Gender-lens investing gains momentum

Growing intentionality and a proliferation of dedicated funds are driving the African continent’s gender-based approach to private equity investing.

Much of the conversation around private equity investing in women-led businesses in Africa has historically focused on the part it plays in the wider environmental, social and corporate governance sphere. But gender-lens investing is becoming an increasingly intentional investment strategy across the continent.

“Private equity in Africa seems to have embraced gender-lens investing as a strategic approach, recognising the importance of advancing gender equality and empowerment in the continent’s economic landscape,” says Evelyne Dioh, executive director at WIC Capital, which was founded in 2019 and invests in women-led companies in the francophone West African region.

Indeed, recent years have seen the launch of multiple funds with strong intentionality on gender, including Alitheia Capital, WIC Capital, Five35 Ventures and Aruwa Capital Management, to name a few.

Dioh points to the proliferation of gender-focused fund of funds initiatives on the continent as another indicator of progress in the space.

The 2X Challenge is another key driver behind such progress. Thomas Östros, vice-president at the European Investment Bank, says that the 2X initiative – launched by the G7 in 2018 with the objective of deploying unprecedented amounts of capital into projects that empower women as business leaders and as consumers of products and services that enhance their economic participation – has “provided a backbone for gender-lens investing in low and middle-income countries”.

“Private equity in Africa seems to have embraced gender-lens investing as a
strategic approach”

Evelyne Dioh
WIC Capital

This proliferation of players, coupled with the emergence of recognised frameworks, means that private equity firms now take a more deliberate approach to gender-lens investing. “Historically – before the adoption of gender-lens investing practices – investments that achieved gender impact often did so by accident,” says Sonia Jordan-Kirwan, head of gender and diversity finance at British International Investment. “Investors may have inadvertently had a positive impact on women by virtue of investing in certain sectors, but this wasn’t necessarily intentional.

“Now, the investment community is taking a much more deliberate approach to considering gender dynamics in investment decision making. The next step for investors is to ensure we are gender-smart not only in the way we source and assess deals, but also in the way we support investee companies post-investment.”

Overcoming obstacles

However, according to Dioh, the fact that most of these funds and initiatives are still in their nascent stages of development shows that there is more to be done to encourage adoption on a larger scale.

Evelyne Dioh

“One of the biggest obstacles is a lack of access to equity capital both at the fund manager level and company level,” says Joanne Yoo, a partner at Africa-focused PE firm Development Partners International. “There is not enough institutional capital flowing to female-led funds and companies, despite strong track records and experience.”

According to statistics from the Organisation for Economic Co-operation and Development, Africa has the highest proportion of women entrepreneurs in the world, with more than a quarter of all businesses either started or run by women.

“But despite those high levels of entrepreneurial activity, women-owned SMEs in Africa face a $42 billion financing gap tied to a lack of access to collateral in the form of land and property as well as networks to grow their businesses,” Östros adds, citing recent statistics from the African Development Bank.

Indeed, less than 5 percent of total funding raised by African start-ups in 2022 went to all-female teams, as tracked by Africa-focused research firm Briter Bridges. “These figures remain alarmingly low,” says Östros, “even though research has shown that female entrepreneurs make twice as much revenue per dollar in comparison to their male counterparties.”

Part of the problem is that women entrepreneurs are still perceived as being a higher investment risk, as they may not have the necessary documentation needed to request traditional loans. “Gender data and research is starting to change that, and financial intermediaries are looking for ways to better support women, including through the use of mentoring and training,” Östros says. “Many financial intermediaries and private equity funds are also putting lending instruments in place that allow for smaller ticket sizes, longer tenures and alternative collateral, in order to better meet the needs of the unbanked and underbanked women’s market.”

“Rightsizing available capital to capital needs is an ongoing challenge,” adds BII’s Jordan-Kirwan. “The sorts of ticket sizes women-led and owned businesses are looking for often fall below the typical range for a [development finance institution]. Biases within the wider investment ecosystem are also still highly pervasive. These two things represent material barriers to increasing women’s access to financing.”

Maintaining momentum

Despite these challenges, the importance of maintaining the momentum that is building behind gender-lens investing in Africa is clear. “Women tend to invest their resources and wealth back into their families, communities and education,” says Dioh. “By supporting businesses that empower women, impact investors contribute to poverty reduction, improved healthcare, better education and increased environmental sustainability.”

There is also a growing body of evidence that suggests a gender-lens approach can deliver superior performance for businesses. “Numerous studies have highlighted that gender-
diverse teams and women-led businesses actually exhibit higher returns, despite the high-risk perception,” Dioh adds. “Impact investors can achieve their financial objectives while simultaneously advancing gender equality and empowerment.”

“Women are agents of change,” adds Jordan-Kirwan. “We know that women invest a higher proportion of their earnings in their families and communities than men, and are therefore key to wider development outcomes. Ignoring the importance of gender within investments misses out on huge economic benefits and welfare gains for society.”