KENYA

Impact
Investment
Landscape
Produced by

With support from

Acknowledgments
This report has been produced with support of the British people through
the Department for International Development’s Impact Programme (DFID).
The contents of this report do not necessarily reflect the views of DFID or the
British government.

This report was made possible through the contributions of many individuals,
both within and beyond Kenya. We would like to thank all the interviewees
that gave their time, expertise, and data throughout the course of this study.
In addition, special thanks are due to Aspen Network of Development
Entrepreneurs (ANDE), SDG Partnership Platform (SDGPP), Social Enterprise
Society of Kenya (SESOK) and East Africa Venture Capital Association (EAVCA)
for their efforts in providing constructive feedback on the report.

Global Steering Group for

Impact Investment (GSG)
Krisztina Tora, Market Development Director

Francesca Spoerry, Programme Manager

Intellecap Advisory Services

Karnika Yadav, Associate Vice President

Cosmas Koech, Manager

Mercy Mangeni, Associate

Joshua Murima, Associate

Tanya Philip, Associate

Readers may reproduce material for their own publications, as long as they are given appropriate attribution. Copyright Global Steering Group
for Impact Investment (GSG). This work is licensed under Creative Commons License Attribution 4.0 International (CC BY 4.0). Nothing in this
report should be construed as financial or other expert advice. Any errors or omissions are the responsibility of the GSG and the authors.
KENYA
Impact Investment
Landscape

Produced by

With support from

June 2019
II

About GSG

The Global Steering Group for Impact Investment (GSG) is an independent global
steering group catalysing impact investment and entrepreneurship to benefit people
and the planet. The GSG was established in August 2015 as the successor to—and
incorporating the work of—the Social Impact Investment Taskforce under the UK
presidency of the G8. The GSG currently represents the National Advisory Boards in
21 countries plus the EU as members. Chaired by Sir Ronald Cohen, the GSG brings
together leaders from finance, business and philanthropy to ensure measurable
impact is considered in every investment and business decision. Its mission is to
harness the energy behind impact investment to deliver impact at scale.

About Intellecap Advisory Services

Intellecap is a pioneer in providing innovative business solutions that help build and
scale profitable and sustainable enterprises dedicated to social and environmental
change. Intellecap Advisory seeks to build institutional capacity and channel
investments into the development sector through consulting services, investment
banking services, and knowledge and information services. Its work includes
innovative and focused initiatives such as capital advisory services, intermediating
impact investment capital, innovation management, strategy design, market
research, stakeholder engagement and policy advocacy.

Founded in 2002, the Aavishkaar and Intellecap Group have directed US$600million
of capital to entrepreneurs working on several challenging problems sustainably
through equity funds, venture debt vehicle, microfinance lending or investment
banking intermediation.
 III

Table of Contents

ABOUT IMPACT INVESTMENT AND THE IMPACT ECONOMY 1

ABOUT THE REPORT 1

EXECUTIVE SUMMARY 2

About the upcoming Kenya National Advisory Board (NAB) –

the championing body 3

INTRODUCTION: THE RELEVANCE OF IMPACT INVESTMENT IN KENYA 4

THE LANDSCAPE OF IMPACT INVESTMENT IN KENYA 6

SUPPLY OF CAPITAL 6

DEMAND FOR CAPITAL 8

INTERMEDIARIES OF CAPITAL 10

GOVERNMENT / REGULATORY PLAYERS 11

ECOSYSTEM SUPPORT PROVIDERS 13

RECOMMENDATIONS FOR STRENGTHENING

IMPACT INVESTMENT IN KENYA 14

CONCLUSION 18

ANNEXURE 1:
LIST OF ORGANIZATIONS THAT PARTICIPATED IN THIS RESEARCH 19

ANNEXURE 2:
SPOTLIGHT ON GOVERNMENT’S BIG 4 AGENDA 20
 1

About Impact Investment and

The Impact Economy
To navigate the complexity of achieving a future where no one lives in poverty and
the planet thrives, we need a simple unifying principle: that it is the role of all actors
in society to examine how their actions affect the people and the planet.

Impact investment optimizes risk, return and impact to benefit people and the
planet, by setting specific social and environmental objectives alongside financial
ones, and measuring their achievement. Impact management is a critical practice to
reach this potential.

As more people and organizations get involved and become more successful
in impact investing, there is a cumulative effect. A vibrant and growing impact
economy can develop where businesses, investment and activity deliver tangible
improvements in outcomes for people and the planet and people have choices. In
the impact economy, businesses use their capabilities to optimize both their positive
impact on the world and their financial return. Investors use their resources to
optimize business impact, adding and creating value beyond what would otherwise
be achieved. The momentum of more positive impact being generated enlivens the
possibility of an inspiring future.

About the Report

The GSG is working to develop and strengthen the impact investment ecosystems
in Africa. This is achieved by helping to unlock current supply and attract new capital,
as well as by sharing knowledge and building capacity of various stakeholders in
the impact investment space through the support to the establishment of National
Advisory Boards (NABs) in several countries in Africa.

This report, based on essential work delivered by the GSG’s strategic partners
(Aspen Network of Development Entrepreneurs, Global Impact Investing Network,
British Council) and other key players, provides an overview of the state of the
impact investment sector in Kenya, looking at the five pillars of the impact sector
ecosystem—supply of capital, demand for capital, intermediaries of capital,
government & policy makers and ecosystem support providers. This report aims to
provide investors and other market players with relevant information on the impact
investment landscape in Kenya. It highlights existing opportunities and challenges for
the impact investors and entrepreneurs, and will be used to inform the formation of
NABs and their subsequent national impact investment strategies.

In addition to providing information on impact investing in this study, the GSG is

working to strengthen the ownership and engagement of countries around impact
investment. The GSG is currently supporting several countries in Africa in the
formation of NABs for impact investing. An NAB is vanguard for impact investment
and serves as a national platform for private, public and civil society actors to work
together so as to create an enabling environment for impact investing. The findings
of this report will, therefore, contribute to an enhanced understanding of ecosystems
by future NAB members.
2

Executive Summary

The development of impact investment in Kenya has the potential not only to create
far-reaching social and environmental improvements domestically, but also to inspire
the development of new, innovative and life-changing solutions in other African
countries. It also paves the way towards the development of an impact economy
across Africa, and attainment of the seventeen UN Sustainable Development Goals
(SDGs) which aim to address the global challenges of poverty, inequality, climate,
environmental degradation, prosperity, and peace and justice by 2030.

Time is critical in this journey. Kenya faces many socio-economic challenges: about
50 per cent of its citizens live below the poverty line1; it has the highest per capita
rates of HIV in Africa; and its population is significantly dependent on subsistence
farming, which is being negatively affected by the climate crisis. A progressive
impact investment sector could go a long way to achieving the changes needed for
sustainable development in the region.

Kenya is already demonstrating leadership in environmental action. The country is

well ahead in energy transition, with 98 per cent of its electricity production from
clean sources. Kenya banned plastic bags in 2017; other African nations have since
revealed their plans to follow suit (e.g. neighbouring Tanzania). In addition, in line with
SDG 13 (Climate Action), Kenya’s Ministry of Environment and Natural Resources has
worked on the development of climate-proof infrastructure3.

On the social level, the government announced in 2018 an ambitious five-year

development plan to improve food security and nutrition, increase affordable
housing, enhance manufacturing and provide universal health coverage
(the Big 4 Agenda).

However, Kenya’s treasury has been borrowing to meet its national priorities,
and without adequate and timely involvement of the private sector into public
priorities - such as through impact investment - the country risks over-reliance
on costly foreign capital.

Almost 80 per cent of Kenya’s population are under 35. They are entering a workforce
with little opportunity for formal employment, and so are instead turning towards
entrepreneurship. Over 60 per cent of social enterprises in Kenya have been created
in the past five years4, meaning they are often small companies, led by young
entrepreneurs, for whom the cost of borrowing is prohibitively expensive. There is
a clear need for alternative capital sources.

This paper, a research study compiled using interviews from 36 industry leaders in
Kenya, is an analysis of the current state of play of the country’s impact investment
sector. It has attempted to evaluate what changes have occurred in the country
through the lens of the impact investment sector; what has been positive - and
what has not.

In this process, we sought to determine a way forward for the country,

outlined in three main recommendations:

Develop a championing body

This body would inform, educate and influence stakeholders to engage
in the development of impact investment sector in Kenya.

Put entrepreneurs at the core

There is a need to put the entrepreneurs at the centre of discussions for the growth
of impact investment in the country. This, for instance, could include peer-to-peer
support among social entrepreneurs.

Support social enterprises from idea to expansion – particularly outside Nairobi

There is a need to develop a continuum of support for social enterprises at various
stages of their growth.

