The small guy's friend

As the going gets tougher throughout East Africa for small- and medium-sized businesses, one private equity firm – InReturn – is endeavouring to provide some much-needed growth capital.

InReturn East Africa Fund, a private equity vehicle launched to promote economic growth and durable employment in East Africa by investing in small- and medium-sized enterprises (SMEs), recently bolstered its management team with the appointment of Anthony Gichini as a managing partner in Nairobi.

Gichini was formerly a business development manager with the International Finance Corporation's (IFC) SME Support Centre, where he has executed 30 investments in Kenyan SMEs. Prior to this he spent 10 years as a consultant at both Deloitte and PricewaterhouseCoopers, so he knows well the needs of businesses in the region. These businesses might otherwise be overlooked by mainstream private equity investors because of their size. Bank credit to finance growth is even harder to secure now than it was 12 months ago.

“The economic downturn brings extra demand for financing, since local banks have become more conservative,” says Bart Meijs, managing partner at InReturn. “Sectors that export mainly raw materials to China and India have been hit, though companies with local sales continue to grow.”

InReturn is currently raising its debut vehicle, which will make equity and mezzanine investments in SMEs in Kenya, Uganda and Tanzania. The fund is targeting both social and financial returns. Through its investments it aims to create sustainable employment in developing economies and generate financial returns of between 10 and 15 percent.

When launched in July 2008, the fund was seeking commitments of up to €15 million from both institutional investors and high-net-worth individuals. In January it held its first close on €4 million and plans to hold its second close before the end of this year on €8 million. Since first close it has garnered further commitments, bringing the fund total to €5.3 million to date.

Having reviewed more than 90 requests for investment from East African businesses, the fund is now close to starting capital deployment. It has made indicative offers for two businesses – a milk factory and a water bottling company – with another 20 in the pipeline.