Imagine a future where every young entrepreneur in Kenya has access to the affordable capital and support they need to transform their ideas into thriving businesses. This is not a distant dream but a tangible goal that the European Investment Bank is actively implementing. Through its strategic focus on empowering small and medium enterprises (SMEs) which are the backbone of our economy, particularly during the post-pandemic era, the European Investment Bank is financing businesses and investing in the fabric of Kenya’s economic future.
In an exclusive interview, Thomas Östros, Vice President of the European Investment Bank, shares the bank’s bold vision for Kenya, detailing innovative initiatives, reshaping the financial landscape for SMEs. From pioneering venture capital programs to leading the charge on green financing, the Bank is tackling the most formidable challenges head-on, committed to sustainability and inclusive growth. Dive into this discussion to discover how the European Investment Bank drives change, creates jobs, and fosters an ecosystem where businesses can survive and thrive for the long term.
1. Long-term Vision and Post-pandemic Development
– What is the EIB’s long-term vision for supporting the development of SMEs in Kenya, especially in the post-pandemic era?
Businesses play a critical role in development and economic growth, and in particular in Kenya the role of small businesses is prominent. The ability of businesses to invest to increase their productivity is essential to widespread poverty reduction and rising standards of living. Their ability to create jobs for those entering the workforce, and to create opportunities for women and men, is critical for development.
However, access to finance is a key constraint on businesses in low- and middle-income countries. Compared to advanced economies, the financial sector tend to be less developed, with banks often reliant on short-term deposits as a source of funding, something that limits their ability to provide the long-term funding that firms need to finance investment. In addition, banks are exposed to the volatility of international financial flows that can lead to sudden restrictions on their ability to extend credit to firms, particularly small and micro-sized businesses. Private equity and venture capital markets are also in early stages of development, which limits the amount of finance available to highly innovative firms that banks deem too risky to lend to.
In the long term, EIB seeks to expand the number of credit lines it extends to local banks in Kenya to lend to small and medium enterprises (SMEs) that they would otherwise be unable to reach.
Private capital is a powerful driver of economic development in Africa. Private equity funds, through investment in local enterprises, are playing a catalytic role by bringing external funding as well as knowledge and technical expertise to the companies they invest in.
Africa is a key focus for EIB under the EU’s Global Gateway initiative.
The Bank provides support in various ways, and one example is through equity funds, investing nearly €3 billion in equity funds with a geographic focus on Africa. In 2023, nearly 60% of EIB’s fund investments were in Africa, showing our increased focus on spurring the continent’s private capital flows. Kenya is one of the top four countries, benefitting from such fund investments through for example funds such as Amethis, Seedstar Ventures Africa, Inspired Evolution and many more.
Since 2020, the EIB-supported Boost Africa investment programme has been providing venture capital and technical assistance to develop and promote the African startup ecosystem. Ongoing impact studies by the Bank show how the programme is supporting North-South knowledge exchange and how it enables beneficiaries to raise more capital to support their growth plans. The programme is still running and hopes to support more early-stage companies grow sustainably.
– What key insights have the EIB gained from its interventions during the COVID-19 pandemic that will inform future strategies for supporting SMEs in Kenya?
A positive impact on employment: SMEs benefiting from EIB loans reported an immediate increase in employment growth. Among its more than one billion people, Africa counts the youngest, fastest-growing middle class in the world and the same goes for Kenya. A decade from now, growth in the African workforce will exceed that of the rest of the world combined. Incorporating this labour force into the country’s economy is vital. This can be facilitated by supporting SMEs which already provide the majority of job opportunities available to Kenya’s youth.
• Stronger impact for firms with limited access to finance: An EIB study found that the positive effects on employment were more pronounced for firms with no previous access to bank loans. This suggests that the favourable market conditions offered by the EIB are particularly beneficial for these businesses.
• Increased investment: Firms receiving EIB loans experienced a rise in total assets and a remarkable
increase in fixed assets, demonstrating the ability of EIB financing to enable SMEs to invest in a credit-constrained environment.
2. Innovative Financing Solutions and Future Initiatives
– Are there any new, innovative financing solutions the EIB plans to introduce to support Kenyan SMEs in the coming years?
Most countries in Africa have seen low government spending capacity and Kenya is no different. Kenya is still not back to its pre-pandemic growth trends. It is important to keep the tap flowing on affordable finance. Investment can only be sustainable if it promises a mutually prosperous future for all in the developed and developing world.
This year, the EIB has taken over the Chairmanship of an EU-EIB Initiative known as “Invest in Young Businesses in Africa” (IYBA), which aims at helping young businesses and entrepreneurs in Africa, to launch, consolidate and grow sustainable, strong and inclusive businesses and create decent jobs. The focus is on women and young people (18-35).
The initiative has 3 objectives that reflect the needs of businesses and entrepreneurs at different stages of development.
- Support for very early-stage businesses and entrepreneurs needing the earliest rounds of financing (known as ‘pre-seed financing’).
- Support for early-stage businesses and entrepreneurs needing early rounds of financing (known as ‘seed capital’ and ‘Series A’ or ‘Series B’ equity financing).
