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How has your personal and academic background inspired you to launch Nia Impact?
I’m originally Canadian but spent some of my teenage years in Kigali. So, the continent has always held a very big part of my heart. I started my career in the NGO and development sector over 10 years ago, but I quickly became frustrated with it. I wanted to focus on building true capacity and opportunities in these communities and found that aid wasn’t doing that. At that point, impact investing was just starting to grow in Africa, and I started working with some of these institutions, thinking that maybe this was a better solution. However, I realized very quickly that there was almost no research on how we should be doing impact investing on the continent. I watched many of these institutions often guessing the impact transmission effects of these investments.
With my background as an economist, I decided that I could devote myself to completing that research. I did a PhD at Oxford where for 6 years I studied the effectiveness of impact investing in Africa. By doing that, I got to work in 7 different markets across West and East Africa, and I learnt from entrepreneurs, ecosystem builders like accelerators and business services, and impact investors.
Derived from the findings of that research, I developed my impact investing venture called, Nia, which has created a wholistic and well-rounded solution to small and growing business (SGBs) development.
Why is there space for another Impact Fund in the African market?
Unfortunately, there is TOO much space for another Impact Fund in Africa. The market still possesses a huge financing gap for small and growing businesses (SGBs). The World Bank estimates that this gap is £140 billion. These businesses are much too small and risky for most investors and financing from local financial institutions is much too expensive. Impact investors should be filling these gaps; however, the large Developmental Financial Institutions have strict guidelines that force them to write cheques above $2 million. Most of the SGBs I work with need anywhere from $50k to $500k in financing. Venture Capital has started to fill some of these gaps by providing smaller cheques but this world is also very exclusive. Last year, over 50 percent of the financing went to fintechs, over 80 percent went to 4 markets (Nigeria, Kenya, Egypt and South Africa), 93 percent had a male CEO and less than one percent were female founded. This means that there remains many exceptional and impactful African businesses that are being left behind in the African markets. Nia looks to fill these gaps.
Do you think Africa is a fundamental investment destination if an investor is aligning their interests with the UN SDGs?
Absolutely. One of the most exciting things about Africa is its value for impact ratio. It does not take a lot of investment to generate huge changes in local communities and families. A lot more capital is required to develop solutions coming out of Silicon Valley for example.
If we remember, the formation of the SDGs was to have global co-operation to ensure that no one was left behind in sustainable development. Paul Collier, finds that 68 percent of the bottom billion, the poorest and most fragile countries, are in Africa. If the primary goal of the SDGs is to bring sustainable development to those that need it the most, then it is evident that Africa is by far the best destination to push those SDGs forward. However, it is important to note that just because you are investing in Africa, it does not mean you are contributing to the SDGs. Every investment needs to take a meaningful and intentional approach to actually achieve the desired impact.
What kind of success stories have you seen come out of Africa over the course of your career?
Of course, we have all heard of the huge financial successes of tech start-ups like Flutterwave and Paystack, but to me, success is more about seeing incredible entrepreneurs building amazing solutions reach their potential. For example, a young and talented female entrepreneur based in Rwanda that manufacturers beautiful footware. She hires and trains local women. She has been working on her business for 4 years and just constantly struggled to get any support and finance. Impact investors said she was too small, venture capitalist were not interested because she doesn’t use tech, and banks didn’t like her lack of a credit score. But she kept at it and has built an excellent business, hired more women, and has had international recognition for her product. She is now doing a collaborative line with Tommy Hilfiger, is exporting to Europe, and opening 3 new stores across the continent. Imagine what she could have done with just a little support! For me, its these stories that show you the true potential and success coming out of Africa.
Do Well Do Good is your brand tagline. What kind of returns can an investor expect from the average opportunity you have come across through your fund and crowdfunding arm?
This, of course, very much depends on the type of business as well as the financial tool used. However, there is a lot of opportunity to get good returns from impactful businesses. If you look at the average local interest rate on the continent, which is 22 percent, this means just on debt you can easily receive 8-12% and still have huge impact. There have been some very high returns on equity in fintech, but you do have to be careful as the opportunities for exits are still lacking on the continent, meaning that you have to be very patient. We do a lot of revenue-share deals. This works quite well for a lot of African businesses as we aren’t dependent on a “big” buyout or IPO. With this type of instrument, we usually see returns of 15-21% p.a. There is always risk with this and sometimes things don’t work out. Unlike VC, we tend to have much better growth across the entire portfolio, compared to just 1-2 businesses taking off. But this approach is definitely much better in terms of generating long-term social impact.
