioneer, Develop, Scale strategy. It aims to generate more investment opportunities for development banks and other large-impact investors seeking to contribute to private sector development in the markets and sectors that it currently cannot reach. For more on our market creation approach, click here.