- Support for the ‘entrepreneurship ecosystem’ – public and private organisations providing either finance or other forms of business support to early-stage companies and entrepreneurs. This support means:
- strengthening and connecting entrepreneurship ecosystems, so they also work for the smallest players – not just the bigger ones
- enabling partner countries to put in place regulations and policies that allow entrepreneurs and early-stage businesses to launch, consolidate and grow
- promoting an enabling entrepreneurship culture at all levels – including in schools, colleges, and universities, and in the media
Working with the European Union and other partners, this initiative aims at:
- Improving access to finance through guarantees (where EU shares the risks involved in investing) and blending projects (which combine EU grants with loans and other forms of financing from public and private investors
- Finding solutions to persistent challenges around investing in women and youth businesses in Africa
- Strengthening organisations that support entrepreneurs to boost networks or ecosystems of business incubators, accelerators, VC Funds and financial institutions.
- Implementing the initiative at country level thus boosting dialogue between public and private sectors.
– Are any upcoming funding initiatives planned for Kenyan SMEs in 2024 and beyond? If so, what are the expected amounts and target sectors?
Our local partnerships happen on a rolling basis. The most recent announcements we have made are:
- EUR 25 million investment in Amethis Fund III, a pan-African fund providing private equity growth capital to medium-sized companies on the continent. Amethis Fund III will target companies supplying goods and services to low- and middle-income populations in Africa. The target sectors include healthcare, business services such as logistics and IT, manufacturing and distribution, including agribusiness and fast-moving consumer goods, non-banking financial services, and services related to infrastructure and energy. It has offices in Kenya and has previously supported brands such as Naivas Supermarket.
- EUR 30 million investment in Kenya Commercial Bank by EIB and the Gates Foundation to support women entrepreneurs and start-ups.
3. Sector Focus and Strategic Priorities
– Are there specific sectors within the SME landscape that the EIB plans to focus on more intensively going forward?
The EIB’s investment focus is aligned to the EU’s Global Gateway Initiative for Africa. This aims to deliver on smart, inclusive growth, gender responsive investments as well as climate adaptation.
The Global Gateway Africa – Europe Investment Package aims to support Kenya for a strong, inclusive, green and digital recovery and transformation by:
- Accelerating the green transition- to ensure use of clean renewable energy to power the economy.
- Accelerating the digital transition – to adopt use of technology to ease and scale processes.
- Accelerating sustainable growth and decent job creation – to ensure Kenya’s youth have a future to look forward to.
- Strengthening health systems – to avert catastrophic effects of a future health pandemic.
- Improving education and training
4. Sustainability and Green Initiatives – Green Financing
– How does the EIB plan to integrate sustainability and green initiatives into its future SME financing programs in Kenya?
The EIB is a bank focused on delivering projects contributing to four strategic Public Policy goals (PPGs) whilst maintaining a substantial green orientation in its activities. These are Innovation, Digital and Human Capital; SMEs and Mid-cap Finance; Sustainable Cities and Regions; and Sustainable Energy and National Resources. Projects must be bankable, that is suitable and attractive enough for a financier to be willing to provide the capital needed for growth. The projects must also be aligned with the Paris Agreement to be eligible for EIB finance.
In line with its climate commitments, the Bank is further advancing its green agenda by increasing continuously its finance towards operations contributing to climate action and environmentally sustainable (i.e. green) objectives.
In Kenya, The EIB and the Central Bank of Kenya (CBK) launched a climate finance best practice initiative dubbed “Greening Financial Systems” to strengthen Kenyan financial institutions’ commitment to financing climate-related investment and enable commercial banks to mobilise climate finance essential to achieving a net-zero economy and strengthening the climate resilience of the Kenyan financial systems.
The programme will help Kenyan banks and financial institutions to better embrace climate finance best practice across all activities, catalyse new funding for green projects, and better assess, monitor and report on the climate-related risks.
5. Challenges, Opportunities, and Impact Measurement
– What have been the most significant challenges and opportunities identified by the EIB in supporting Kenyan SMEs through local banks and private equity funds?
- Lack of long-term financing in the local capital markets, which EIB addresses by providing credit lines to banks with long maturities for on-lending to SMEs thus matching the economic life of the projects being funded
- SMEs receiving the funding often need support to build their business skills to launch/ originate and grow their enterprises successfully for long term sustainability. EIB helps by providing Technical Assistance and advisory services alongside the credit lines to enhance financial literacy, entrepreneurship skills, etc.
– How does the EIB measure the impact of its financing initiatives on the growth and resilience of SMEs in Kenya?
See here for general info on measuring impact: Measuring the EIB Group’s impact: Methods and studies.
6. Feedback and Program Refinement
– How does the EIB gather and incorporate feedback from SMEs and local financial institutions to refine its support programs?
We do direct engagement with Financial Institutions to get their feedback on the highlights, challenges and lessons of our partnership. Also, through surveys e.g. this one: EIB Africa banking survey shows resilience in difficult environment
The European Investment Bank has published the “Financing in Africa Survey 2023,” providing insights into the evolving financial landscape across the African continent. This is an extensive analysis conducted in partnership with 33 leading banks across Africa, it lays out challenges and confirms resilience of the African banking sector. Such insights and evaluations ensure that African banks are equipped to support transformative private sector investment. The EIB remains dedicated to collaborating with its partners to address the challenges outlined in such reports, thus driving sustainable financial growth in Africa.
