How Gender-Lens Investing Can Bolster Institutional Investments Into Africa For The Post-Pandemic Recovery

The Covid-19 crisis has turned a glaring spotlight on the challenges facing women in Africa, who were already carrying a heavy care-burden. The funding gap for women-owned businesses in Sub-Saharan Africa and women-led fund managers is currently estimated at $42bn, in often-overlooked sectors, and in industries where women are economically active. As governments, civil society organisations, international agencies, and the private sector look for ways to reduce the impact the pandemic has had across the continent, the time has come to identify solutions that will advance gender equality, and women’s empowerment, while working towards economic and social recovery.

Gender Led Investing (GLI) is well-poised to bring more institutional capital into Africa, and can assist in closing the funding gap for women-owned businesses, but only if investors follow a Gender Led Investment approach during their investment decision making process. While the strategy might seem obvious – the flows of institutional capital at scale, into these businesses is still lacking today.  

On the face of it, it looks like significant funding is being channelled towards GLI, however there is a challenge to ensure the funding gets to the intended women beneficiaries during our lifetime. 

On the 1st of July 2021, the U.S. International Development Finance Corporation (IDFC) announced that it will be contributing 15 billion dollars towards gender lens investing by 2025. This was followed by an announcement by the G7 where it confirmed that it would be investing 15 billion dollars by 2022. Goldman Sachs has also invested a billion dollars of its own balance-sheet towards women-led businesses and fund managers, and in June of this year, announced an additional 500 million dollars was to be invested in Africa. 

For Standard Bank Group Executive Head of Institutional Clients and Global Markets, Lindeka Dzedze announcements like these are an indicator that there is a compelling business and impact case for gender smart investment strategies, “the momentum for Gender-lens Investing (GLI) is definitely beginning to pick up speed. The U.N. Economic Commission for Africa (UNECA), together with Standard Bank, have launched the African Women Impact Fund (AWIF) which has the target of raising a billion dollars over 10 years, to create a sustainable investment platform for women-led funds, and we are looking forward to helping to guide this fund.”

As part of their Gender-Lens Impact Investing series, African Business, Educate Global, Goldman Sachs, and Standard Bank, recently came together for a second event to discuss some key learnings they have made, some of the key hurdles that still needed to be addressed, and how more African, and foreign institutional capital, could be mobilized for women-led funds to improve the prospects of GLI in Africa.

Challenge our own investment criteria to look at the opportunity in the market

Jessica Espinoza, Vice President for Private Equity & Venture Capital Investments at DEG/KfW, and Chair of the 2X Challenge, explained that while they were convinced of the business and impact case of GLI, when they launched the first 2X challenge back in 2018, it was the first time that they had seriously looked at their core business and embedded gender-lens from origination, overdue diligence portfolio management, and value creation all the way to exits and preserving that change. 

They had given themselves a collective target of 3 billion dollars to be achieved by the end of 2020. “Naturally everybody was quite nervous,” said Espinoza. “There was a lot of debate about the target being too bullish and whether or not it could be delivered. However, through collectively building capacity, engaging in peer learning, and mobilizing other private sector investors, we were able to shift the needle and transform our own business models in the way we allocate capital. In doing so, by end of 2020, we stood at 11.4 billion dollars, if we also count co-investments.”

The new commitment of 15 billion for this year, and next year, has become a little bit more challenging with the COVID-19 pandemic. What is emerging, is what Espinoza calls “a blind spot” of the industry. Progress has been made but investors are looking at the opportunities in the traditional way of DFI investment strategy and criteria. 

She shares that there are a growing number of female fund managers with very inspiring gender-lens strategies that are investing in exactly the types of businesses that are gender smart and that they want to see get financed. “Their approaches are more innovative, but because they are often new entrants, they are not necessarily on the radar of big institutions, and do not necessarily meet the investment criteria set by those institutions decades ago.”  

Espinoza notes that this is an opportunity for all of us to challenge our own investment criteria to look at the opportunity in the market, taking the perspective of the opportunities that are out there to avoid limiting the opportunities for investment. 

Responsive interventions that help to ease the pain of operating a women-led business

Executive Director at Equity Bank, Mary Wangari says that that COVID-19 pandemic led to a quick response with interventions that included the provision of moratoriums on a case-by-case basis, in line with the target sectors, to ease the pain for businesses, and a personal perspective, in terms of what these women were going through. Through Equity Bank, women owned businesses could enjoy up to 75 percent risk sharing cover which eased the burden for the provision of more support to assist with recovery beyond the pandemic.  

“What Equity Bank has done, and this has been going on for years, was simply fast-track our interventions due to the urgency brought on by the COVID-19 pandemic. We looked at the interventions in four ways as part of the financial inclusion agenda that we have been pushing over the years. The first one is savings and investments for women, including the youth, because we can’t talk about women without talking about the youth as there is a direct correlation. The second intervention is borrowing for small loans especially for the micro-enterprises and the retail space and we have seen that the track record of women in repaying loans is very good. The third is insurance, for we believe it is critical not only for the preservation of the assets that these women are creating, but also for taking care of those eventualities that cannot be prevented, or predicted. The final intervention was in terms of how we help the businesses move money to pay for things such as bills, and business purchases.” 

According to Equity Bank’s current data 52 percent of their customer base is comprised of women, and its aim was to make interventions that would work well for their customers. “The moratoriums ranged from three, to thirty-six months, based on our own predictions regarding how long we saw the impact of the pandemic lasting,” said Wangari. “What I believe is that the focus on gender requires different interventions, from different perspectives, and that is because there are so many ways of looking at women-driven initiatives and the opportunities available for them, as well as the challenges faced by them,” explained Wangari.

Challenging misperceptions about Africa to overcome home bias

The challenges from a U.S. perspective were identified to be of prevalent misperceptions about Africa and inertia – the natural human tendency to stick with what’s familiar and comfortable. It is not something that will change quickly, particularly in the context of board governance of public pension funds in particular, but it does need to be challenged.

Emerging markets in this context are not China, but rather Rwanda, the DRC, and South Sudan. Some of them are fragile economies, with underserved sectors that are vital in accelerating the post COVID-19 economic recovery. The consensus is that now is the time for foreign institutional investors to increase their allocation to the alternative investment space. 

“Investing in youth and women as the drivers of the consumer economy in Africa is good for impact. It’s also very good for business, and for institutional investors to carefully consider their sector allocation, particularly food health education, and digital services, and their geographies to overcome the home bias”, says Sandrine Henton, Managing Director of Educate Global.

It is time to seek higher risk-adjusted returns, and higher degrees of diversification, by tackling the home bias to invest in lesser-known geographies. It is about bringing the entire spectrum of all the capital providers together, under a single group, including local pension funds, global pension funds, DFIs, and Multilateral development banks (MDBs), private equity and venture capital funds, and other types of lPS.  

Follow a Gender-Led Investing Approach

There are a number of challenges that must still be overcome to close the gender inequality gap and to reduce the pandemic’s impact on women-led businesses across the African continent. It’s time to change the narrative by challenging your organisation’s investment criteria to look at the opportunity in the market, implementing responsive interventions that can help to ease the pain of operating a women-led business, and not letting misperceptions about Africa create home bias during your investment decision-making process.

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