Inclusive Economy | April 5, 2024

Addressing the small business financing gap with catalytic to commercial capital

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

Small businesses’ demand for financing is strong, and creative entrepreneurs and fund managers are working to increase the supply. This week saw deals aimed across the full spectrum of needs and solutions, from catalytic capital for micro businesses in India, to commercial debt for small businesses in the Dominican Republic and mid-sized businesses in Bangladesh, to trade financing for businesses in East Africa, to a new bank for underrepresented founders in the US. 

Pensions for private equity

Mauritius-based impact private equity firm Adenia Capital raised $470 million to invest in African businesses delivering essential goods and services. Adenia tracks an extensive list of impact metrics: 2X gender criteria, job quality, employee benefits, water and energy use, and carbon emissions across its portfolio and supply chains.

Its fifth and largest fund is the first to secure backing from three African pension funds, which are showing cautious but growing interest in private equity and small business finance. South Africa’s Public Investment Corp. and funds from Kenya and Ghana committed roughly $50 million, “a great first step to opening up an important source of capital for Adenia and the industry,” Adenia’s Stéphane Bacquaert told ImpactAlpha.

Major development finance institutions backed the fund as well.

Creative capital

India’s Aavishkaar Capital provided $5 million to Bangladesh’s Midland Bank from its $250 million ESG First Fund to incentivize lending to textile businesses and nudge its borrowers to improve environmental, social and governance practices and reporting.

Gawa Capital made an equity investment in Sindhuja Microcredit through its blended-finance Huruma Fund; the capital, invested alongside Oikocredit, will support microlending to India’s rural traders, shopkeepers and farmers.

Diversified debt

First Circle Capital provided pre-seed financing to Ugandan fintech company Credify to help East African small enterprises pay for imported goods essential to their businesses.

Commercial bank Citi extended loans to Banco Popular Dominicano and Banco Santa Cruz to expand working capital lending to small businesses in the Dominican Republic.

Returns on inclusion

Known Holdings launched a US investment bank for “traditionally under-capitalized founders, and underutilized sectors that are ripe for investment and growth,” said Known’s Valerie Red-Horse Mohl. The entity, Known Growth, will provide mid-sized businesses with private equity, private debt and low-cost loans with a focus on helping founders scale while retaining ownership and control.