Are Nia Africa and Nia Capital the same?
We do get this question a lot! We are not in any way associated with Nia Capital in the United States. They are a fund that invests in female founders in the states. We do have a 50% mandate for female-led businesses in our fund’s portfolio, but we of course invest in the African markets. We choose Nia as our name because in Swahili it means “Purpose” and in Arabic it means “Faith”. Although there is another Nia out there, we really thought the name suited what we are doing best.
In which countries do you have a footprint to source opportunities? How do you ensure these businesses are of a high quality for investors?
We currently have presence in 15 different countries across the continent, meaning that we really have a huge diversity of businesses that we work with. Since so much of the investment going into Africa is going into just 4 markets, one of our goals is to really look for opportunities elsewhere. It is quite profitable as well since there is less competition and we can work with the best businesses in those markets. After a lot of research, I know that local knowledge and involvement is key to finding great businesses. In each one of these markets, we have one or two trusted and experienced local partners who help us find businesses. These partners are local accelerators, angel investors or business services, who are often investing alongside us. They know these businesses well and really help us get to know them as well. Every market on the continent has unique needs and systems, and you really need to have people on the ground who are fully immersed.
How is your team uniquely placed to provide insightful, genuine support for businesses in multiple markets?
As mentioned before, Nia works very closely with our local partners to not only source businesses but to also support them. In addition, Nia has an on the ground team across the continent (primarily based in Nairobi) that provides ongoing communication and technical assistance when needed. In terms of smaller local needs, our partners on the ground tend to be the best place to look for help (like getting an export permit from the local government). Since Nia operates in so many markets and has a lot of experience in different sectors, our team often supports businesses by providing strategy, market expansion, leadership development, sales and marketing, and networks. Through my research, I know how crucial this is for business growth, and Nia is also building a platform called connect that will provide additional support for businesses. This includes education courses, business services, mentorship, informative podcasts, networking opportunities and buy/sales connections. Right now, the African continent is very separated by borders. Connect will help take those down and allow SGBs to do business continentally.
What would be your message for people interested in getting into African impact investing who are not currently working with a fund or an asset manager?
First off, please do it! It can be a bit intimidating to enter such a new market at first, but it will really be the most exciting and rewarding part of your portfolio. It is quite challenging to enter the market without any previous knowledge or connections. My advice would be to work with someone who does have that local knowledge. It doesn’t necessarily need to be fund manager. It can be an accelerator or someone else in the ecosystem. You could do a course through the African Business Angels Network. Or you can look for local pitch events run by local angel groups/accelerators. But as I said that local knowledge is so important. Building trust is the other huge part of this market. Get to know the entrepreneurs, their background, their stories. This will help you better understand their business and how things are done. These markets are different, and we can’t just assume what works home is going to work there. Building that trust to have meaningful and informative discussions helps you as an investor better understand how you can support profitable growth.
Nia’s primary focus is impactful and ethical investments in the African markets. Our main impact goals focus on economic empowerment, uplifting the bottom of the pyramid, and developing a healthy and equitable planet. Intrinsically, our investment goals and the businesses we invest in, align with the ethical goals of Sharia law. In addition, Nia conducts many investments that are not interest-bearing. Instead, we focus on using revenue-based equity, where the investor receives a share of their revenue to a certain point. Although a bit different than traditional-based Islamic Finance, revenue-sharing does provide more ethical and supportive finance compared to debt. In addition, Nia can do asset-based financing for small businesses as well, where we own a portion of an asset (like tractors, irrigation systems, solar panels, etc.), which can work like a Sukuk. These more alternative financial tools are not simply being deployed to fit into the Islamic finance framework, but my research has shown that they simply work better in many African markets. Thus, Islamic Finance and African Impact Investing has the potential for such an effective and symbiotic relationship.