British International Investment launches small business finance fund in Zambia
British International Investment, the UK development finance institution, has launched and anchored Growth Investment Partners Zambia to facilitate financing for the country’s small businesses. BII established GIP Zambia as with equity funding from its balance sheet and seeded it with $37.5 million to invest.
Zambia’s National Pension Scheme Authority and Swedfund also contributed a combined $32.5 million, bringing GIP Zambia’s anchor capital to $70 million.
The partners hope to mobilize $300 million in flexible, local currency financing for 150 small businesses.
Emerging managers
GIP Zambia is the second growth fund BII has launched in Africa. In 2023, it launched and seeded Growth Investment Partners Ghana, which provides debt and revenue-based finance for businesses needing between $500,000 and $5 million.
GIP Zambia will make the same types of investments and is “designed to recycle capital, be self-sustaining in time, and continue to fund small businesses for decades ahead,” BII’s Dirk Holshausen told ImpactAlpha.
The funds’ design was based on several years of research and workshops with small business owners in Ghana and Zambia, Holshausen explained. “We listened to their concerns: loans from the banks are expensive, often require over 100% collateral, are shorter term, and not matched to the cashflow of the businesses. The banks are also not set up to provide post investment support.”
Business owners are often reluctant to give up equity, and investors are hesitant to write equity checks because the exit market is Africa is less established. “GIP was designed to sit in between the banks and private equity funds and provide a complementary form of growth capital,” Holshausen said.
Both the Zambia and Ghana funds are run by local investment professionals with backgrounds in development finance. GIP Zambia is led by Musonda Chipalo, who spent more than 20 years at the International Finance Corp. and also worked for Stenlop, an investment advisory services firm for Zambian companies.
Local capital
Zambia’s National Advisory Board for Impact Investing has been championing the build out of market infrastructure to engage commercial banks and local investors in small business finance.
GIP Zambia will “channel much-needed patient capital into Zambia’s SMEs – the very backbone of our economy,” said the National Pension Scheme Authority’s Shipango Muteto. Pension funds in Uganda and elsewhere are also financing small business funds as a way to boost their own members.
The Zambia pension scheme’s investment in GIP, Muteto said, “is not just an investment; it is an imperative that directly contributes to growing our membership base, thereby strengthening the long-term sustainability of the pension fund and securing the future of our members.”
Because GIP Zambia makes investments in the local currency, such local support is crucial to its success, Holshausen said.
“There is no easy way to hedge FX in the markets we invest, and so the DFIs are taking on that currency risk,” he explained. “However, critical to GIP’s long-term sustainability will be ensuring the company can mobilize local currency from local institutional investors.”
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