We hope that the findings in this research will encourage corporations, policy makers, 1 https://www.africaw.com/major-problems-facing-
philanthropists and civil society to engage in collective action to catalyse much- kenya-today
needed change in Kenya’s impact investment sector. 3
SDG Africa: Three year reality check
4 ‘State of_Social_Enterprise_in_Kenya’, British
Council, 2017
 3

About the upcoming Kenya National Advisory

Board (NAB) – the championing body
A. Background
With its growing economy, Kenya serves as a regional hub for impact investing
in East Africa. Kenya has the largest and most active impact investment market
in Africa, and is expected to continue its growth trajectory over the coming years.
This is evidenced by the fact that there are more than 136 impact capital vehicles
active in Kenya, managed by 95 private impact investors (excluding Development
Financial Institutions).

On February 20th 2019, the Global Steering Group for Impact Investing (GSG)
convened in partnership with the UN SDG Partnership Platform key stakeholders
from Kenya’s Impact Investing ecosystem to pave the way towards establishing a
National Advisory Board for Impact Investing (NAB) in Kenya. Senior Representatives
from Kenya’s National and County Governments, as well as Impact Investors, Venture
Philanthropist, Social Entrepreneurs and Development Partners participated in the
meeting. All participants endorsed the concept of establishment of the Kenya NAB.

B. Vision of the Kenya NAB

To develop and strengthen impact investment sector in Kenya for the achievement
of Sustainable Development Goals (SDGs) and national development agenda i.e.
Big-4 Agenda in Kenya.

C. Mission of the Kenya NAB

To become a dynamic, nimble network of networks that advances and augments
efforts towards the mainstreaming of impact investment in Kenya. The NAB will
do so by:

Working with the government of Kenya on policies and framework that seek
to incentivize and enable impact investing in Kenya.

Promoting and championing the impact investment sector both in Kenya and
among international funders and suppliers of impact capital

Effective monitoring and evaluation of the impact investment activities within

the country to ensure tracking of progress, successes and failures.

D. Goals and Objectives of the Kenya NAB

The objective of the Kenya NAB is to mainstream impact investment in the country
and unlock additional capital for impact investing. It aims to do so by bringing
together key stakeholders in the ecosystem to collaborate and amplify various
initiatives currently ongoing in the country or needed for the development of the
sector. The NAB taskforce defined and identified the goals and objectives of the
Kenya NAB based on a series of consultative workshops and meetings:

Mainstream impact investment in Kenya and galvanize support and awareness

for the impact investment ecosystem in Kenya

Become a national collaboration platform for impact investment ecosystem players

for addressing sector wide issues and complementing efforts of stakeholders

Engage with governments and policy makes to strengthen and create an enabling
environment for impact investment, designing favorable policies to ultimately
unlock and facilitate the supply of impact finance in the country, especially
targeting rural areas and the most underserved communities

Chaperon and coordinate the efforts of impact investment ecosystem players

within the five pillars of impact investment to effectively and progressively realize
significant economic, social and environmental impacts in Kenya.

The Kenya NAB will focus on two strategic priority areas – Linkage between Supply
& Demand of impact capital and Policy, Research & Market Intelligence.
4

Introduction: The Relevance of Impact Investment in Kenya

Country Context
particularly striking, considering the 22 per cent drop in FDI in
Impact investment momentum in Kenya is growing fast
Africa as a whole, and a 23 per cent fall-off at the international
due to a young, enterprising and ambitious population, and
level. 7
a number of social and environmental challenges, which
need investment, and rates of return, which are attracting Recent government initiatives also support the impact
the attention of private impact investors. Looking ahead, this investment movement. In 2018, the government of Kenya
momentum is unlikely to cease. This is due to positive trends launched its Big 4 Agenda, outlining its four big priorities over
in terms of the political, economic and business environment, the next five years (2018-2022): food security and agricultural
which all render Kenya a potential hotbed of private impact productivity, affordable housing, manufacturing, and universal
investment. health coverage. Most importantly, the government has
publicly acknowledged the significance of entrepreneurs and
Economically, Kenya has seen GDP growth averaged between
investors as key to achieving this agenda.
four and six per cent annually since 2011 and there is little
indication of decline: the World Bank estimates that the Despite economic progress and growing support for social
annual growth in 2019 will be 6.1 per cent. 5 This will be driven sectors, 86% of low-income households in Kenya still face
largely by population growth, urbanization and growth in challenges in accessing basic goods and services.8 This
private consumption through a rise in real incomes. Investing presents a huge opportunity for impactful and profitable
momentum in Kenya, in general, is strong. Foreign direct businesses to develop products and services targeting these
investment (FDI) in Kenya increased to US$672 million in low-income, underserved customers, thus highlighting the
20176, representing a 71 per cent increase from 2016. This is need of impact capital in the country.

Table 1:
Fact Checks for Investors

Factors Index Description

Score /
Rank

Population (2016) 48.5 Million9 Kenya has been experiencing a high population growth rate (2.56%, 2016)

Poverty Index (2016) 36.1% According to the 17th edition of the Kenya Economic Update, Kenya has experienced
~10% reduction in the percentage of its population living under the international
poverty line (46.8% in 2005/06 to 36.1% in 2015/16)

Gender Inequality Index 0.549 Gender inequality index measures inequality between men and women on three
(2017) 10 parameters: reproductive health, empowerment and the labour market. Kenya’s
gender inequality index value as of 2017 is 0.549, with the rank of 137

GINI coefficient (2015) 40.8 Between 1992 and 2015 (latest figures available), Kenya’s GINI coefficient changed
from 57.5 indexes to 40.8.

Human Development 0.590 As of 2017, Kenya lies in the medium human development category. Between 1990
Index (2017) (rank 142) and 2017, Kenya’s HDI value increased from 0.468 to 0.590, an increase of 26.1 per
cent.11

GDP (2016) 70.875 Billion12 Due to drought, weak credit growth, security concerns and increase in oil prices,
Kenya’s GDP growth dropped to 4.9% in 2017. However, medium-term GDP growth
is expected to rebound to 5.8% in 2018 and 6.1% in 2019.

Per Capita GDP (2017) US$1,507.8 Kenya’s ratio of poverty to GDP per capita is close to that of the sub-Saharan Africa
average. Compared to other countries, such as Ghana and Uganda, Kenya has a
higher ratio of poverty to GDP per capita.

5 World Bank Kenya country data

6 World Investment Report 2018, UNCTAD

7 World Investment Report 2018, UNCTAD 10 Human Development Reports, UNDP

8 IFC Consumption database 11 UNDP: Human Development Indices and Indicators: 2018 Statistical Update

9 World Bank Kenya country data 12 World Bank Kenya country data
 5

Factors Index Description

Score /
Rank

Financial Access (2017) 13 75% Financial inclusion is growing fast in Kenya. In 2006, 40% of Kenyans were excluded
from any form of financial services while in 2016; this number was reduced to 17%,
primarily because of the launch of M-Pesa.14

Ease Of Doing Business 61 Kenya improved on its Ease of doing business ranking, moved to 61 in 2018 from
(2018) 80 in 2017.

Unemployment Rate 11.5%15 The unemployment rate has been fairly constant over the past eight years; only
(2017) declining at a rate of 0.74%.

Corruption Index (2017) 14316 According to the Global Corruption Perception Index (CPI) report, Kenya is ranked
among the top 50 most corrupt countries in the world. There has been no marked
improvement over the past three years.

13 2016 FinAccess Household Survey by FSD Kenya

14 Kenya Country Report: Navarra Centre for International Development

15 World Bank Kenya country data

16 Global Corruption Perception Index (CPI) report by Transparency International

6

The Landscape of Impact Investment in Kenya

Supply of Capital Sector focus of Angel investors

Kenya continues to be the most attractive destination ICT

in East Africa for impact investors 9%
According to a 2015 study by the Global Impact Investing 9% Clean Energy
Network (GIIN), at least 136 impact capital vehicles, managed
by 95 private impact investors (excluding Development 15% 44% Healthcare
Financial Institutions (DFIs)), are active in Kenya.17 This figure is
most likely to have increased since 2015, but comprehensive Education
latest data is not yet available. 23%
Financial Services

