According to the 2023 Multidimensional Poverty Index (MPI) released by the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI) at the University of Oxford, some 534 million people live in poverty across the region.

We still fall behind on other developmental indices too. Data from the World Bank shows that nearly half the region’s population doesn’t have access to electricity and, according to the World Economic Forum, just 39% of people in the region have water connected to their homes.

Mobile internet connectivity rates are similarly low, at 40%, according to GMSA. While it’s important that governments and private sector partners across the region work to address those infrastructural challenges, additional action is required too.

It’s equally critical that people, particularly in low-income communities, are given the skills they need to build sustainable jobs and livelihoods.

Doing so is crucial not only to lifting people out of poverty but also to the long-term future of these communities.

A sustainable path out of poverty 

The absolute key word, when it comes to building livelihoods that help people escape poverty, is sustainability.

While initiatives like public works programmes can help provide income boosts, particularly in poorer areas, the work is often temporary. That means that, once a road is repaired, trees are planted, or a park is cleaned up, the work goes away until the next project comes up.

In many cases, these programmes also don’t come with skills development components. That, in turn, means that people are left dependent on these programmes, rather than being able to build sustainable livelihoods for themselves.

Fortunately, it doesn’t have to be that way. The right investments, made in the right ways and the right places, can help create sustainable jobs and develop skills that offer people a sustainable path out of poverty.

In fact, companies across the region are desperate for skilled workers. While more current statistics are difficult to find, it’s telling that a majority of private African companies, according to Statista, reported losing out on revenue because of skills shortages in 2019.

These skills shortages are keenly felt even in the region’s most industrialised economies. In South Africa, for example, the Mail & Guardian reported that there were more than 77,000 jobs available but which couldn’t be filled due to a skills shortage. That’s in addition to the 300,000 jobs that have been outsourced to people who live overseas.

It’s critical, therefore, that investors in the region look at ways of building skills development into their investments.

Inclusive empowerment 

It’s also important to note, however, that it’s also critical to empower and upskill people across the region from an entrepreneurial perspective.

Take East Africa’s boda-boda drivers for example. Along with their motorbikes, these drivers fulfil numerous roles, from acting as single-person taxis to delivery services. From the urban centres in Uganda to the most remote villages, boda bodas are quick, inexpensive, and readily available to get the people where they need to be.

They also provide a huge boost to small business owners who make substantial savings while using boda bodas to transport goods across the country.

For many people struggling to earn a sustainable livelihood, the boda boda business has enabled them to become entrepreneurs and indirectly offers employment opportunities to many others. With properly structured loan investments, these drivers can grow their businesses, and boost their income.

Over time, they may even be able to employ other drivers, which not only aids with job creation but also in boosting local economies.

We’ve witnessed how powerful the right credit-based approach can be with our own portfolio company Watu Credit.

To date, Watu has created over 3,000 direct jobs and has provided over 600,000 loans across seven countries, which have positively impacted the lives of more than 3.6 million people.

Unleashing Africa’s full potential 

Ultimately, what these examples show is how powerful the right approach to African investment can be. By focusing on long-term sustainable job creation and skills development, many more people will be pulled out of poverty, to the benefit of both themselves and the communities they live and work in.

And given the immense potential waiting to be unleashed across the continent, it’s an investment approach that could deliver seriously rich dividends.

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There are many reasons why education barriers in the sub-region persist. For one, enrollment levels remain a problem. World Bank economists found that more than one in five primary school-aged children in Sub-Saharan Africa weren’t in school last year. And, according to ISS African Futures, once kids are in school we also battle to keep them there.

Despite progress made since the Education for All movement in the 1990s, there are still too few teachers to cater for the growing student population, according to the Common Wealth of Learning   – resulting in lower engagement time with individuals and higher workloads for teachers. The 2023 Sustainable Development Goals (SDG) progress report lays bare just how far behind the world is falling in achieving quality education for all.

Without more investment, only one in six countries will reach the target of getting all its adults to finish secondary school. A goal which, according to UNESCO, if achieved, could reduce global poverty by half.

The SDG progress report indicates that more capital is also needed to close the nearly $100 billion yearly financing gap that lower and middle-income countries face. Without this funding, SDG education targets will remain unattainable.

But where should we invest to make the biggest impact on learner retention and outcomes? With time running out to meet UN goals to end poverty and promote prosperity, let’s look at the funding channels which have the most influence on a child’s school day for solutions.

