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While East Africa has demonstrated robust growth over the past years, poverty is still widespread. Across the region, nearly 50% of the population lives on less than US$1.25 per day, well above the global average of 25%. East African countries continue to face a host of development challenges, as reflected in their rankings in the UN’s Human Development Index, a composite indicator which includes health, education, and income metrics. Kenya, the highest ranked East African country on the Human Development Index, ranks 145th out of 187 countries. With nearly 45% of East Africa’s population under the age of 15, the urgency to create employment opportunities and meet development challenges in the coming decade cannot be overstated.
Social enterprises are a powerful means to tackling development challenges at scale, and the FSG team came across many innovative business models addressing unmet needs during our research in East Africa. Sanergy, a sanitation start-up, is working to make basic sanitation affordable and accessible to people living in informal settlements in Kenya. In Uganda, Solar Now is selling solar home systems to households who are off the grid and rely primarily on kerosene and firewood as energy sources. Meanwhile in Tanzania, AKM Glitter is helping poultry farmers increase their incomes through the provision of chicks and feed, and Juabaris setting up solar-powered phone charging kiosks in rural areas. While each of these enterprises faces its own set of challenges to scaling operations, all of them mentioned access to finance as a critical precondition for growth.
East Africa has become a global hub for impact investing in recent years, with over US$9.3billion disbursed in the region to date. However, investors are finding it increasingly difficult to deploy their capital and there is growing recognition that a shortage of high-quality investment opportunities constrains the growth of impact investing in the region.
In our new report, Catalysing Impact Investing in East Africa, we take a closer look at the barriers preventing deal flow, and provide recommendations for donors seeking to sustainably build the market. Based on consultations with over 80 stakeholders in Kenya, Tanzania, Uganda, and Rwanda, the report proposes a market-responsive intervention that helps to scale access to capital raising and associated capacity building services for enterprises. To achieve this, the report recommends the creation of a donor-funded ‘Facility’ to help service providers reach deeper into the pool of enterprises that need support, and to develop a more vibrant impact investing market overall.
We believe that, over time, such a ‘Facility’ will help investors find more promising opportunities to deploy their capital for impact and return, and smoothen the capital raising process for social enterprises.
This report has been developed and published with financial support from UK aid from the British people under the Department for International Development’s (DFID) Impact Programme.
This article first appeared on FSG and is reproduced with permission.