BII's Jo Fry on private credit's potential in Africa
British International Investment's (BII) Investment Director and Head of Intermediated Credit , Jo Fry, sits down with Uxolo to discuss the potential of private credit funds in Africa and how DFIs can step in and bolster private sector participation.
Businesses in all markets need a mix of equity and debt, but there is a shortage of debt markets in Africa. Banks prefer to lend against secured collateral, and in Africa there aren’t many cash flow lenders – those that exist are often limited due to regulatory constraints and the relative attractiveness of government bonds.
One potential solution to the problem is private credit funds, which can offer more flexibility and more bespoke financing: they can really think about the needs of the business and work around business cash flow.
BluePeak Private Capital is a prominent example of such a fund provider. British International Investment (BII) was an anchor investor in the first close of BluePeak's first fund, providing $30 million, and while the fund has many DFI investors, Sango Capital, a commercial investor, also came in. Being able to demonstrate the fund’s performance, ability to deploy, and its ability to return capital successfully, is vital for the broader investor universe.
There are a range of different sectors that can be targeted by credit funds, but when thinking about building the private credit fund market in Africa, BII is looking at generalist funds because they can offer scale and demonstrated returns – that is a good place to start for commercial investors. BII is already seeing interest from African institutional investors, South African pension funds, and from commercial investors based in Europe and America. However, there is certainly a role for more specialist funds within that market as well.
In the global market, private credit funds are worth around $1.2 trillion, according to Preqin. Within Africa, that figure is much smaller – even within the universe of funds on the continent, it’s only about 4%. There has been an enormous increase (720% between 2021 and 2022) but that has started at a very low base. That increase is coming from the fact that investors recognise there’s a strong risk return from debt, and it offers an attractive structure with equity below, and you get cash over time in interest which offers a good J-curve perspective.
The role for DFIs in the market is to help funds get to that first close and demonstrate a return – we should be building and catalysing these markets. The role that private credit funds can play is supportive alongside other finance options in the market: it’s all about bringing more capital into Africa.
*Note: BluePeak’s first fund closed at $156 million in 2023, not $200 million in 2021 as stated in the video.