Impact Investor Filling Financing Gap in Ethiopia
There are more and more people doing impact investing in Africa, seeking both to be of help to the people there and to take advantage of the rapidly growing economies there. Matt Davis of RENEW LLC is one of this breed of impact investors.
RENEW has invested in several companies in Ethiopia, including METAD, a coffee grower, and Mama Fresh, a producer of Ethiopian food, including the staple injera.
Davis says, “There is both a development challenge and a market challenge in Africa that we are addressing.”
“The development challenge is that the financial systems in many countries in Africa are fragmented, and little to no capital is available to finance the growth of small and mid-size businesses (SMEs),” he explains. “At the top of the economic pyramid, bank and institutional financiers tend to back large multinationals. At the bottom, microfinance institutions lend only small amounts at high rates to micro-enterprises. But there is nothing to finance small and growing businesses. Thus, we have what is called the ‘missing middle’ in these economies, and SMEs are inhibited from growing into large companies, creating jobs, generating tax revenue, and stabilizing the economy along the way.”
Moving to the second challenge, Davis says, “The market challenge is related to supply and demand. The supply of private equity is growing across Africa, as international investors move in seeking higher risk adjusted returns. Yet these investors are not able to find enough companies able absorb the minimum investments they are willing or able to make. Addressing both challenges requires a new financial actor and intermediary to stimulate financing and growth for SMEs.”
Davis led the creation of the Impact Angel Network (IAN) to invest in Africa, with an initial focus on Ethiopia. “The IAN addresses the problem of the ‘missing middle’ by being a source of financing for SMEs. The IAN invests in professionally vetted and managed companies in Africa that are led by strong management teams looking to scale. RENEW manages the IAN’s portfolio in-country and addresses a trust and skill gap that has kept many U.S. investors from being active on the continent of Africa.”