Supply of Capital for impact investment Angel investing is gaining momentum in Kenya
Angel networks and investing platforms such as VC4Africa,
sector includes capital from foundations, Kenyan Business Angel and Investment Network, Viktoria
Development Finance Institutions (DFIs), Solutions, and Intellecap’s Impact Investing Network have
institutional investors, private equity / venture brought together High-Net-Worth individuals and raised the
profile for angel investing in Kenya. A total of approximately
capital funds, early stage impact funds, and
US$10 Million has been invested by angel investors in Kenya
angel investors. since 2008, spread across 82 investments. 22 Ticket size
generally ranges between US$20,000–US$500,000. The
average (mean) ticket size of investments is US$140,000. 23
Between 2005 and 2015, almost half of all impact capital Angel investors have funded only 2% of Kenyan start-ups,
disbursed in East Africa had found its way into the Kenyan most of which are in the ICT sector. 24 It is observed that angel
market, representing more than US$650 million of private investors, who have made investments, preferred co-investing
impact investment capital and more than US$3.6 billion of with other angel investors.
DFI capital.18 The majority (~55%) of the deals made by private
impact investors were of less than US$1 million, whereas the Impact investors in Kenya are moving to invest in growth
majority of deals (~65%) by DFIs were between US$5 million stage enterprises with larger ticket sizes
to US$50 million.19 Over the past decade, there has been an increase in ticket sizes
to upwards of US$3 million. This has been the consequence
of an increase in the number of enterprises looking for larger
investment. The trend has enabled the growth and expansion
< US$ 4.2 Billion
Over 130 impact of many companies. Even though it is a positive development
deployed by private in terms of the quantum of capital deployed, this recent
investment vehicles
impact investors and trend has exacerbated the problem of lack of seed capital for
active in Kenya
DFIs between 2005-2015 early-stage enterprises. The British Council report (2017) states
that the majority (64%) of social enterprises in Kenya are still
in its early stage of growth, established in past five years and
Energy and Financial Angel investing is picking with average number of employees ranging between 10 and
up in Kenya with total of 15. 25 Such enterprises require small ticket-size capital (< USD
services are preferred
100,000), but limited capital is available at that stage.
sectors for impact US$ 10 Million
investors invested since 2008

Significant investments have been made in the energy sector

by government and private commercial investors, primarily on
last mile connectivity projects. Impact investors also followed
the lead for improving energy access in the country. Between 17 The Global Impact Investing Network (GIIN), 2015, The Landscape for
2005 and 2015, Development Financial Institutions (DFIs) made Impact Investing in East Africa
over US$1.5 Billion worth of investments in the renewable 18 Ibid
and clean energy markets (off-grid energy projects primarily), 19 Ibid
making energy as one of their preferred sectors. 20 Both forms
20 The Global Impact Investing Network (GIIN), 2015, The Landscape for
of investments played their respective roles in contributing to
Impact Investing in East Africa
huge benefits for the community: the access to electricity rate
21 The Energy Progress Report, Kenya
in Kenya jumped considerably from 32% in 2013; to 73.42% by
the end of April 2018. 21 22 Intellecap, 2015, Closing the Gap Report

23 Ibid
The financial services sector also received a large proportion
of impact investment, with US$1 Billion invested over the 24 Ibid

same period. 25 British Council, 2017, The State of Social Enterprise in Kenya
 7

Source of funds for Youth Entrepreneurs Box 1:

Personal Capacity building and skilling of

86%
youth and entrepreneurs
Friends & Family 35%
Ecosystem support players, such as incubators,
Grants 28% accelerators and business development service
providers can develop technical assistance programs,
Angel Investors 26% which provide stage appropriate capacity building
support to entrepreneurs; i.e. supporting them through
Banks 16% customized programs developed in accordance to
varied needs at different stages of their businesses.
Venture Capital 5%
Furthermore, in order to build practical business skills
External Sources 2% amongst the youth, the universities in Kenya can
change their pedagogy from theoretical to practical.
This can be achieved by incorporating work-based
Private investment capital in Kenya is mostly foreign learning programs, internships and on-the-job training
originated programs, in the curriculums. While some universities
As per the KPMG survey on the deal activity in the East African in Kenya have launched their incubation centres to
region, 75% of investors investing in Kenya mentioned that promote entrepreneurship, more such initiatives need
their source of funding originates from international investors to be developed to promote entrepreneurship
based in Europe and North America. This includes DFIs, high- in the country.
net-worth individuals, family offices, insurance companies, and
asset managers. 26

Key barriers to supply of capita  oreover, it is also observed that enterprises in Kenya prefer
M
Below are main barriers hindering the increased flow of the informality of their business i.e. not maintaining formal
impact capital in the market, organized in order of relevance: business records, and not submitting their annual taxes,
etc. This can be attributed to high tax rates, which are
Limited availability of unique and scalable enterprises: sometimes unsustainable for small businesses, and also to
Despite many upcoming social enterprises in the country, long bureaucratic government processes. This prevalence
there are very few business models, which are both unique of informality further makes it difficult for investors to invest
and scalable. Investors expressed concerns about high rate in these businesses, thus resulting in a limited pipeline of
of duplication of business ideas and limited new solutions investable businesses for impact investors.
that are solving real development challenges of the country.

“
Access to clean water and sanitation are
huge problems in Kenya but we find very few
The government of Kenya launched
‘Presumptive tax’ for small businesses in
January 2019. The tax replaces ‘Turnover Tax’
investable and scalable business models in and is applicable for businesses with turnover
this space. less than KSH 5 Million (~USD 50,000). Unlike

”
Investor
Kenya
the turnover tax which was pegged to annual
turnover, presumptive tax is payable at the
rate of 15% of the Single Business Permit (SBP).
This tax will be paid at issuance or renewal
of SBP. Through this tax, the government is
Investors further expressed concerns about entrepreneurs’ aiming to widen its tax base and simplify the
and their team’s lack of skills, particularly in areas of financial
management, innovation, and growth strategies. In the
tax processes for small businesses (primarily
absence of such critical skills amongst team members, in informal sector). However, results/success
businesses in Kenya often face challenges in growing and of this tax can be evaluated only at the end of
scaling their businesses; critical parameters that investors
financial year 2019.
look for while investing in a business.

26 KPMG & EAVCA: Private equity sector survey for East Africa for the period of
2015 to 2016
8

 xits are a challenge: Impact investors rely on the capital

E Demand for Capital
market/stock exchanges and developed private equity
sector, as potential exit routes for their investments. However, The growing middle class and emerging domestic markets
in Kenya, both capital and private equity markets are still have resulted in the proliferation of youth entrepreneurship
nascent and offer limited options for impact investors to in Kenya.
exit their investments. In addition, interviewed investors More than 80 percent of the population in Kenya is under the
mentioned that the growth of enterprises in the country age of 35 years. 27 Absence of adequate avenues for formal
is usually slower than expected. This can be attributed to employment, on one hand, and emerging domestic market,
external factors such as fluctuating currency, bureaucratic on the other, has resulted in Kenya’s youth moving from the
regulations, competition in the market or internal factors such mind-set of ‘ job seeking’ to that of ‘ job creating’ and, in turn,
as young entrepreneurs with limited business experience, skill exploring entrepreneurship as a means of livelihood. As per
gaps in team, among others. This results in investors having the latest estimate by the British Council, there are over 44,000
to wait for longer periods before they can reach the desired social enterprises28 in Kenya, 64% of which were created
returns, which, eventually, lead to delays in the exit process. between 2013 and 201629, validating this phenomenon. These
social enterprises comprise of both high growth ventures,
 s of date, most exits in the country have been through a
A which are potential deal flow for impact investors, as well as
secondary buyout, wherein other investors have bought the livelihood sustaining businesses.
stakes of earlier investors.

Box 2:
A social enterprise seeks to maximize its profits
Spotlights on exits in country while maximizing benefits to society and the
environment. Demand for capital includes
GoodLife Pharmacy is a pharmaceutical and wellness
products retailer, which provides its customers across
capital demand from both for-profit and
the country with quality and affordable products not-for-profit ‘social enterprises’ at various
through various retail outlets. It also provides clinical stages of growth.
services in its retail stores via telemedicine. Counterfeit
drugs in Kenya account for as much as 20-25% of total
legal pharmaceutical market; GoodLife Pharmacy is The number of investment funds is increasing in the country,
working towards solving this challenge by supplying however, the funding is going to selected few enterprises.
quality drugs to its customers and in pursuit working More investment funds are entering the region; however,
towards the SDG goal 3.8 “Achieve universal health they are investing in the same enterprises with the majority
coverage, including financial risk protection, access to of funding being allocated to the larger expat founded social
quality essential health-care services and access to safe, enterprises. For instance, just five enterprises—M-Kopa, (off-
effective, quality and affordable essential medicines grid electricity, PAYG company), Angaza, (sales and payment
and vaccines for all”. management provider), Tala (a consumer lending app), Off-
Catalyst Principal Partners invested in GoodLife Grid Electric (clean energy provider) and Branch (a lending
Pharmacy in 2014 to finance the retailer’s expansion app)—received over 70% of disclosed investments in the
plans of increasing the footprint in the country. region between the period of 2015 and 2017. 30
GoodLife further received the investment by IFC in 2015.

In 2016, Catalyst Principal Partners exited its investment

in GoodLife by selling its equity stakes worth ~USD 20
Million to Leapfrog investments. Leapfrog’s investment
in GoodLife was guided by its strategy to partner
with companies that are addressing healthcare
challenges in emerging markets.

