Empact Growth Fund - Filling the Void in SME Finance in Ethiopia

Emplacement

Empact Capital is seeking to launch the Empact Growth Fund (EGF), a US$50 million private equity fund targeting Ethiopia’s SME sector. The Fund will be the first multi-strategy investment vehicle focused exclusively on Ethiopia, designed to realize the commercial and developmental objectives of both development finance institutions (DFIs) and private investors.

The financial sector in Ethiopia has always been strictly controlled. With commercial banks primarily focused on short-term loans and trade finance, the private sector’s financing requirements come last in the pecking order and lending criteria are draconian. Unsurprisingly, SMEs suffer the greatest discrimination from banks’ credit policies: credit analysis and risk pricing mechanisms are rudimentary, collateral requirements, generally property-based, are effectively insurmountable and cashflow-based lending is not considered. As a result, SMEs will remain under-attended or entirely overlooked, and the continuum of financial products needed to help businesses migrate from start up to small and medium-sized and beyond will remain absent.

For the reasons highlighted above, Empact believes that the timing is particularly favourable to launch a private equity fund targeting SMEs in Ethiopia. This perspective is the result of three years of research and engagement with the private and public sectors and the Ethiopian government.

The Empact Growth Fund will be the first multi-strategy investment vehicle focused exclusively on Ethiopia, designed to realize the commercial and developmental objectives of both private international investors and DFIs.