Impact Investing in Kenya: An Assessment of Practises and Potential

Abstract: Background There is a widespread consensus that aid alone will not be able to solve the development challenges facing Africa, with Kenya being no exception. The challenges are simply too great. One potential way to facilitate growth while also making it more inclusive is to use impact investing. Impact investing could be defined as investments made with the intention of yielding a financial return while also having a positive social and/or environmental impact that is continuously measured. East Africa is one of the centres of global impact investing and Nairobi is the regional hub of East African impact investing. Purpose The purpose of this Master’s thesis is to examine how the phenomenon of impact investing is practised in Kenya, mainly from a fund manager’s perspective. From the main purpose four subpurposes are derived. • To explore whether impact investing fills a gap in Kenya’s investing market and what that gap may look like. • To examine how impact investors in Kenya weigh social impact against financial return. • To investigate what role DFIs play and how they differ from impact investors. • To explore what incentives exist for impact fund managers as well as how impact investing itself could change market incentives. Delimitations • In line with the stated purpose of using a fund manager’s perspective as well as limited time and resources, pure asset owners and entrepreneurs were not interviewed. VII • In agreement with the qualitative nature of the study as well as du to limited data access, financial statements such as annual reports were disregarded. • The authors have no ambition to compare practises of different funds in a normative way, consequently such comparisons are absent. Method The thesis combines an exploratory & descriptive, abductive and stakeholder focused approach. The study is qualitative and based on 16 in-depth interviews with people active in the Kenyan investing space. Findings are analysed and discussed based on data gathered, and a conceptual framework developed, through a literature study. Conclusions • Impact investing in Kenya is in an early stage but growing • Practises vary across firms, with funds still trying to figure out how to best practice the phenomenon • Impact investors claim that they accept higher risk and exercise more patience than traditional investors • Impact funds tend to be structured in similar ways to traditional PE and VC funds • DFIs play an important role by influencing actors and shaping the market • Impact funds do not incentivise employees based on social and/or environmental impact • Impact investing implies a stakeholder model of governance that takes the needs of several stakeholders into consideration • Impact investing moves beyond strategic CSR and puts social impact at the heart of the business model