Bamba is a real-time data gathering platform that

engages with customers in the emerging markets
via mobile feature phones. It provides virtual data
collection service to its clients to communicate and
obtain feedback from beneficiaries, clients, suppliers,
etc. Bamba uses the model wherein it also rewards
individuals with mobile airtime for completing the
surveys. Getting the right data is a challenge in most
emerging countries and Bamba is solving that by
27 The Kenya Youth Survey Report(2016) by Alex O.Awiti & Bruce Scott at
democratizing the data.
The Aga Khan University
The founders of the company exited their investments 28 Primary criteria used to define social enterprises in the study: Organizations
in 2018, as it was acquired by UK-based Maximeyes placing emphasis on achieving social/environmental mission alongside profit,
Group, a business incubator, investor, and energy organizations with less than 75% of their income from grant funding

solutions provider. 29 British Council, 2017, The State of Social Enterprise in Kenya

30 Breaking the Pattern: Village Capital/BMGF Foundation, 2017 report

 9

Box 3: Key barriers to the growth of Social Enterprises

Below are the main barriers hindering the growth of social
Twiga Foods solving post-harvest and market
enterprises in the country, organized in order of relevance:
access challenges for smallholder farmers
 emand and supply mismatch in funding availability:
D
Sector: Agriculture Currently, there is a mismatch between the demand and
supply of impact capital available in the country, i.e. ticket
Enterprise: Twiga Foods sizes and time frames at which investors provide capital and
Model: B2B platform for agriculture produce ticket sizes and time frames that enterprises need capital
do not match. The British Council report (2017) states that
Year of establishment: 2013 the majority (64%) of social enterprises in Kenya are still in
Total capital raised: US$ 30.4 Million over 8 rounds their early stages of growth i.e. established in last five years
and with an average number of employees between 10-1531;
Investments/Funding rounds: such enterprises require small ticket-size financing (< USD
2
 018: US$ 10 million from IFC, TLcom, DOB equity, 100,000), but there is dearth of capital in the form and
Adolph H.Lundin, Wamda Capital, 1776 ventures size that they are looking for. On the other hand, the same
2
 018: US$ 7 million from IFC & TLcom problem persists even for slightly bigger enterprises ‘missing
middle’, that are too big to avail finance from traditional
2
 017: US$ 10. 3 million from Wamda Capital, 1776 Seed financiers such as microfinanc
investors, Alpha Mundi, Blue Haven Initiative, DOB but are too small or risky for private investors. Youth
equity, Omidyar network, Uqalo and women entrepreneurs face additional challenges
2
 017: US$ 50,000 from Google Launchpad accelerator in accessing capital, aggravated by lack of appropriate
networks, business skills, and mentoring and capacity
2
 017: US$ 2 million from USAID building support.

“
2
 016: US$ 1 million from 1776 ventures

Inthe agriculture sector, while investors

Challenge are looking to invest in enterprises that are
Small-scale farming accounts for over 75% of total
working directly with smallholder farmers,
agricultural output in Kenya. However, adequate price
realization for smallholder farmers has been a key there are a number of enterprises in logistics
challenge in the country because of the lack of an of agri-value chain that are investable and
efficient supply chain, warehousing facilities, assured scalable but find it difficult to raise capital
markets for farmers. These challenges also result in high
post-harvest losses and create food insecurity in the
as they do not fit the regular impact story.
country. These enterprises may not be directly working
with smallholder farmers but still creating an
impact on a broader scale such as reduction
Solution
in post-harvest losses.

”
Twiga Foods aims to solve these challenges by creating
linkages between farmers and vendors of agricultural
produce. It provides a guaranteed market, fair pricing,
Socia
 l Enterprise
technical advice and access to credit to farmers.
Kenya
Whereas, to vendors, it provides better quality produce,

better prices, guaranteed product supply and safety of
products. Twiga has created a mobile-based business-
to-business (B2B) supply platform where farmers and  ost investors do not prefer investing in early-stage
M
vendors can register and access its services. enterprises as they require technical assistance and business
development services (BDS) support, and when such
support is provided, cost of investment becomes higher than
Impact financial returns, thus rendering such investments financially
Twiga Foods currently operates through 25 collection non-viable.
centres and employs 240 staff members. It has become
the largest seller of bananas in Kenya having sourced
more than 245 tonnes of bananas each week from over
3,000 farmers. It is currently connecting over 8000
farmers with 5000 plus vendors, who make orders
via its platform on a weekly or bi-weekly basis.

31 British Council, 2017, The State of Social Enterprise in Kenya

10

Due-diligence processes are long and tedious: Many Box 4:

investors have now started to open their local offices;
however most have their investment committee members Bridge International providing affordable and
still sitting outside of Kenya. These investment committee quality education to underserved children
members have limited contextual knowledge of investment
and entrepreneurial environment in Kenya and tend to Sector: Education
gauge risks higher than actual risks on the ground. In
Enterprise: Bridge International Academies
order to mitigate their risks, investors often conduct long
and tedious due-diligence processes resulting in ‘process Total capital raised: Over US$ 20 Million (disclosed)
fatigues’ at entrepreneurs’ end. The problem is further
Investments/Funding rounds:
worsened by the fact that most enterprises in Kenya lack
2014: US$ 7.6 Million from CDC
necessary documentation such as financial statements,
pitch deck, information memorandum etc., required for 2015: USD$ 10 Million from Chan-Zuckerberg initiative
due diligence and therefore investors have to rely on their
 ome of the other investors: Bill Gates, NEA, Omidyar
S
physical field visits for evaluating health of the company.
Network, IFC, Learn Capital, Novastar Ventures
These factors result in lengthening the due diligence
process, often stretching to 12-18 months.

 uman capital challenges impede fundraising initiatives:

H
Challenge
Social enterprises tend to face a dilemma. On one hand, they
Access to quality education remains a huge challenge
cannot raise money in the absence of the right team, whilst,
in Kenya. With the introduction of free primary school
on the other hand, they cannot afford to have the right team
education in Kenya, access to education has improved.
without raising money.
However, the quality of education offered in public
 he three main talent challenges that often affect the social
T schools still remains low.
entrepreneurs are:
Enterprise solution
     Skills Gap: Most enterprises interviewed mentioned Bridge International works with governments,
severe skills gaps including lack of technical, functional communities, teachers, and parents to deliver
and leadership skills, hindering their business growth. nursery and primary education in Africa and Asia.
Leadership, particularly at senior management level, is Using data and technology, the Bridge manages the
the most commonly cited issue across Kenya. Reasons administration of the school, delivering lesson plans
for lack of skills are often linked to education systems to teachers and facilitating classroom management. 32
which fail to adequately prepare students for the job The company also specializes in creating instructional
market particularly with regard to cognitive and soft skills. material and capacity building and development for
The problem is significant across Africa, and not solely in teachers and other staff members.
Kenya, which does not have a single university listed in the
top 150 on the Global Employability University Ranking. Impact
The company has over 300 low-cost private schools and
     Cost of Talent: There is limited high quality talent pool
over 100,000 students in Kenya. It charges an average
available in the country. Supply and demand mismatch
fee of US$ 7 per month per child. Students from bridge
has resulted in cost of talent to be high, making it
academies have consistently outperformed the
prohibitive for social enterprises to acquire these skills,
national average in the Kenyan Certificate of Primary
particularly in their early stages, when they are already
Education (KCPE) exam over the last three years
boot-strapped and struggling to get capital for their
(2015, 2016 and 2017). 33
businesses.

Instability of local currency makes it hard for social

enterprises to raise foreign debt: While enterprises earn
most of their revenues in local currency (Ksh), repayment Intermediaries of Capital
of dividend/debt in most instances is required in hard Kenya has a high cost of credit.
currency (USD, Euro). The Kenyan currency has been fairly Despite the interest rate capping introduced by the Central
stable for the past few years, but the currency is still highly Bank of Kenya in 2016, which limits lending rates to 4 per
prone to shocks and fluctuations from both internal and cent above the Central Bank rate, the cost of credit is still very
external market conditions. Depreciation of local currency high in the country. A report by Kenyan Bankers Association
makes it difficult for Kenyan enterprises to repay their published in June 2017 shows that some of the biggest banks
foreign dominated debt. Some currencies hedging funds in the country add high processing fees to the charged interest
have opened shops for Kenyan social enterprises but their rates, bringing the cost of credit to 20-25%, which makes it
costs are still prohibitive as they charge between US $5000 unaffordable for small and growing businesses. The same
and US $10,000, depending on the size of company, for report also mentions that costs are even higher and reach
due diligence and their lending rates are no better than up to 40% for huge and small duration loans. 34
commercial banks.

