AFRICA

Model business

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Specialist risk financer for small and medium enterprises (SMEs), Business Partners Limited has committed US$6 million along with other international investors to establish Business Partners International East Africa (BPI EA), a US$30 million investment company which will provide funding and support for SMEs in the region, of which family owned SMEs are a large target audience.

Mark Paper, COO of Business Partners International (BPI), tasked with replicating the successful Business Partners model in other parts of Africa, says that having successfully and sustainably focused on the provision of risk finance, technical support and mentorship for SMEs in South Africa over the last 34 years, the proudly African company recognised the need to expand the business model into other African countries.

Business Partners as one of the founding shareholders in BPI EA will be an equal 20% shareholder alongside IFC (International Finance Corporation, the investment arm of the World Bank); Dutch impact investor, Stichting DOEN; and the Dutch development agency, FMO. The remaining 20% capital commitment is to be held by Swiss Development Company, SIFEM, and Canadian based Mennonite Economic Development Associates (MEDA).

Paper says that there is enormous potential for the new company. “In a global context Africa is rich in opportunities, yet investment in local business has been constrained and access to finance remains a growth-constraint for many SMEs. SMEs typically fall into a gap between large corporations served by mainstream financiers and micro-enterprises served by microfinance institutions.”

He adds that within the SME environment, the problem can be particularly acute for family owned businesses – which comprise up to 95% of SMEs in developing countries. “A large number of family owned SMEs are caught between informal sources of capital and commercial lending tools such as banks and private equity. Private equity firms often refrain from lending to these SMEs as they either too small, or prefer not to deal with the complexities of doing business with a family management team rather than a board of members. This is however the area that Business Partners Limited specialises in, and exactly the service offering we are working to expand across Africa.”

BPI EA will therefore encourage entrepreneurship, facilitate job creation and contribute to small enterprise development by providing access to risk capital funding and technical assistance (TA) and mentorship to SMEs in East Africa. The value of transactions will range from US$50 000 up to US$1 million within the broader sphere of the SME sector.

With the introduction of BPI EA, BPI has extended its assets under management outside of South Africa to US$82 million since its establishment in 2004.

Paper explains that BPI has successfully established and managed various SME funds across sub-Saharan Africa, namely BPI Madagascar SME Fund, BPI Kenya SME Fund and BPI Rwanda SME Fund, since it established its presence in 2004. Based on the experience gained from the first generation country-specific funds, the BPI fund management model was further refined, and BPI subsequently raised a regionally focused fund, namely the US$30 million BPI Southern Africa SME Fund in April 2014.

To date, this Fund has approved 20 investments to the value of US$6.67 million to SMEs in the region. Businesses that have benefited from this funding include a ferry boat business on Lake Malawi, a new modern printing press and private school in Malawi as well as an independent medical centre in Windhoek.

BPI’s business model has now been further refined to create a more sustainable SME risk capital provider in the form of BPI EA, a permanent investment company.

“BPI EA will initially focus on investments in East Africa, namely Kenya, Rwanda and Uganda, but we foresee that in the short-to-medium term we will include other countries, and will aim to make this new vehicle the way in which all investments are concluded in Africa,” concludes Paper.

 

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