Improve the daily school experience

Researchers for the International Journal of Educational Research analysed just under two decades of peer-reviewed research to understand what kinds of projects resulted in benefits for school kids.

Interestingly, the amount of money available to a school doesn’t necessarily correlate with student performance on “learning outcomes” such as reading for comprehension or their understanding of mathematics and science.

According to the ISS African Futures, interventions that can change a child’s daily school experience in a meaningful way make a huge difference because such projects can shield pupils from factors such as lack of desks, textbooks and equipment that can make learning more difficult.

Infrastructure projects, student performance incentives and support for teachers and their teaching methods were all among the ‘best buys’ for education.

Learners at electrified schools, for example, get better grades because they can study for longer on dark days or in after-school programmes.

According to a paper published in Science Direct, scholarships can motivate students by exposing them to opportunities they wouldn’t otherwise have known about. They also help alleviate the cost of education, even in countries like Uganda where primary school is free but parents still struggle to afford uniforms and books.

The quality of the lessons children have also plays a huge role in how well they do. Schools with teachers that have greater knowledge of the subjects they teach, tend to produce students with better grades.

Smaller classes, more trained teachers, better outcomes

Class sizes impact both learning and a teacher’s willingness to stay at that school. Smaller classes allow educators to address individual challenges and go beyond just delivering educational content.

The student-to-teacher ratio measures the number of students per teacher in a class. Malawi and Tanzania have some of the highest ratios (55:1 and 57:1, respectively), while Botswana has the lowest.

According to the Litera Centre, optimal ratios vary based on economic and population factors. Lower ratios often mean teachers have a better understanding of student interests, goals and struggles enabling timely interventions to improve academic performance. When combined with teachers who have advanced subject knowledge, lower ratios can provide even more meaningful support to pupils.

Investing in impact

Norsad has invested nearly $40 million in social infrastructure services to improve education on the continent.

Our investment partner Nova Pioneer schools, with their low student-to-teacher ratios, demonstrate the positive effects of this approach. Across 13 campuses in Kenya and South Africa, 4 400 learners benefit from two teachers in every classroom.

This structure allows teachers to focus on developing both problem-solving and soft skills, equipping learners for the knowledge economy.

Teachers are trained as facilitators who encourage student-led solutions, fostering critical thinking skills in every class. Learners get a solid foundation in developing skills aligned with the fourth SDG: providing young adults with relevant skills for 21st-century jobs.

Facilities like school labs amplify the impact of this learning model, enabling exploration rather than rote memorisation and this can foster innovation skills necessary for modern careers. In these times interpersonal skills aren’t just nice to have, they are foundational.

“You can expect your voice to be heard,” said one student when asked how Nova Pioneer is different from other schools. This matters because “you start believing in yourself and the things that you can do,” she says.

Unlocking potential

Despite lagging progress on the education SDG targets, immense potential remains. As research shows – investments in infrastructure and human resources that directly improve students’ school day lead to better learning outcomes.

From reading comprehension to coding and robotics skills, impact investing can help close critical skills gaps, reduce poverty and gender inequality and promote prosperity.

This International Day of Education, let’s strengthen our partnerships and turn to tactical investments so we can build a better, more equal Africa.

If the continent is to meet the United Nations’ Sustainable Development Goals (SDGs) of ending poverty in all forms by 2030, then it’s clear that efforts must be redoubled with a focus on innovative solutions that make a tangible difference in people’s lives.

On that front, access to finance is critical. It allows people to take out the loans they need to become homeowners or to study, for example. But it also allows entrepreneurs to access the funding they need to grow their businesses.

The formalisation that comes from that access, meanwhile, can make it easier for businesses to take advantage of tax incentives and subsidies, further bolstering their growth.

Fortunately, there are a few organisations across the continent that have found innovative and exciting ways of providing Africans with access to finance. In doing so, they’re not simply replicating what has worked elsewhere.

Instead, they’re taking an approach that recognises the on-the-ground realities of finance in Africa and makes extensive use of the tools that ordinary Africans use most.

A massive need 

Before taking a deeper look at the approach some of those organisations are taking, it’s worth exploring how big of an issue access to finance currently is across Africa.

According to World Bank data, just 35% of people over the age of 14 in 28 sub-Saharan African countries had formal bank accounts in 2021.

Of course, that average isn’t evenly distributed. Countries with mature formal financial sectors such as Mauritius (nearly 90%) and South Africa (now at 85%) have much higher rates of account holders than the likes of Sierra Leone and Guinea (both under 14%).

