Opportunity Knock: Private Equity Empowers Female and Small Business Owners in Developing Economies
Private equity is emerging as a game-changer for small business owners in low-income, fragile, and conflict-affected countries, providing them with access to vital capital. Nations such as Nigeria, Ethiopia, and the Democratic Republic of Congo have witnessed remarkable economic growth and job creation, thanks to investments, support, and expert guidance offered to small enterprises.
Gisela Mudumbi Van Houcke’s Journey
Gisela Mudumbi Van Houcke’s story exemplifies the transformative potential of private equity in emerging markets. Returning to the Democratic Republic of Congo in 2015, she sought to improve access to quality beauty products for Black women. She discovered that most beauty products in Africa didn’t cater to their specific needs. Her entrepreneurial journey began by importing better products and quickly grew into a successful business, Zuri.
Within a year of starting, Zuri’s Facebook page amassed 150,000 followers, indicative of the strong demand. However, to sustain growth, Mudumbi Van Houcke required more capital than local banks were willing to provide. This funding gap is a common issue for businesses in countries like DRC, where banks hesitate to take risks without collateral.
Fortunately, Mudumbi Van Houcke connected with XSML, a fund manager specializing in small and medium-sized enterprises (SMEs) in East and Central Africa. XSML not only offered financing but also provided valuable support, networking opportunities, and technical advice. This partnership enabled Zuri to meet customer demand and expand significantly.
The “Missing Middle” and Economic Development
SMEs, often referred to as the “missing middle,” play a pivotal role in economic development, market sustainability, and job creation. However, in emerging markets, they face significant challenges in accessing the capital required for growth. Combining SMEs and micro-businesses in developing nations reveals a staggering $5.2 trillion financing gap. This gap is even more pronounced in low-income countries and those grappling with fragility and conflict.
William Sonneborn, IFC’s Global Director for Disruptive Technologies, Creative Industries, and Funds, emphasizes that boosting the competitiveness, productivity, and growth of SMEs leads to increased employment opportunities. This competitiveness enables them to compete effectively with businesses in middle-income countries.
IFC’s Contribution: SME Ventures Program
In 2010, the International Finance Corporation (IFC) launched the SME Ventures (SMEV) program to bridge the funding gap for SMEs in the world’s poorest countries. The program invests in private equity funds focused on SMEs in these markets, aiming to improve their operations for efficient risk capital deployment. Additionally, SMEV collaborates with the World Bank and other stakeholders to strengthen private equity ecosystems in underdeveloped markets.
Since its inception, SMEV and the Blended Finance Facility of IDA’s Private Sector Window have committed $273 million to support SMEs through investments in funds across more than 40 countries. IFC defines local SMEs as companies with annual revenues of $15 million or less, fewer than 300 employees, or total assets of $15 million or less.
Amanda Cotterman, head of SMEV, highlights the program’s mission to demonstrate to future investors, including impact investors and family offices, that nascent capital markets can yield financial returns.
Private Equity Fuels Job Growth
Private equity funding is facilitating substantial growth for SMEs in low-income and fragile markets. For instance, Zuri’s partnership with XSML has resulted in substantial job creation for women in the DRC. The company has grown from 30 to nearly 70 employees, with a goal of reaching 100 by the end of the year, with 75% of them being women.
In Ethiopia, Tabor Ceramic Products S.C., a family-run ceramic tiles company, has expanded, leading to job opportunities along the supply chain, from material extraction to distribution. In Nigeria, i-Fitness Gym’s expansion has spurred the growth of personal trainers, offering better income opportunities and keeping talent within the country.
Empowering Fund Managers
Entering SME investments in low-income markets has been a challenge due to currency fluctuations, political instability, and complex operational environments. To address this, SMEV provides capital along with technical support and training for emerging fund managers. This support has strengthened budding private equity ecosystems and attracted local investments in underdeveloped markets.
Cholpon Jumashukurov, managing partner of Highland Capital, credits SMEV for providing critical initial funding and support in launching the fund, which was the first of its kind in Kyrgyzstan. Similarly, Femi Ogunjimi of CardinalStone Capital Advisers acknowledges the role of SMEV in facilitating their transition from a principal investor to a private equity investor and providing essential funding for their first round.
Fund Exits and Future Prospects
Fund managers like Jumashukurov view their investments not just as profit-making ventures but also as an opportunity to showcase their countries as viable investment destinations. The success of their investments can influence the industry as a whole and attract further capital.
The results thus far have been encouraging, with fund exits occurring faster than initially predicted. These successes highlight the potential for private equity to drive economic growth and job creation in challenging environments.
A Path to Empowerment
Gisela Mudumbi Van Houcke’s experience with Zuri serves as a testament to the transformative power of private equity in empowering women and African entrepreneurs. Private equity, as facilitated by IFC’s SME Ventures program, is closing the financing gap for SMEs in the world’s poorest countries, catalyzing economic development, and creating employment opportunities. By investing in SMEs in these regions, investors can achieve meaningful financial returns while contributing to local economies and fostering global impact. The collaboration between fund managers and IFC is not only vital for business growth but also for building resilient private equity ecosystems in underdeveloped markets.
Here are some links for our readers with valuable perspectives from reputable sources that support and expand on the ideas discussed in this article. Explore and enrich yourself.
- International Finance Corporation (IFC) – The official website of the IFC, provides more information about their programs and initiatives.
- SME Financing Gap – A World Bank page explaining the SME financing gap and its significance in emerging markets.
- Private Equity Definition – Investopedia’s guide to understanding private equity and its role in business growth.
- Success Stories of Female Entrepreneurs – Forbes article highlighting success stories of female entrepreneurs, showcasing the potential of women in business.
- Small Business Growth Impact – An Entrepreneur article discussing how small businesses contribute to economic growth and job creation.