In an exciting announcement, USAID’s Kenya Investment Mechanism (KIM) received an additional USD 12 million in funding, a 50 percent budget increase, to deepen capital mobilisation for enterprises in East Africa.

When established, the program focussed on capital mobilisation in Kenya’s agriculture and energy sectors. This increase both broadens KIM’s geographic scope encompassing East Africa (the East Africa Community countries and Ethiopia) and adds three local initiatives; technical assistance to the Kenya Pension Funds Investment Consortium to finance infrastructure projects, support for the Prosper Counties, a USAID Mission-driven objective that promotes a deeper level of investment policy reforms and county engagement, and technical assistance to the National Treasury Credit Guarantee Scheme.

In addition, KIM will support six new targeted sectors: infrastructure; health; water, sanitation, and hygiene; and regional Feed the Future (targeting regionally and internationally traded agricultural products), as well as two global, sector-agnostic initiatives, Prosper Africa and Women’s Economic Empowerment. The increased funding comes at a critical time. COVID-19 has caused widespread economic slowdowns and the (re)emergence of a conservative banking culture that is hesitant to support value chains that underpin inclusive economic growth.

Thus far, in the project’s third year, thanks to an agile team that has quickly adapted to rapidly changing circumstances, KIM has mobilised USD 134 million, surpassing its initial target of USD 82 million. Since the inception of the project, KIM has mobilised over USD 256 million in finance and investments. Of this, USD 139 million was mobilised through partner financial institutions and USD 117 million was assisted by business advisory service providers. More than 250 enterprises have received financing as a result, affecting the lives of over 5 million smallholders.

The pandemic caused many investors to hold off or pull back investments. In response, KIM’s adaption strategy involved introducing a COVID-19 relief incentive to the pay-for-results incentive fee structure for business advisory service providers. In addition, through strategic partnerships, KIM attracted USD 65 million of social and impact investment funds into the region.

“We have contracted over 40 business advisory service providers in the pay-for-results incentive mechanism, where we pay them a success fee for closing transactions in our target sectors,” says Roger Bird, KIM Chief of Party.

“When COVID-19 hit, access to finance for SMEs was strained. We noted that financial institutions lending slowed and our advisory service providers were struggling to get investors on board. To counterbalance this and further stimulate credit activity, we introduced a COVID-19 relief incentive to nudge both financial institutions and business advisory service providers to engage and support struggling SMEs. This sustained lending into agribusiness and other sectors, even with the economic downturn caused by the pandemic.”

Next Steps Will Empower Women in Kenya

Of the additional USD 12 million, USD 3 million is targeted to increasing access to finance for women-owned businesses in Kenya. According to the International Finance Corporation, women in Kenya continue to face a USD 2.7 billion credit gap, which underscores the tremendous market opportunity for early-movers that can roll out competitive and women-centric financial products and services.

The barriers hampering access to finance for women are multifaceted. On the demand side, Kenyan women often have a poor understanding of the requirements to access financial products. On the supply side, the financial sector in Kenya continues to lack products and processes enabling financial institutes to identify, attract, and serve women.

With the additional funding support, the KIM team aims to tackle both demand- and supply-side challenges to support women’s access to financing. The project builds upon existing relationships with business advisory service providers and financial institutions to intentionally address the gender financing gap and catalyse sustainable and equitable development for W-MSMEs (women’s micro, small, and medium enterprises).

Women’s access to finance can improve empowerment and level the playing field for business and economics in Kenya. A 2019 survey by the Central Bank of Kenya found that SMEs account for 98 percent of all businesses in Kenya.

However, the gender gap between men and women SME owners varies. Men own 47.9 percent of MSMEs whereas women own 32.2 percent in the country. Additionally, over 60 percent of unregistered businesses in Kenya are owned by women.

KIM is systematically tackling this social and economic disparity. Of the total capital KIM has mobilised, over USD 45 million has gone to women-owned businesses. KIM also engages women’s associations such as the Association of Women in Agriculture in Kenya to ensure W-MSMEs have support in the form of business advisory services to become investment-ready.

“We are connecting partner financial institutions to a pipeline of bankable women-owned businesses, as well as helping financial institutions address gender bias and to develop scalable financial products that address the financing needs of women,” says Mugure Kamau, KIM’s Women’s Economic Empowerment Director.

“By financing women-owned businesses, financial institutions have the potential to expand their client base, increase profits and decrease credit risk, while also facilitating long-lasting economic growth and development,” adds Kamau.

KIM is committed to unlock a total of USD 520 million by August 2023, an additional USD 120 million from its original target, and further increase impact in Kenya and East Africa through investment opportunities, transaction assistance for SMEs, strategic partnerships, and opportunities for female entrepreneurs.

To learn more about the Kenya Investment Mechanism, implemented by Palladium for USAID, visit KIM on LinkedIn and contact investinkenya@thepalladiumgroup.com.