Even when you take mobile money – Africa’s biggest financial inclusion success story – into account, 57% of Africans do not hold any kind of bank account, according to Africa Tech. Finding ways of shifting those numbers is absolutely crucial to alleviating poverty and changing lives.

In addition to the examples I’ve already mentioned (of people taking out loans for themselves and businesses) there are a number of ways that access to finance can be transformative.

Take savings for example. With easy access to financial products, people can save more easily and securely. That, in turn, makes it easier for them to ride out emergencies, invest in their own and their children’s future, and even eat healthier.

But it also allows people to access government assistance without having to stand in long queues, easily accept remittances from family members working abroad or in another part of the country, and access other financial services such as insurance.

Meeting the need with mobile 

Unsurprisingly, one of the most powerful tools in addressing this need for financial inclusion is the mobile phone. In countries with high mobile penetration rates such as South Africa, Kenya, and Nigeria, it’s common for people who might not even have access to electricity at home to have a mobile phone.

As a consequence, mobile money has been a vital enabler for millions of poor people in Africa who do not have access to formal financial services like banks.

With mobile financial account ownership and usage continuously rising, it’s becoming the preferred account compared to traditional bank accounts in some places.

Innovative financial solutions like mobile money play a significant role in improving the lives of many people in urban and rural areas.

In the past, that was simply down to the fact that it enabled people to send and receive money. But it’s evolved beyond that, giving people access to subscription services and even to sell goods and services across international borders.

MFS Africa has played a particularly important role in driving that evolution. MFS Africa is the largest digital payments hub on the continent. It works closely with mobile network operators, money transfer organisations and financial institutions to bring simple and relevant financial services to unbanked and underbanked clients.

Since its founding, it has connected more than 400 million mobile money accounts and 200 million bank accounts.

Additionally, it has helped empower more than 200 000 mobile money agents in Nigeria along with more than 260 000 clients and businesses across the continent. And by the fact that it operates across more than 600 payment corridors, it’s made it much easier for people to send and receive money no matter where it comes from or where it’s going. 

Building a brighter financial future 

With mobile penetration and rates of connectivity in Africa growing all the time, the role of mobile-first financial services will only grow more important. Indeed, there is no doubt that they will be vital if the continent is to reap the full benefits of financial inclusion.

We’ve seen first-hand, through MFS Africa and other portfolio companies, how important innovation is to building that inclusion.

It’s something that we’ve long believed in and which forms part of our mandate as a financing provider but it’s also something we’ll keep driving long into the future.

When we think about the impact that private credit and other forms of financing have on African companies, we tend to think about things like business growth and success. But the impact that private capital in particular has goes far beyond that. Utilized properly, it can have an incredibly powerful and positive effect on the lives and livelihoods of ordinary Africans. 

That’s true not only when it comes to things like job creation. Private credit in the right sectors can make it that much easier for Africans to get to their jobs, seek out healthcare, and to have permanent, affordable energy, and many other things.

That’s especially true in cases where the private credit provider has a social impact remit and is aligned with things like the United Nations’ Sustainable Development Goals (SDGs). 

The power of private credit in the African context 

Before taking a deeper look at how big a positive impact private credit can have on African lives and livelihoods, it’s worth understanding what exactly it is and why it’s so powerful in the African context. 

In essence, private credit involves non-bank lenders providing loans to companies. While these companies vary in size, they’re typically focused on small and medium-sized businesses or those that aren’t suited to equity investment. 

That’s particularly important in the African context, where there’s much less equity-style investment available in certain sectors and where that kind of investment isn’t always suitable to a company’s needs. In terms of available investment, the tech startup space provides a useful benchmark. Despite African startups achieving USD2.1bn in VC funding in H1 2023, that’s still a fraction of the USD 85.6bn in H1 2023 raised by US startups over the same period (which was 46% down on the previous year). 

It’s also true that some companies aren’t suited to the kind of accelerated returns that equity-style investors look for.

Private credit providers, by contrast, are able to take a more long-term approach, meaning that the companies who receive the credit are able to grow at a more sustainable pace. 

Improved impact through collaboration  

That, in turn, means that they have more time to have a tangible impact. We’ve seen this first-hand with our own portfolio companies. With just over USD235 million in assets under management (USD56.5 million was spread across 13 companies in 2022.), we’ve helped those companies touch the lives of tens of millions of people.

