A loan to a Kenyan farmer exemplifies the income and impact African lenders leave on the table with exclusionary and outdated underwriting practices. South African impact fund manager Afrishela provided credit and technical assistance to a woman-led sweet potato farm, which then nearly tripled its yield per acre.
“That allows the business to have increased incomes and improved livelihoods, which is exactly what we’re looking for,” Afrishela’s Jane Muia told ImpactAlpha in a video interview.
That farmer wouldn’t have been eligible for a traditional loan from most financial institutions, in part because her business was too small to justify the underwriting work. African women face specific obstacles to credit access, however, like lack of collateral or land titles stemming from women’s exclusion in land inheritance.
“There’s a lot of systemic, unconscious gender bias,” Muia said. “We are coming in to help bridge that gap with more responsive financing.”
More than that, Afrishela is developing a credit underwriting framework to model how financial institutions can adopt more gender-inclusive lending practices.
Muia spoke to ImpactAlpha as part of our Pathways to Growth video series, produced with the Collaborative for Frontier Finance.
Gender-responsive finance
Afrishela is a gender-lens investment fund that provides impact-linked loans and revenue-based financing to women-owned businesses in East and Southern Africa. The fund is managed by the Graça Machel Trust, a women and children-focused nonprofit that was founded by Nelson Mandela’s former wife and the former first lady of South Africa and Mozambique, Graça Machel. A portion of the fund’s carried interest is earmarked for women’s empowerment projects.
Afrishela provides financing to under-banked female business owners needing anywhere between $20,000 and $500,000 in growth capital. It focuses on sectors with high-rates of female participation, like agriculture, retail, health and education, as well as businesses with a climate focus. Its borrowers must be majority women-owned and have women represent at least a third of their customers, workers or suppliers.
Its borrowers share similar struggles in getting traditional bank financing, Muia added. “The rates are too high in terms of the cost of finance.” That’s because they either lack collateral or “maybe her requests are smaller ticket sizes, because she’s still in the earlier growth stage.”
The fund is looking to ink its first two deals, including the Kenyan sweet potato producer. It’s looking to raise $30 million and has at least $4.5 million in tentative commitments from a South African institutional investor and an African fund of funds.
For now it’s investing with funding from a Belgian family office and angel investors.
Alt-risk assessment
Key to its approach is a credit-risk assessment model that considers alternative forms of collateral that are more readily available to women. Afrishela considers equipment, future sales and revenues, and cash as valid forms of collateral. The model also accounts for the fact that women generally have better repayment track records than their male counterparts, and also factors in their business management experience.
As Afrishela builds its borrower pipeline, it’s pushing for wider adoption of its underwriting framework. For example, it is working to get financial institutions in Uganda to embed its risk assessment approach through the Generating Growth Opportunities and Productivity for Women Enterprises, or GROW, initiative of the Ugandan government and the World Bank (for background see, “Proof points from Uganda for unlocking capital for women and refugees“).
“Women care about their beneficiaries. They care about the impact of their work. They’re very conscientious,” Muia shared. “We see a widespread impact on the communities that they serve and work.”