32 https://www.cdcgroup.com/en/our-investments/investment/bridge-
international-academies/
33 https://www.bridgeinternationalacademies.com/home/faq/

34 Cost of credit report by the Kenya Banker’s Association (2017)

 11

Government / Regulatory Players

Intermediaries of capital include institutions
Over the past five years, the government has tried to
such as banks, MFIs, fintechs, etc., assisting curb the rising unemployment rates by working with its
social enterprises with intermediate capital development partners to support the growth of micro and
small enterprises (MSEs) across the country.
Kenya’s population is young: more than 80 per cent of Kenyans
are less than 35 years old. 36 Young people joining the labour
Fintechs in Kenya are acting as intermediaries which are market (aged 15-16) face unemployment rates of above 20 per
filling the missing financing gap. cent, but rates are even higher for older age groups and are
Fintechs are rapidly booming in Kenya driven by financing highest for those aged 18-20. 37 In response to the youth bulge,
gap in the market, high mobile and Internet penetration, the government has set up relevant bodies meant to support
and a unique blend of technology innovations. There are over the growth of micro, small and medium enterprises so that
30 Fintech companies in Kenya that are providing small and they can create employment and/or improve the livelihoods
microloans and credit facilities. These Fintechs are serving for the youthful population in the country.
the demand of micro and small businesses which traditional
financiers often shy away from. Key Government Initiatives
The following are key initiatives taken by the government for
Box 5: the promotion of investments/social enterprise sector in Kenya:

Branch International reducing the cost of  enya Investment Authority (KenInvest)

K
financial services and providing access to Kenya Investment Authority (KenInvest) is a statutory body
microcredit established in 2004 with the main objective of promoting
investments in Kenya. It is responsible for facilitating the
implementation of new investment projects, providing after-
Sector: Financial Services
care services for new and existing investments, as well as
Enterprise: Branch International organizing investment promotion activities both locally and
internationally.
Model: Online lending platform
 elevance to the sector: This step by the government has
R
Total capital raised: US$ 84.7 Million over 5 rounds
improved the country’s ranking in the World Bank’s Ease
Investments/Funding rounds: of Doing Business Index (129 in 2013 to 61 in 2018). Recently,
2
 018: US$ 3.5 Million in debt funding from Barium KenInvest has also put in place an eRegulations program,
Capital making it easier for investors and entrepreneurs to invest in
the country.
2
 018: US$ 70 Million from IFC, Trinity Ventures, Victory
Park Capital, Andreessen Horowitz, CreditEase  icro and Small Enterprises Authority (MSEA)
M
Fintech Investment Fund MSE Act established the Micro and Small Enterprises
Authority (MSEA), housed within the Ministry of
2
 017: US$ 2 Million from Nabo Capital
Industrialization and Enterprise Development. The MSEA
2
 016: US$ 9.2 Million from Andreessen Horowitz, was established in 2013 in order to promote, develop and
Formation 8 and Khosla Impact regulate the Micro and Small Enterprises (MSE) Sector in
Kenya. Social enterprises are not recognised separately
and are included in MSE sector in Kenya. The authority
is responsible for developing and reviewing policies and
Challenge
programs, promoting and developing the MSE sector,
Access to credit for micro and small businesses has
monitoring and evaluating the implementation of policies,
always been a challenge in the country. Traditional
programs and activities related to MSE and social enterprises
lenders such as banks and MFI’s have long tedious
development. In addition, the authority was established
application processes and have high collateral
to coordinate, harmonise and facilitate the integration of
requirements which are not always possible for many
various public and private policies, programs and activities
small traders and micro businesses.
related to Micro and Small Enterprises in Kenya.
Enterprise solution
Branch International offers loans ranging from US
$2.5 to US $700 at monthly interest rates of 1-14%.
Customers are able to request for loans through the
branch mobile application and receive funds through
M-Pesa, without late or rollover fees, or any collateral
requirements.

Impact
As of 2017, the company has disbursed over US $35 35 https://www.businessdailyafrica.com/corporate/companies/Virtual-lender-
million worth of microloans starting from US$ 2.5, Branch-Kenya-loans/4003102-4039972-sxnths/index.html
and has made over 1.5 million transactions in Kenya 36 The Kenya Youth Survey Report(2016) by Alex O.Awiti & Bruce Scott at
with a customer base of over 350,000 customers. 35 The Aga Khan University
37 Argidius Foundation, 2015, The Entrepreneurship and Enterprise Growth
Landscape in Kenya
12

Relevance to the sector: Since inception, MSEA has       W

 omen Enterprise Fund (WEF)
facilitated over 1,450 MSEs to participate in various exhibitions       Women Enterprise Fund was established in August
countrywide. It has also supported entrepreneurial and skills 2007, as a semi-autonomous government agency under
upgrading programmes by training more than 2,000 MSEs the Ministry of Public Service, Youth & Gender Affairs. It
spread across various counties. In 2018, MSEA launched the provides accessible and affordable credit to women for
Kenya Youth and Entrepreneurship Project (KYEOP) with starting and/or expanding their business; as part of the
the World Bank to promote youth entrepreneurship in the Kenyan government’s commitment to the realization of
country. sustainable development goals on Gender Equality and
Women Empowerment (SDG 5). Within a span of four
Information and Communication Technology
years, this commitment had made significant progress,
(ICT) Authority
evident from the fact that the Fund was awarded as the
The ICT Authority has the mandate to foster the
winner of the ‘Sustainable Development Goals Award for
development of ICTs in Kenya (including businesses,
outstanding achievement on Promoting Gender Equality
innovation and capacity building), implement and maintain
and Women Empowerment’ in 2011. Under the WEF, the
systems and technology for the government, oversee the
government has disbursed over US $20 million between
development of integrated information and communication
the period of 2007 and 2012. 39
technology (ICT) projects, and to develop and enforce ICT
standards for the government. Key Barriers in the regulatory framework
Relevance to the sector: In March 2015, ICT authority Although the government has rolled out a number of
launched Enterprise Kenya, a national accelerator to positive regulatory initiatives, the following barriers hinder
catalyse innovations in ICT space. Enterprise Kenya drives the development of impact investment sector in Kenya:
engagements with relevant government agencies to review  ureaucratic process of obtaining licenses and permits
B
the current procurement law with the aim of giving Kenyan (such as patents) from governmental bodies: Two-thirds
ICT businesses more opportunities to supply to government of social enterprises interviewed mentioned that the
technology solutions. The entity is also looking at the government of Kenya has long bureaucratic processes
establishment of an Equity Fund to support ICT innovations which delay the rolling out of their products and services
that could be quasi-government or private; and the creation into the market. For instance, it can take from 6 months and
of ICT Centres of Excellence that are linked to government up to one year to register a patent with the Kenya Industry
ICT spending. Property Institute (KIPI). Without the necessary permits,
Ministry of Public Service, Youth and Gender Affairs the products cannot be launched in the market, which,
For mainstreaming of gender in national development eventually, results in delays to raise capital from external
processes and to champion socio-economic empowerment investors who would like to see some traction in the market
of women, the state department of Gender affairs was before they can invest in a business.
created from the Ministry of Devolution and Planning I nterest rate capping following the coming into effect of
in November 2015. The department is responsible for Banking Act (2016): The interest rate cap was introduced
expanding credit financing to youth and women for in 2016 by the Central Bank of Kenya, limiting lending rates
enterprise development and for ensuring equality in gender between zero to four per cent above the Central Bank rate.
representation in all public appointments. The rate cap was aimed at helping small and medium
Relevance to the sector: Some of the initiatives rolled out by businesses access capital at affordable rates; however, it had
the ministry, targeted at youth as well as women-led micro, the exact opposite effect. Unable to price and assess risk of
small and medium enterprises (MSMEs), include: loans in an appropriate manner, banks have become more
risk-averse and have started to view loans to small borrowers
      Youth Enterprise Development Fund (YEDF) such as small and medium enterprises (SMEs) and individual
      Youth Enterprise Development Fund (YEDF) was applicants, riskier and expensive to manage. Thus, banks in
established in the year 2006 with the objective of reducing Kenya tend to offer less credit to such borrowers and prefer
unemployment among the youth, who account for the lending to government and large private borrowers which
majority of unemployed in the country. The fund targets provide stable and better returns. Given that most of social
young people within the age bracket of 18 to 35 years. The enterprises are also SMEs, they find it difficult to raise debt
fund offers a variety of loans and financing products, as capital from banks.
well as training and mentoring to youth-led enterprises.