In fact, by the end of 2021, 35.5 million lives had been positively impacted, which is just over a third of the 100 million people we hope to impact by 2030.

Our partner portfolio companies also supported 15 142 jobs in 2022, with 43% of these held by women and 20% by the youth.
We’re not the only ones having that kind of impact either. Take TLG Capital, for example.

Its Africa Growth Impact Fund (AGIF) provides open-ended credit fund investing in sub-Saharan Africa with superior risk-adjusted returns and a multifaceted high social impact. In line with this, the Funds aims to meaningfully contribute to women’s economic empowerment and influence.

As a result of its efforts, TLG AGIF now fulfills the 2x Challenge Criteria 5 – Investment through Financial Intermediaries.

In healthcare, one of the companies has distributed over 284 million EU-compliant medications since 2020 across some of Africa’s poorest countries, another has manufactured medication for over 1,000,000 Ugandans currently receiving HIV treatment.

But we also recognise that impact can be strengthened through collaboration. That’s why we inked a partnership deal with TLG Capital in December 2022.

The partnership allows both of our companies to enhance the impact our various portfolio companies have, thanks to strengthened sharing, presenting, and co-investing in well-structured credit investment opportunities. 

It’s a collaboration that is already proving its benefit and is something we hope to see happening more frequently across the continent. 

Driving sustainable development 

Ultimately, it’s important to remember that Africa has so many of the right ingredients to become a global economic superpower. It has a young, increasingly well-connected population with high proportions of entrepreneurs. But it also has a unique opportunity to take a sustainable development path as it heads towards that pinnacle. 

One of the most powerful tools available when it comes to the continent reaching that point is private credit. When an organisation provides that credit with a social impact remit, it can help companies grow at a natural pace and in a way that allows them to maximise their own impact. 

But if we want private credit to play the role it has the potential to, then it’s imperative that players in the sector foster a sense of collaboration and work together to provide the most positive possible impact on the lives and livelihoods of ordinary Africans. 

Impact investing refers to investments that are made to achieve positive financial returns combined with measurable, positive environmental and social impact.

The impact investment sector is currently estimated to be worth US$1.164 trillion globally. Of that, Sub-Saharan Africa lays claim to a relatively small US$65 billion, with South Africa accounting for 84% of all impact investment assets in the region.

It should be clear, then, that there’s substantial room for impact investment growth across the continent. But if we’re to offer any kind of roadmap for how that growth might be achieved, it’s important to understand what it actually means to be an impact investor in Africa. 

Understanding where the need lies 

While it’s important for any investor to understand where there is a developmental need to be met or a problem to be solved, it’s especially critical for those participating in the impact sector in the African context.

Impact investors looking to build a presence in the region must do extensive work to understand the region as a whole, alongside the individual markets they seek to operate in. Ideally, that means having an active on-the-ground presence, as well as making a conscious effort to hire relevant local expertise.   

With those resources in place, it’s also important for investors to identify the problems that their investing expertise is best poised to solve. At Norsad Capital, for instance, our investments are aligned with the United Nations’ Sustainable Development Goals (SDGs) and focused on helping build sustainable livelihoods, financial inclusion, gender equality, and growth in climate and clean energy. 

Meeting investor expectations 

Increasingly, investors of all kinds expect investments to be made in accordance with environmental, social, and governance (ESG) guidelines. 

Applying ESG best practices creates sustainable brands, increases productivity and enables companies to unlock further funding. It also creates expanded opportunities for impact investors as they’re ideally poised to deliver on those guidelines. 

But to make the most of those opportunities, investors must work hard to ensure that they exceed ESG compliance standards. This intentional and focused approach is critical to being a successful impact investor.

Returns and measurability 

Of course, impact investing is defined by more than the initial and ongoing work you put in. You also need to be able to demonstrate returns. Here, sound investment must be based on sustainability, measurability, supported by the transparent monitoring of benefits.

There are clear reasons for the need to generate returns. It’s what separates impact investors who have a growth imperative, from NGOs and charitable organisations that don’t. Impact investors believe that it’s possible to change the world while making a profit. The investors backing them believe that too, making it incredibly important to invest in companies that at least show the potential to generate returns. 

Measurability in impact investing is both more important and more difficult to achieve than in traditional forms of investment. Remember, impact investors don’t just have to demonstrate that they’re delivering financial returns for investors but also that they’re having an actual impact. 

