I&P is a pioneering impact investment group with a proven track record of over two decades investing and supporting small and medium-sized enterprises (SMEs) in Africa.
With a team of approximately 180 dedicated professionals operating from ten locations across Africa, (including Burkina Faso, Cameroon, Côte d'Ivoire, Ghana, Kenya, Madagascar, Mali, Niger, Senegal, and Uganda), and in France and the United States, I&P and its partners have invested in over 250 SMEs across roughly twenty Sub-Saharan African countries, with a primary focus on frontier markets and fragile states within Francophone Africa, where access to finance is most limited.
We spoke with Sébastien Boyé, Co-CEO of I&P about their comprehensive approach to blended finance to support African SMEs, how they measure their impact, the gaps and opportunities they see in the blended finance market, and more.
Can you tell us about I&P’s mandate and how it engages in blended finance?
Our mission is rooted in the belief that small and medium-sized enterprises (SMEs) are catalysts for sustainable and inclusive growth across the African continent. These enterprises create local added value, provide formal and high-quality employment opportunities, deliver essential products and services, and foster significant social, environmental, and governance impacts.
I&P takes an innovative investment approach, providing directly or indirectly through local African Impact funds, seed financing to emerging small businesses and taking minority equity stakes in startups and growing SMEs, with financing ticket sizes ranging from $30,000 to $5 million. This approach involves nurturing long-term partnerships with entrepreneurs, offering management expertise, networks, and knowledge to enhance business strategies, formalization, and overall performance. We also contribute to strengthening the broader ecosystem supporting African entrepreneurship, including local African investment team, investors, accelerators, incubators, and other critical stakeholders.
I&P covers a wide range of investment stages within the SME spectrum and takes a comprehensive approach to blended finance. From providing repayable grant funding to early-stage small companies, to anchoring local African impact funds, to making relatively large investments (up to $5 million per transaction) in commercially viable growth companies or to invest as a LP in emerging Impact Funds, I&P uses catalytic capital in different forms and for different project stages to tailor to the needs of African entrepreneurs.
In its programs and funds, I&P strategically combines diverse financial products to tailor optimized funding and technical support for portfolio companies. We offer various financing instruments, including seed and equity financing, along with an extensive range of ecosystem support services, including consulting, training, fundraising, and more. Our diverse expertise enables us to cater to the specific needs of the "missing middle" within the SME sector, thus amplifying our impact.
As an illustration, I&P Afrique Entrepreneurs (IPAE3), the third I&P Impact Fund, is structured as a conventional growth equity model with an added layer of risk mitigation through a first loss tranche. This first loss tranche will be secured through contributions from Development Finance Institution (DFI) investors.
In addition, IPDEV, I&P’s second investment vehicle which aims at anchoring local African impact funds will be structured as an evergreen fund with a first loss tranche sourced mainly from a large institutional Donor. It is expected that this first loss tranche will allow private investors to support this high impact initiative. This support in blended finance will also provide Technical Assistance for the anchored funds and their investees, as well as high impact seed finance.
Tell us about one or two blended finance transactions I&P has engaged in.
Agroserv, led by Burkinabe entrepreneur Siaka Sanon, stands out as a prominent grains manufacturer in the land-locked country of Burkina Faso. Siaka started his company by aggregating the supply of grains in the country and adding value through a small processing plant. Sinergi Burkina, one of the single-country funds sponsored by I&P, initially invested in Agroserv, providing an equity ticket of less than half a million dollars.
Over the following six years, Agroserv experienced remarkable revenue growth, driven by increased demand from a rapidly urbanizing population and beverage manufacturers. Agroserv was able to graduate to a private equity fundraise of $12 million. I&P led this fundraise, which included additional investors as well as a matching grant from USAID (part of the US Government’s DFI). The combined impact of the concessionary grant and the substantial capital raise proved highly beneficial for Agroserv, facilitating operational enhancements and the establishment of a new milling factory.
How does I&P measure the impact and evaluate the success of its blended finance transactions?
By the end of 2023, I&P's portfolio companies had directly and indirectly impacted 3.7 million people in over 20 African countries, including employees, their families, suppliers, and clients.
To evaluate impact and chart success, we measure investee company performance with a comprehensive in-house impact management tool based on global impact performance metrics. Close to one hundred impact indicators are collected on a declarative basis and analyzed every year to assess partner companies’ impacts on their local stakeholders (entrepreneurs, sub-contractors, employees, clients). I&P tracks its portfolio on a consistent and clearly quantifiable basis.