      Uwezo Fund

      Uwezo Fund is aimed at expanding access to finances
and to promote women, youth and persons living with a
disability, led enterprises at the constituency level. It runs
a Capacity Building Programme to provide mentorship
support to its beneficiaries to take advantage of the 30
per cent government procurement preference. The fund
is aimed at supporting the incubation of enterprises,
catalysing innovation, promotion of industry, the creation
of employment, and growth of the economy. It provides
loans to qualifying groups and is administered locally. The
government has disbursed over US$51 million under the 38 http://www.uwezo.go.ke/disbursements(March 2019)
Uwezo Fund. 38 39 Research: How Effectively Is the Women Enterprise Fund Managed? By Prof.
Ruth Kiraka, Strathmore University
 13

 elays in closing mergers and acquisition transactions:

D Ecosystem Support Providers
All mergers and acquisitions require authorization from
Competition Authority of Kenya (CAK) before they can be Kenya is home to the highest number of support
finalized. Through this authorization process, CAK regulates providers in the region
the abuse of dominant position and other competition Kenya is home to more incubators, accelerators, service
and consumer-welfare related issues in Kenya. Currently, providers, and other ecosystem players than any other East
all transactions below KES 1 Billion (~US $10 Million) need African country; the country has over 70 ecosystem support
14 days for approval, whereas those above KES 1 Billion providers.40
(~US $10 Million) are reviewed and approved within 60 Ecosystem support providers in Kenya are evolving
days. CAK is working on a suggestion that seeks to impose their business models
a threshold so that only transactions above KES 0.5 Billion With the maturity of the ecosystem and sector-specific
(~US $5 Million) are notifiable to them. They are also working technical assistance demand from enterprises, more and
on block exemptions for certain sectors, e.g. sports and more incubators and accelerators in the country are becoming
entertainment. sector-specific, providing tailor-made and customised sector-
Lack of recognition of the social enterprises by the specific support. Some of such incubators/accelerators include
government: There is no recognition of social enterprises Villgro & Duke Innovations which work with healthcare
(SEs) in the country’s current regulatory framework and, enterprises, KCIC which works with clean energy enterprises,
thus, they often run into registration dilemma at the point MasterCard lab which works with agriculture enterprises and
of registering their entities. Social enterprises in Kenya can DFS lab which works with financial services enterprises.
register themselves as limited liability companies, sole The first group of incubators and accelerators in Kenya had
proprietorship, not-for-profit organisations, cooperative heavily borrowed their support models from Silicon Valley
societies, corporations, etc. As per the British Council 2017 but now they are contextualising their models to fit current
report, 23% of the social enterprises registered themselves as market/ geographical needs. Further, recently increased
limited liabilities companies followed by 20% registered as focus towards entrepreneurship is observed amongst higher
a sole proprietorship, and 14% as not-for-profit organisations. learning institutions; many of them have launched their own
Most social enterprises register as limited liabilities incubation centres. For example, the University of Nairobi
companies as this gives them the opportunity to be listed launched its incubation centre known as C4D lab and also
on national stock exchange in their later stages of growth. hosts an annual summit known as Nairobi Innovation Week.
However, it also puts an obligation on them to abide by the In addition, Kenyatta University has Chandaria Business and
same tax and regulations as other established businesses Innovation Centre.
and often results in creating additional financial burdens for
these early-stage SEs. 
 onstantly changing regulatory environment: The
C
regulations and, particularly, import duties change quite
often in Kenya, creating hindrances in the growth of social
enterprises. For instance, in the past, the government
had waived import duties and taxes on all components
of Solar Home Systems but, with recent changes, certain
components such as bulbs and batteries are again subjected
to taxes, complicating importation of the solar home system
units as these are normally packaged together. Further, in
other sectors such as the agriculture, social entrepreneurs are
burdened with heavy duties while importing manufacturing
or agro-processing equipment, despite not being able to
source these products locally. There is a need to reduce
import duties for such equipment in order to encourage
social entrepreneurship.

40 Intellecap, Fintrek Report- Investment Opportunities in Fintech in East

Africa-2018
14

Recommendations for Strengthening

Impact Investment in Kenya
The following recommendations surface from impact Grant providers and philanthropists can introduce
investment landscape analysis of Kenya a milestone-based or outcome-based grant system
in the country
Supply of Capital Grant financing is much needed in Kenyan entrepreneurial
ecosystem to support the growth of micro and small
Impact investors in Kenya can develop blended finance enterprises. However, a large amount of grant monies
structures combining different forms of capital, providers, disbursed in the country has also made many enterprises
and instruments overly reliant on just grant financing for running their
Despite the increase in the number of funders and evolved businesses. Many enterprises primarily focus on seeking
landscape of intermediaries, such as fintechs, access to repeated grant financing and keep moving from one grant
capital still remains a huge challenge for enterprises in prize to another, using resources that might otherwise be
the country. The majority of funds focus on equity and used in the managing and scaling of their businesses. There
notwithstanding the increasing number of enterprises, is a need for grant providers/philanthropists to incorporate
deal closure is low averaging around 20 for the last five mechanisms such as milestone-based grant funding, issuance
years. The current structure of investment, which is akin of repayable grants or matching grants where enterprises are
to the Silicon Valley model, needs to be contextualised for expected to match grants with their capital investments.
Kenya to achieve the tipping point for impact investing.
Different funding structures and instruments including Example: Africa Enterprise Challenge Fund (AECF) runs
debt, mezzanine, guarantees and more patient risk-taking a challenge program to identify and provide a grant to
capital are required in this market. There has been an enterprises in sectors such as agriculture and agribusiness,
ever-increasing need to create blended finance funding renewable energy and adaptations to climate change, rural
structures, combining different forms of capital, providers, financial services and communication systems that support
and instruments in the Kenyan market. Different capital the other focus sectors. It provides grants between US$
providers with differing risk and return appetites can come 100,000 and US$ 1.5 Million to enterprises; however, grants
together to develop innovative structures matching the are disbursed in stages, depending on the key milestones
needs of businesses with the risks and stages of growth. being met, which are agreed at the beginning of the grant
disbursement process. The program was launched in 2008
Example: and has so far deployed US$ 356 Million, supporting 266
      F
 AFIN is a US $65 million mezzanine fund for agriculture in companies.
Nigeria with partnerships from the Nigerian government,
the German Development Bank, and Nigeria’s Sovereign  aendeleo Sawa (M-SAWA) Kenya project is a seven-year
M
Investment Authority. The fund combines the risk appetite (2015-2022), $28.7 million project funded/implemented
and returns expectations of different players and has by Mennonite Economic Development Associates (MEDA)
created blended finance structure that meets the need with funding from Global Affairs Canada (GAC). The project
of agriculture sector in Nigeria. provides matching grants to SMEs, business associations and
firms working with SEs/SMEs, in sectors such as agriculture,
      K
 enya SME fund was launched in 2006 by Business construction/allied industries extractives. All grants provided
Partners International in cooperation with IFC, East by M-SAWA require cash match/cost share.
Africa Development Bank, European Investment Bank,
Sarona Capital, and CDC. It is a US $14.1 million fund using There are opportunities for Impact investors to use
blended finance instruments (i.e. a mix of debt, equity instruments such as venture debt or royalty-based
and quasi-equity) for investing in small and medium-sized financing to deploy more capital in the country
enterprises. The fund also provides technical assistance to Venture debt is capital in the form of debt to high-risk
businesses where it invests. businesses that lack assets or cash flow for traditional debt
financing. It is more flexible and longer-term than the
Investors in Kenya should increase their risk appetite traditional form of debt. Royalty-based financing is a form of
Impact investors in Kenya tend to be risk-averse and are financing in which investors take percentage of ongoing gross
increasingly investing in the same companies, so much revenues in return of the capital invested into businesses.
so that over 70% of the capital deployed in the country in
2017 went to 5 companies only.41 There is a need for impact  takeholders interviewed as part of this research, i.e.
S
investors to widen their horizon and invest in companies investors, enterprises, incubators, accelerators, mentioned
outside of their usual network and outside of the main the need for and lack of venture debt/royalty based-
Tier 1 cities. financing in the country. Many enterprises, especially in their
early stages of growth, require debt to scale their business,
Example: Aavishkaar India, an impact investment fund, but, in the absence of venture debt or royalty-based
invests in high-risk enterprises serving low-income financing, are forced to raise equity capital and giving up a
populations in underserved geographies across India and significant equity stake in their businesses. There is a need
South East Asia. It is usually the first external investor in its for impact investors to develop such instruments targeting
portfolio companies. Over the past 15 years, it has invested these early-stage enterprises.
in over 50 companies and has US$ 400 Million AUM

