East African social investment fund targets €10m

The joint venture between Dutch and Kenyan entrepreneurs and a Dutch development organisation is looking to generate a financial and social return in East Africa.

InReturn Capital, a joint venture of Dutch and Kenyan enterprises, and Dutch development organisation Cordaid have launched a fund to create employment by investing in SMEs in East Africa.

Cordaid, as the lead investor, has committed €2 million alongside InReturn Capital, who has committed €300,000. The fund will have a minimum size of €10 million.

InReturn East Africa Fund, a Dutch limited liability partnership, will invest in small- and medium-sized enterprises in East Africa and with the goal of creating economic growth and durable employment.

The fund is open to private investors. Steven Otto, InReturn’s managing partner, told PEO: “The fund is targeting a financial return of between 10 and 15 percent. This is about trade not aid. We need to make sufficient returns for investors to invest. We also want to create sustainable businesses and therefore jobs. Aid is not sustainable.”

He said there was a mix of Dutch and Kenyan businessmen backing the fund, but in marketing the fund he had found there was large difference in the perceptions of risk on investing in Africa between the two groups. Western investors tended to see more risk in the proposition than local business people.

A large Dutch bank is close to investing in the fund and will also distribute it as a product in its wealth management business, he said.

Otto said the fund will invest in significant minority positions where appropriate taking stakes of between 20 and 30 percent. “But where it is hard to see an exit after five years, for example with some family businesses or in particular sectors, we will offer a mezzanine product,” he said.

The East African countries Kenya, Uganda and Tanzania, have had an average GDP growth rate of more than 6 percent in the last few years. With more than 80,000 enterprises in the region, the SME sector is the main economic force.

It is expected that the investments will lead to over 1,000 new direct and 30,000 indirect jobs.