This tracking and reporting system enables I&P to gauge the progress of blended investments and support programs. Comprehensive reports inform future decisions regarding the optimal mix of financial and concessionary capital. A summary of our impacts can be found in our Annual Impact Report.
The impact of technical assistance is also carefully weighed and assessed in seeking the right balance to support the growth and development of portfolio companies.
In response to the increasing global focus on climate finance mandates, I&P conducted an in-depth examination of climate adaptation and mitigation strategies implemented across portfolio companies. This evaluation served as the foundation for a defined climate policy, emphasizing more tailored and cost-effective climate adaptation measures.
How does I&P apply a gender lens to its blended finance transactions?
Our gender-lens strategy encompasses a comprehensive approach, addressing various aspects for all stakeholders. This includes fostering women's leadership and access to corporate governance, promoting access to quality jobs and training opportunities, meeting specific needs for basic goods and services, and enhancing activity for women suppliers and distributors. This approach has been consistently implemented and monitored since the release of our gender policy in 2018, Opportunities to Address the African Gender Gap.
Furthermore, I&P is strongly committed to the 2X Challenge and the second I&P impact fund, which is fully invested, is 92% 2X Challenge compliant.
I&P’s track record includes nearly 30% of women-led or owned portfolio companies. One example is DELTA S.A., a Senegalese sanitation company, established by a female entrepreneur who transitioned from her role in local banking to establish a water and sanitation contracting firm specializing in outsourced municipal contracts.
What are some interesting or unexpected challenges I&P has had to navigate in the blended finance space thus far?
I&P’s experience as an impact investor providing blended finance to SMEs has revealed some key learnings and challenges, namely:
The challenge of sustainability, liquidity, and profitability — The positive economic performance of portfolio companies does not necessarily translate into maximized financial value. Financing African SMEs often involves higher costs and longer investment periods than in other geographies because of high levels of human capital and financial investment, associated with significant risk.
The challenge of optimal structuring — Structuring innovative blended finance vehicles poses several challenges. For instance, defining first-loss tranches among DFI investors can be complex, as fund managers need to reconcile varying investor goals and loss thresholds.
What gaps or opportunities do you see in the larger blended finance market in Africa?
Blended finance often does not reach frontier markets (mostly fragile countries) SME funds, and is still not sufficiently widespread on the African continent. This is due to the lack of flexibility of financing options, including investment horizon, management fees, return expectations, and fund size. Fund durations are often too short and the main performance indicator, the IRR, pushes investment teams to exit in a premature manner from portfolio companies, even though a longer investment period would maximize impact creation and financial returns, as I&P demonstrates in its last report, Unlocking Catalytic Capital for African SMEs.
With the growing emphasis on climate finance and gender-lens investment, there is a need for specialized funding providers to support these initiatives. For example, the funding can be in either concessionary–early-stage support that matches the early build up—or in project capital execution or based on commercial capital rates and tenors.
How do you see I&P’s blended finance activities evolving in the future?
I&P will carefully assess trends in blended finance and incorporate the concepts that align with the small and medium-sized company segment.
The blended finance trends I&P aims to emulate are those facilitating the acceleration of early-stage companies, propelling them into significant contributors to job creation and catalysts for economic growth.
In the meantime, I&P continuously explores opportunities to collaborate with investors and funders across its diverse business lines:
(1) Impact Investment through growth equity models — I&P is currently raising about $80 million to finance its third impact fund, “I&P Afrique Entrepreneurs 3”. This Pan-African impact fund will build on the track record of two previous I&P impact funds and will invest equity and quasi-equity in local African -founded and African-managed champions aiming at scaling-up or having projects to expand regionally and continent-wide.
(2) Anchor positioning for African impact funds — I&P has developed an innovative LP anchor fund initiative (IPDEV). Under this program, I&P sponsors small, single country funds with a target capital of approximately $5 million, acting as a catalyst for local investors. 7 country funds are operational under this program so far—in Burkina Faso, Cote d’Ivoire, Madagascar, Mali, Niger, Senegal, and Uganda. Two additional funds are currently in the fundraising phase—in Guinea and Cameroon. These local investment vehicles are targeting early-stage SMEs which have almost no access to funding. IPDEV will also commence fundraising in the latter part of 2024 to launch a second generation of country funds.
(3) Driving acceleration programs — I&P oversees incubation, acceleration and seed-funding programs through grants obtained mostly from Donors and Foundations and is exploring additional opportunities and funding sources.
(4) Supporting local Ecosystem — I&P provides Training and Advisory services targeting local Ecosystem players (Accelerators, Incubators or Governments) and is developing a unique expertise of Impact Fund of Funds management and advisory services.
