AFRICAN FUNDRAISING GAINS GROUNDFormerly the domain of development finance institutions, African fundraising has expanded to include US and European institutional investors and nearly caught up Latin American fundraising for the first half of'2008. Below are African private equity fundraising totals since 2004
COMPLICATIONS AND OPPORTUNITIES AHEAD
Although the empirical evidence is sparse, so far returns have justified many of the investments private equity firms have made in microfinance platforms – at least anecdotally.
Aureos Capital's $1 million investment in Uganda Microfinance Limited, which transformed a notfor-profit lender into a licensed deposit-taking institution, yielded a 7.3 times cash multiple and an 81 percent return for its investors when the micro-lender was swallowed by Kenya-based commercial bank Equity Bank.
However, sales of micro-finance platforms to larger financial institutions – the most common exit path – may prove increasingly elusive as a result of the credit crisis.
Sub-Saharan banks may take a much more conservative stance towards expansion, especially in fledgling financial markets like Nigeria and East Africa. Because of the significant capital required to continually finance a micro-finance company, longer holding periods could prove very expensive for private equity firms.
“The growth is always there, the problem is it's often a bottomless pit and you run out of capital,” says Peter Schmid, a Johannesburg-based partner at emerging markets private equity firm Actis. “What you hope for is there's somebody who can link you to a deposit-taking institution who can continue your growth.”
Despite these obstacles, most general partners and micro-finance experts remain confident in the industry's ability to produce satisfactory returns.
For his part, Kuper is predicting even more of a proliferation of private equity funds dedicated to all sorts of micro-finance products – from simple loans to more elaborate agricultural, life, and health insurance offerings.
“We hope that there are 100 or 1,000 LeapFrogs in the future, and we anticipate that there will be a whole host of other micro-insurance, micro-savings, and micro-credit funds in the future,” he says.
THOUGHTS ON SUB-SAHARAN AFRICA
Tom Gibian, co-founder, Emerging Capital Partners
Peter Schmid, partner, Actis
Sulanji Siwale, executive director, Freetel Capital
Ngalaah Chupi, partner, Ethos Private Equity
Davinder Sikand, partner, Aureos Capital