Fund Design: Building for the underserved African market with a gender lens.

Lelapa was honoured to design and facilitate a unique workshop that brought together more than 50 development finance institutions (DFIs) and general partners (GPs) for an open, honest dialogue on investing with a gender lens in small and medium-sized enterprises (SMEs) in the underserved African market. Many participants were also members of the Women in African Investments group (WAI Group) network that is run by Lelapa. We were grateful for the financial support from FinDev Canada and the partnership with UN Women.

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EXECUTIVE SUMMARY

This workshop brought together more than 50 development finance institutions (DFIs) and general partners (GPs) for an open, honest dialogue on investing with a gender lens in small and medium-sized enterprises (SMEs) in the underserved African market. Participants brought a broad range of perspectives on this problem, from individuals overseeing fund and gender strategies within DFIs, to established and emerging fund managers operating in Africa.

The nature of the discussion was important in itself, as GPs were able to express their views outside of their usual fundraising conversations. Similarly, DFIs were able to give more insight into past and current challenges regarding this market segment. The candid views built rapport and deepened mutual understanding. The discussion revealed that the design of a fund is not neutral with respect to gender. DFIs and GPs that seek to invest with a gender lens should ensure that their choice of fund structure is appropriate to capture the opportunities offered by women-led SMEs.

At the current stage of market development, many women-led businesses have risk capital requirements well below $1-million. This market segment is chronically underserved by investors partly because the traditional fund model that they employ is not adapted to small-sized investments. While many emerging fund managers recognise the need for alternative fund structures in this segment, they nonetheless opt for traditional models that comply with the needs of limited partners (LPs).

This is largely because emerging fund managers – particularly women – face a host of barriers to fundraising and do not wish to compound risk perceptions with an atypical fund model. These factors combine to exacerbate gender inequalities at the portfolio level. This in turn limits the presence of women-led SMEs in larger deal sizes downstream, making it difficult for DFIs to reach their goals on gender equality in access to finance.

The workshop provided a number of short- and medium-term solutions to mitigate these challenges, including measures to boost the discovery of viable alternative fund models for the underserved segment, and interventions to support the successful emergence of female fund managers in Africa. These measures effectively form a dual gender lens at GP and portfolio company levels.

They require a cohesive strategy across gender and fund teams within DFIs, and, critically, an ongoing candid dialogue between DFIs and GPs that places the needs of women-led SMEs front and centre. Other important stakeholders are foundations and grant-making organisations, as well as those putting in place the enabling environment for innovative fund structures and intermediaries serving small businesses to flourish.