Deeper Impact by Design: an Interview with Lilian Mramba, Grassroots Business Fund
Lilian Mramba is Regional Director, Africa at Grassroots Business Fund, where she manages the investment portfolio, business advisory, and impact measurement activities. She spoke to us about the gender finance challenges and opportunities on the continent in the wake of COVID, and the need for more rigorous analysis to prevent ‘genderwashing’.
What have the biggest challenges of the last two years been?
We actually closed a small round of capital in April 2020, so we were in the market when COVID was unfolding. We were focusing on Kenya, Tanzania and Uganda, with a focus on women-led, women-owned businesses in agribusiness. The COVID restrictions affected being able to do our typical resourcing and interacting with SMEs. In certain markets like Tanzania and Uganda, we really have to be relational.
The pandemic also created some changes in appetite for debt. We do mainly debt and mezzanine finance, but with all the uncertainty we found that initially the appetite for debt and mezzanine financing was less, because the future was unclear, especially in markets like Kenya, where restrictions are really broad-based. Entrepreneurs were shy about taking on new debt. But then, in markets like Tanzania, where initially there weren’t many COVID restrictions, we were able to ramp up our activities.
COVID really eroded a lot of the reserves that the SMEs had, and the slowdown of business over the last 18 months completely eroded the equity base for these companies. So perhaps now is the right time to enter into the market with quasi equity; an investment type that is not quite debt and not quite equity, it sits in between.
Have you noticed any gender lens investing patterns or trends in the region?
When we're talking to people launching funds, I'm hearing more of them saying that there's going to be a gender element, which is positive. I think we're almost at a place where we can start to have deeper, more meaningful, conversations about what GLI is. Perhaps the last few years were just to spread the word that this is a solid commercial case, that we need to invest in women-led enterprises, we need to invest in female fund managers. The data speaks for itself in terms of returns and performance. But I think the next level is deep GLI. You can't just claim GLI because you are going to invest in farmers, and most of your farmers are women.
Deep impact looks like asking deeper questions: how can we be more specific in the design or composition of our team? How can we be more specific rather than leaving things to chance? How do we design our investment processes? Can our technical assistance be more specific? We want to help our companies understand and begin to make changes that give women equitable access to improved pay and workplace progression. It's these types of things.
Are there any other sectors or themes you're paying attention to, alongside gender?
“COVID has meant we have had to suspend what we understand as ‘the right way to invest’. There now has to be a willingness to look at and accept different investment vehicles and structures. ”
Climate always comes up during our monitoring discussions because over the last ten years we’ve invested quite heavily in agribusinesses. Two thirds of our portfolio globally was in agribusiness. Our companies were finding it hard to meet their commitments with their buyers because they were struggling to get a handle on their sourcing. They just couldn't forecast how much product was going to come in and how much they could sell. Farmers can’t predict rain and age-old ways of farming aren’t working anymore which is what is creating the unpredictability in supply. COVID has meant we have had to suspend what we understand as ‘the right way to invest’. There now has to be a willingness to look at and accept different investment vehicles and structures.
What is needed to unlock more gender lens capital in your region?
I think we need more diversity across the capital allocation spectrum, because essentially we're saying that some things need to change a little bit from how they were previously done in order to move capital. One way to address this is to make sure that's reflected in who allocates capital. From people like ourselves who are working with intermediaries, to the ultimate capital allocators, we need to make sure that we are reflecting diversity.
How are you measuring the successful impact of your investments?
Financial returns and impact returns need to be generated simultaneously. If the company's growing, the impact has to be growing alongside the financial returns. If these two things go hand in hand, success in financial returns almost always will mean success in impact returns. The social returns of an investment also need to be tracked. We track the economic benefits that are generated by our involvement and the involvement of others in the company, and how much of those flows actually go to the sub-segment of beneficiaries that we are interested in: low income communities. So we track social economic benefits through changes over the life of the investments. We want to see those economic benefits either growing or staying the same as the company grows, because that's the validation that this is a fully integrated model where the company becomes both commercially successful and developmentally meaningful.
Have you got an example of an investment that delivered both financial returns and impact?
We invested in a woman-led enterprise in Kenya in the agriculture sector, making products for smallholder farmers. The company had a really interesting model that was super impactful; they would create the product, distribute it to the farmer and they would barter the product for the farm produce. So there was no exchange of cash. The margin difference is deposited directly into the farmer’s bank account; they actually opened up bank accounts for about 60% of the smallholder farmers. Having bank accounts meant they were able to establish credit, which also had a big impact in the financial inclusion of these farmers. The company came to us because they wanted to grow and expand, and buy supply stores to smooth over the price fluctuation caused by the availability of raw materials, which is what we provided.
The company almost doubled in the first two, three years of our investment. Through the technical assistance work we did, we were able to do customer surveys (i.e. the smallholder farmers), which is really now our target from both an impact perspective and in terms of understanding how the company serving the customer better (i.e. strategic imperative). We were also able to optimise their operations and route system because they were actually distributing through trucks all the way to the farm gate. We helped restructure their business so they could stay afloat and continue serving those farmers.
Where do you want to be in 12 months?
We want to be up and running with our new Africa-focused fund that will invest with a gender lens. I'm grateful for having been able to place capital that gives us that important market validation to launch the next phase. We've made some tweaks in our fund proposal that we're testing out now and going to scale up in the next phase. I'm ready to get going with a new fund in place.
How do you see gender lens investing evolving?
I'm quite optimistic, I have to believe that there's going to be growth. I've seen the interest, and I think that we've all collectively gone through such a life changing experience with COVID, that our minds are more open to new ideas. We've adapted to a way of life that we may not have thought was possible a few years ago. It's that openness in all of our minds that I am hoping will allow space for new ideas, new ways and new methods.