41 Breaking the Pattern: Village Capital/BMGF Foundation, 2017 report

 15

Example: Government/ Regulatory Players

     GroFin is a debt fund that provides medium-term venture
debt and technical assistance to small and growing  here is a need for taking regulatory reforms by the
T
businesses across Africa and the Middle East. It has government such as:
invested in 675 SMEs since its inception in 2004.       Recognising social enterprises: Social enterprises are
     I ntelleGrow is a venture debt fund, based out of India neither recognised nor defined in any Kenyan law. The
that provides debt to small and growing businesses. It has MSE Act, Companies Act, National Trade Policy etc.
disbursed over US$ 185 Million across 280 venture debt currently does not have mention of Social enterprises.
deals so far. There is a need for social enterprises policy and a legal and
regulatory framework which governs social enterprises in
     M
 ainstreaming angel investing: Local angel investors the country. Social Enterprise Society of Kenya (SESOK), the
can play a significant role in filling the gap in the required Umbrella Body and Voice of Social Enterprises and Social
impact capital in the country. They can also provide capital Entrepreneurs in Kenya, is currently spearheading this
in local currency which is usually preferred by enterprises. proposition and has convened a steering committee with
Although, angel investing has been picking up in Kenya in all key ecosystem stakeholders to achieve it.
recent years, angel investors or high net worth individuals
still prefer to make investments in traditional sectors       Making regulatory environment favourable for
such as real estate. Therefore, there is a need to increase investment funds to be domiciled in the country:
awareness about impact investing and approaches for There are a number of investments funds, which have
impact investing amongst high net worth individuals to funding activities in Kenya but are domiciled/registered
unlock their potential. in other countries such as South Africa and/or Mauritius
because of tax incentives provided by those countries. The
Demand for Capital government of Kenya can make regulatory environment
more favourable so as to attract these fund managers to
There is a need for increased awareness amongst social register their funds in Kenya as opposed to in South Africa
enterprises on different instruments/mechanisms of and/or Mauritius.
impact investments
Many social enterprises are not aware of how they can
benefit from the different masterclasses/mechanisms/
The regulatory reforms should be formulated
instruments available in the market. As a result, they end up
absorbing grant or traditional debt funding and not using and refined through systematic and regular
other available mechanisms/instruments. consultation with key stakeholders from the
Example: industry.
      Good Finance (UK) is a collaborative project to help
improve access to information on social investments for
charities and social enterprises.
      D
 eveloping a tiered regulatory structure for social
 C4Africa provides fundraising and mentoring support
      V enterprises: The government can develop a tiered
to start-ups in Africa, which they connect to a pool of regulatory structure with different regulations and
international and local experts to whom they can reach compliances for different size/stages of companies. For
out to for advice on topics such as financial instruments, instance, start-ups can start with limited regulatory
fundraising process, business development, human compliances to adhere to; compliances keep increasing/
resource and legal matters, all free of charge. changing as they grow and become bigger in size. The size
of the company can be defined in terms of a number of
employees, years of operation or annual revenue.

      I mproving formulation and enforcement of Intellectual

Property Rights (IPR) regulation: There is a need for
improvement in the formulation and enforcement of IPR
regulation in Kenya. In the current regulatory framework,
whenever there is an IPR-related dispute, arbitration will
follow an industrial court process which is time-consuming
and often ineffective. The government could consider
putting in place a mechanism for each sector, similar to
one in banking sector where Kenya Bankers Association
(KBA) is responsible for arbitrating any inter-banks
disputes.
16

      Creating robust capital markets: Nairobi Stock Exchange Market building support
(NSE) launched Growth Enterprise Market Segment (GEMS)
in 2013 to provide more finance options to SMEs, especially  here is a need for increased collaboration between
T
long-term funding. This could have been a good exit various stakeholders in the sector: With multiple DFIs,
option for impact investors who are looking to exit their donors, ecosystem support providers and government
investments through an Initial Public Offering (IPO) and programs to promote start-ups and MSMEs across the
listing on capital markets. However, there has not been country, there is a need for a common platform which
much uptake of GEMS because of its current policies and disseminates useful information, enables collaboration
framework. NSE should look to improve the GEMS model and multiplies the impact of these efforts. It is critical for
by enabling more firms to list on it. various stakeholders and stakeholder’s associations to take
an ecosystem approach to Impact Investing to overcome
      Creating sandboxes or providing testing environment: fragmentation and further develop the sector.
A sandbox is a testing environment which provides
innovators with a platform to test viability of their products  here is a need to develop Peer-to-Peer learning networks
T
and services in a controlled setting. Capital Markets in the country: Entrepreneurs interviewed as part of this
Authority (CMA) of Kenya launched a regulatory sandbox in research, highlighted the importance of peer-to-peer
April 2019, allowing fintechs to live-test their products and learning networks. They prefer such networks to validate
services for a period of 12 months on its platforms. More their ideas, meet and learn from other entrepreneurs,
such initiatives are needed by the government to promote develop partnerships and build greater visibility for their
development and scaling of innovations in the country. products and services. However, they also mentioned the
lack of such networking opportunities. While there are many
      Reducing red tape by county governing bodies and business forums and conferences, there are limited or no
better facilitation of trade across the Kenyan counties: peer-to-peer ‘structured’ learning opportunities for social
Following the declaration of the new constitution in 2010, enterprises.
some central government’s powers were devolved to
the county governments. This has further increased the Example: Initiatives, such as Rwanda’s Youth Connekt,
regulatory burden on small social enterprises that have to provide peer-to-peer learning opportunities to start-ups and
now deal with both the central government and county early-stage enterprises by connecting them and providing
government’s regulations. For instance, enterprises which them a platform to interact with both peer and mentors.
have branded delivery vehicles have to pay fees as they  cosystem support providers, together with investors,
E
cross different county borders to make deliveries, thus can develop pre-investment technical assistance support
creating a financial and regulatory burden on enterprises. programs: One of the biggest challenges cited by investors
There is a need of reduction in such regulations and better is the lack of enough investment-ready enterprises in the
facilitation of trade across counties. country. This results in investors competing for a smaller
      Harmonising trade policies and quality standards, pool of investment-ready enterprises, distorting the market
thereby facilitating trade across the East African and leading to higher valuations. Whilst investors do provide
Community (EAC) countries: Impact enterprises that post-investment support to enterprises for their growth and
operate within the EAC region have in certain instances scale, there is a gap in pre-investment technical assistance
faced hurdles at border points due to stringent support for early-stage enterprises, which can make them
and constantly changing safety/quality compliance investment ready.
requirements, thereby affecting their operations adversely. Example:
There is a need for harmonisation of policies across the Kenya needs US $6 Billion of private sector investments
East African region for increased growth of enterprises in into primary healthcare over the next 10 years; however the
the region. pipeline of investable companies in healthcare sector in
Promoting deployment of local pension funds for impact Kenya is very low. SDG Partnership Platform Kenya (SDGPP),
investments: The government of Kenya made amendments in collaboration with USAID and McKinsey & Company,
in the Retirement Benefit regulation in 2015, which allowed identified 15 potential deals/companies in healthcare sector
allocation of up to 10% of pension funds’ assets under and provided them support in areas such as business case
management for direct investment in a private equity asset development, financial modelling, market scoping and
class. This is a remarkable step by the government as it will research. Two of such companies are on their path to raise
channel more local capital into private equity and will allow required investment by mid-2019.42
increased participation of pension funds in the growth
of micro, small and medium-sized enterprises in Kenya.
However, pension funds still have not picked up the idea of
investing into local social businesses, and there is a need for
government to further promote it.

Example:
Yield Uganda Investment Fund, managed by Pearl Capital
Partners, raised € 2 Million from National Social Security
Fund, Uganda. It is the first impact investment fund in Africa
that raised capital from local pension fund for deployment
into local high impact social businesses.

42 Interview with SDG Partnership Platform Kenya

 17

Incubators and accelerators need to develop support I mpact investors and entrepreneur support organisations
programs for enterprises outside of Nairobi: Ecosystem can come up with initiatives meant to assist SEs in
support providers, i.e. accelerators, incubators are currently attracting and retaining the necessary talent that they
concentrated in Nairobi, whilst there are a considerable need to grow: Such initiatives can entail creating linkages
number of high potential enterprises outside of Nairobi. and/or partnerships with relevant tertiary academic
There is a need for support providers to widen their reach institutions or ecosystem support players so that they can
and include enterprises outside of their regular network and develop and implement specific and customised curricula
reach. Collaboration with Non-Government organizations to supplement the skills of the management team of the
(NGOs) can also be crucial for support providers, as NGOs SEs. They can also organise for short-term externships/
work deeply with communities in rural areas and can secondment of support ecosystem players’ staff members
identify enterprises that are working to solve challenges on to the social enterprises for capacity building.
the ground. Support to enterprises outside of major cities
Other initiatives to consider for implementation include:
can be provided through virtual incubation programs.
      Development of an integrated talent management
Example:
network.
Realising the lack of support for enterprises outside of Tier-1
cities in East Africa, Intellecap developed an online platform       Provision of subsidised capital for strategic human capital
called StartupWave, which provides virtual incubation hires to de-risk investments
support to enterprises. It assists enterprises in refining
      Development of programs to connect world-class talent
their business models, developing their value proposition,
with SEs
connecting the businesses to various service providers, and
providing the information for the various challenge and grant  cademia can play a critical role in developing
A
programs online. Currently, StartupWave has over 700 plus entrepreneurship ecosystem in the country: The
enterprises from across the continent and over 30% of them universities in Kenya can play a vital role in building an
outside the main cities. entrepreneurship ecosystem in the country. There is need
to change the pedagogy from theoretical to more practical
Accelerators and incubators need to innovate their
based, which can be done by incorporating work-based
business models to ensure long-term sustainability: The
learning programs, internships and on-the-job training
majority of accelerators and incubators in Kenya are currently
programs, in the curriculums. While some universities in
reliant on grant funding for sustaining their operations
Kenya have launched their incubation centres to promote
and for running technical assistance support programs.
entrepreneurship, more of these initiatives need to be
The funding is drying up and support providers need to
developed to promote entrepreneurship in the country.
look for innovative business models that can sustain their
operations.43 Accelerators/incubators could introduce co-pay

models where entrepreneurs pay a certain fixed amount to
participate in the program, rather than it to be completely
free. This will not only help gauge the entrepreneurs’
‘skin in the game’, but also serve as a revenue source for
the accelerators/incubators. In addition, accelerators and
incubators can also partner with strategically aligned
corporates in the country. Furthermore, the government
attempts to promote entrepreneurship in the country;
ecosystem support providers can also seek public funding
and partner with various government initiatives. There is a
need for support providers to explore and pursue a variety
of revenue models in order to be sustainable in the long run.