Specific approaches to measuring impact will differ depending on investors’ objectives, capacities, and goals. However, according to the Global Impact Investing Network (GIIN) there are general measurement best practices. These include: establishing and stating social and environmental objectives to relevant stakeholders; setting performance targets related to these objectives using standardised metrics wherever possible; monitoring and managing the performance of investees against these targets; and reporting on social and environmental performance to relevant stakeholders. 

In the African impact investing landscape, it’s also important to apply the widely varying contexts in which investments are made to those measurement principles and to help external stakeholders understand why that’s so critical. 

Unlocking potential 

Ultimately, though, the real meaning of being an African impact investor can’t be boiled down to those minutiae. Instead, it’s about unleashing the immense potential on the continent.

It is, after all, home to a growing population (more than 60% of whom are under the age of 25) that is increasingly well-educated and connected.

Impact investors see that potential and want to help unlock it for as many people as possible. And with the right approach, the bets they’re making could pay off big-time. 

It has been shown that mobile money and other non-traditional forms of financial services are key enablers for financial inclusion in Africa – they have disrupted traditional financial services by providing better ways to transfer funds than using cash.

With mobile and other digital payment systems, customers in Sub-Saharan Africa are gaining access to business loans, savings, and other services that a traditional bank would otherwise provide.

The greater availability of financial services has an incredible impact on many aspects of life in Africa and plays a role in alleviating poverty for communities. 

One player in the omnichannel payment field helping to make the sort of impact that the continent needs is MFS Africa.

It is the largest hub for omnichannel payments in Africa, which connects over 400 million mobile money users on the continent.

Impacting largely the unbanked and the underbanked demographic on the continent, MFS Africa connects mobile network operators, money transfer organisations, cross-border payments remittance firms, financial service providers, and worldwide merchants to millions of mobile wallets on the continent. 

“Our services focus on creating more possibilities for Africans needing to make payments, to carry out money transfers, and to remit funds to others,” explains Dare Okoudjou, Founder and CEO of MFS Africa. “Merchants, banks, mobile operators, and mobile money transfer firms have come to rely on our compliant and cost-effective service, and this is why the MFS Africa network has grown so extensively across the continent of Africa.” 

MFS Africa has achieved a significant presence in Sub-Saharan Africa, being connected today to over 60% of all mobile money wallets in the region. Understanding the need for connecting mobile money to the rest of the world, MFS Africa recently broadened its bank and fintech base offering through the acquisition of US fintech GTP.

This will enable the company to tokenize mobile money space and connect to traditional card scheme ecosystems such VISA and Mastercard.

Okoudjou explains that, “Our guiding principle is that African consumers and businesses should be able to pay for anything, both offline and online. We’ve always known that in order to really eliminate borders, we needed to connect mobile money to the rest of the world; card networks seem to be the most effective means to do so.”

The firm works in over 35 countries in Africa but believes that there are still more areas that it can provide its services to.

It is against this background that MFS Africa negotiated a deal for additional funding from Norsad Capital, an impact investor offering tailor-made debt solutions to mid-market growth companies in Sub-Saharan Africa.

Kenny Nwosu, CEO at Norsad Capital, says: “The Norsad Capital term facility will assist MFS Africa to break into Nigeria, a market that is key to MFS Africa’s growth strategy. With its extensive population and capacity to do business, Nigeria accounts for the largest movement of money around the continent, and our funding is important as it comes at a point in the company’s development where it is poised for significant growth.”

According to Nwosu, “This is a very attractive investment for Norsad as MFS Africa has a strong market position, and this market share puts MFS Africa in a position to be at the forefront of financial inclusion and digital payments in Africa.”

There is also great synergy between the two service providers since MFS Africa is aligned with Norsad’s Purpose of Building a Better Africa. As Okoudjou of MFS Africa explains: “MFS aims to decrease the cost of money remittances to Africa. We currently connect mobile money systems to one another and to money transfer organisations, banks, and other financial institutions, enabling money remittances to and from mobile money accounts. Our move into the Nigerian market will allow us to extend our footprint extensively on the African continent, bringing much-needed financial services to thousands more people.”

In line with Norsad impact objectives, MFS Africa is aligned to Norsad’s Purpose of Building a better Africa. Mobile money has disrupted traditional financial services by providing a better way to transfer funds instead of cash. With mobile payments, customers in Sub-Saharan Africa are gaining access to business loans, savings, and other services as they would get in a bank. Mobile money has an incredible impact on many aspects of life in Africa and plays a role in alleviating poverty for communities.