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Kenyan tech startups line up for a slice of US$225million IFC venture kitty

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By Steve Umidha

Kenyan tech startups are eying a slice of the US$225 million venture capital by the International Finance Corporation (IFC) to scale up their operations.

Announced yesterday, the new venture capital platform will back early-stage developments of Fintechs in key markets predominantly in Africa with Kenya as a key beneficiary target where most technology firms are domiciled.

It comes as a relief for fintech founders who have had to contend with the devastating financial constraints from the Covid-19 pandemic, coupled with the war in Ukraine, with most having to lay off or temporarily shut down operations.

“IFC’s Venture Capital Platform will help tech companies and entrepreneurs to expand during a time of capital shortage, creating scalable investment opportunities and backing countries’ efforts to build transformative tech ecosystems,” said Makhtar Diop, IFC’s managing director in a statement.

Adding, the kitty will also strive to help develop homegrown innovative solutions that are not only relevant to emerging countries but can also be exported to the rest of the world

Kenya has an estimated 56 local-based Fintech companies whose successes are being fueled by increasing smartphone ownership, declining internet costs, and expanded network coverage, as well as a young, fast-growing, and rapidly urbanizing population.

Access to capital has been worsened by a slowdown in global venture capital investment, the COVID-19 pandemic, the rise in food and supply chain costs, higher interest rates, and currency depreciation also limiting the firms’ expansion ability.

The new platform adds to IFC’s Startup Catalyst Program, which is also part of its investments and efforts to tap tech ecosystems in Africa, the Middle East, Central Asia, and Pakistan. It has so far made direct investments in Twiga Foods, a Kenyan technology food distribution platform among other brands.

Kenya’s capital, Nairobi, is today known as a “Silicon Savannah” due to its strong tech ecosystem, acting as a regional hub, with several multinationals specifically in the tech and fintech sphere, making strong investments in the country in recent years. This has boosted foreign direct investment (FDI).

Multinationals like Microsoft and Visa for instance have made commitments to the country, with the former announcing a new office for its African Development Centre (ADC). Nairobi will also be hosting a first for Africa – the Microsoft Africa Research Institute (MARI). Visa also launched its first innovation hub in Africa – the Visa Innovation Studio.

The latest McKinsey report shows that revenues generated by fintech startups will grow eight times to US$ 30 billion by 2025, as users find digital finance solutions more and more convenient – and cheaper – when seeking credit, making purchases, settling utility bills, and managing expenses, compared to traditional financial services.

The IFC said Wednesday that it will also rally for more capital from other development institutions and the private sector. It has so far received an additional $50 million backing from the Blended Finance Facility of the International Development Association’s Private Sector Window, which de-risks investments in low-income countries, Kenya included.

It is estimated that in 2021, small and medium enterprises in Kenya had an estimated credit demand of US$1.1 billion, with a combined value of MSE and low-income consumer credit disbursed in Kenya in 2021 to be about US$40 billion.

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