43 Intellecap research
18

Conclusion

The impact investment sector in Kenya has seen significant  utting entrepreneurs at the core of entrepreneurship
P
growth and interest from across the world in the past few years. ecosystem: There is need to develop a culture in Kenya where
A wide range of actors in the impact investment sector are successful entrepreneurs actively participate as mentors,
contributing to the development of the ecosystem in Kenya. advisors and angel investors etc in the growth of other
entrepreneurs in Kenya. Currently, the ecosystem is mainly
Based on the barriers and opportunities identified in this
driven by accelerators, incubators and finance providers but
report, key high-level recommendations to foster the impact
there is limited participation by successful entrepreneurs to
investment sector in Kenya have been identified as follows:
support the ecosystem.
Developing a platform for the strengthening of impact
 eveloping the continuum of impact investing from idea
D
investing sector: Despite there being more impact investing
to scale: There is a need to develop a continuum of support
activity in Kenya compared to its neighbouring countries, it
in the form of capital and technical assistance, for social
still represents a small part of the global impact investment
enterprises at various stages of growth. Early-stage enterprises
activity. Going forward, it is critical for key stakeholders
requiring seed and proof-of-concept funding, need more
to take an ecosystem approach to impact investing. This
and more philanthropic investors who have high risk-taking
could be acheived by developing a multi stakeholder and
capability and low investment returns. Growth enterprises,
cross sector championing body. This body could be tasked
commonly known as the missing middle, may have initially
with creating awareness of and advocating about impact
experienced high growth rate but are still small and require
investment, engaging in policy dialogues, encouraging
external capital through innovative financing structures,
joint learning and coordinating initatives between various
which do not burden their operations.
stakeholders .


 19

Annexure 1

List of organizations that participated in this research

Organisation Category Contact Person

Spark Possibilities Demand for capital Mr. Hal Peters

Food for Education Demand for capital Mr. Wawira Njitu

Godown Arts Centre Demand for capital Ms. Joy Mboya

Internet of Elephants (IOE) Demand for capital Mr. Gautam shah

Azuri Technologies Demand for capital Mr. Snehar Shah

Ashoka Ecosystem Support providers Mr. Vincent Odhiambo

ANDE Ecosystem Support providers Ms. Maryanne Ochola

AMREF- Innovate4Life Ecosystem Support providers Mr. Simon Ndoria

MERCK- GSBI Ecosystem Support providers Mr. Herve Kubwimana

Chandaria Incubation Centre Ecosystem Support providers Dr. G. K. Kosimbei

Tangaza College Ecosystem Support providers Mr. Daniel Mwangi

KCIC Ecosystem Support providers Mr. Felix Magaju

Netbiz Impact Ecosystem Support providers Ms. Makeda Tsegaye

TechnoServe Ecosystem Support providers Mr. John Logan

Blab East Africa Ecosystem Support providers Ms. Olivia Muiru

Advance Consulting Ecosystem Support providers Mr. Peter Bleeker

Open Capital Advisors Ecosystem Support providers Ms. Annie Roberts

NGO Board of Kenya Government and Regulatory Ms. Beatrice Topisia

Competition Authority of Kenya (CAK) Government and Regulatory Dr. Adano Roba

Competition Authority of Kenya (CAK) Government and Regulatory Mr. Raphael Mburu

Kenya Revenue Authority (KRA) Government and Regulatory Mr. Walter Omwenga

Kenya Private Sector Alliance (KEPSA) Government and Regulatory Mr. Tonnie Mello

Nairobi Securities Exchange (NSE) Government and Regulatory Ms. Bahati Morara

Export Processing Zones Authority (EPZA) Government and Regulatory Mr. Jonathan Chifallu

Kenya Investment Authority (KenInvest) Government and Regulatory Dr. Moses Ikiara

Vilcap Intermediary Mr. Paul Nyandika

Viktoria Ventures Intermediary Mr. Jason Musyoka

Grey Elephant Ventures Supply of capital Mr. Shudhan Kohli

Sorenson Impact Supply of capital Mr. Anders Aabo

Beyond Capital Supply of capital Ms. Mehak Malik

Steinbeiss Impact Supply of capital L Jakab

Pollex GmBh Supply of capital Ms. Julie Engelhorn

AHL/ Lundin Supply of capital Mr. Joseph Indangasi

Seagal Family Foundation Supply of capital Ms. Evelyn Omala

Christian Aid Supply of capital Mr. Ronald Ndiku

Social Enterprise Society of Kenya Government and Regulatory Mr. Peter O. Oloo

SDG Partnership Platform Ecosystem Support Provider Mr. Ruben Vellenga

Aavishkaar Africa Fund Supply of capital Mr. John Kamunya

20

Annexure 2

Spotlight on Government’s Big 4 Agenda

Focus Area Challenges

Food Security and Nutrition The agriculture sector is a major driver of the Kenyan economy, contributing about 51% (25%
directly and 26% indirectly through other sectors) to GDP.44 The sector accounts for approximately
63 per cent of employment and 65 per cent of the country’s exports.45 Yet notwithstanding this,
productivity in the sector remains low, particularly in grains. For instance, yields per hectare of
maize, Kenya’s main staple food, were lower in 2014 (1628 kg/ha) than they were in 1994 (1918 kg/
ha).46 With low levels of productivity in the sector and a growing population, there remains a
structural food deficit, which contributes to the trade deficit, food insecurity, and poor nutritional
outcomes. Furthermore, most of the poor in the country are employed in the agriculture sector;
hence addressing the constraints in the sector would go a long way in poverty and food security
reduction and in boosting the country’s overall growth and employment. The government, under
its Big 4 Agenda, has set the goal to make country food secure by 2022.

Affordable healthcare / Under this agenda, the government of Kenya aims to increase health insurance coverage,
Universal Health Coverage improve access to quality healthcare services and offer financial protection to people when
(UHC) assessing healthcare.47 Kenya developed UHC roadmap to achieve affordable healthcare. Its
key components included increase in funding to health sector, definition and provision of basic
essential healthcare services from both public and private sector, strengthening of National
Hospital Insurance Fund (NHIF), strengthening of quality and accreditation system and legal and
regulatory framework, and developing a multi-sector approach for enhancing service delivery.48

In order to ensure universal access to quality and affordable healthcare, the government plans
to ensure every Kenyan is covered under the National Hospital Insurance Fund (NHIF) medical
insurance cover by 2022.

Enhancing Manufacturing With the changing demographic trends of the country, it is imperative for economic growth to be
driven by sectors, such as manufacturing, which has high potential for job creation. Unfortunately,
the contribution of the manufacturing sector to GDP has been on the decline. Under its
Big 4 Agenda, the government aims to counter this by improving Kenya’s manufacturing
competitiveness and value of Kenyan products, thereby increasing the manufacturing sector’s
contribution to 20% of the GDP by 2022.

Affordable Housing The housing deficit in Kenya is large and growing with an estimated housing shortfall of 2
million units.49 An additional 500,000 dwellers come to the city every year, thus aggravating an
already untenable situation where 61 per cent of urban households live in informal settlements
(compared to 50 per cent in Nigeria and 23 per cent in South Africa). Many Kenyans are forced to
live in slums because of the limited supply of affordable housing. Hence, there is a critical need
to deliver housing at the lower end of the income spectrum. The government of Kenya has taken
this as a priority and aims to build one million homes by 2022.

44 FAO: Kenya at a Glance (http://www.fao.org/kenya/fao-in-kenya/kenya-at-a-

glance/en/)
45 STRATEGIC PLAN FOR AGRICULTURAL AND RURAL STATISTICS, Kenya National
Bureau of Statistics
46 FAO data

47 Kenyan roadmap to Universal Health Coverage

48 ibid

49 http://www.worldbank.org/en/country/kenya/publication/kenya-needs-2-
million-more-low-income-homes-building-them-would-boost-its-economic-
growth