SME Risk Capital Funds: Constraints to Kenyan Institutional Investors
This report provides a profile of institutional investors in Kenya and an assessment of their attitude and appetite for investment in early stage investment funds targeting small and medium sized enterprises (SMEs).
The legal and regulatory framework to encourage establishment of locally funded investment vehicles has not developed holistically in Kenya. The fragmented nature of the current regulatory framework has left potential fund managers and investors unclear as to the implications of attempts to mobilize the growing pool of long term funds. The report was commissioned by GrowthFin, a program of the Financial Sector Deepening (FSD) Trust that works with stakeholders to identify and overcome impediments to financial service provision to SMEs. Findings indicate that:
- Kenyas risk capital market is still in the early stages of development;
- SMEs largely rely on internal and bank financing;
- Very few funds operate in Kenya, although the number is increasing;
- Pension fund and insurance industry contribute less than ten percent of total funding for venture capital in the country;
- Retirement Benefits Authority (RBA) Act and the Insurance Act provide for investment in other asset classes for which early-stage SME funds qualify.
