Business Partners International (BPI) is a fund manager providing debt and equity financing to small and medium-sized enterprises in East and Southern Africa.
Business Partners International (BPI) is a fund manager providing debt and equity financing to small and medium-sized enterprises in East and Southern Africa. BPI aims to create quality jobs and improve livelihoods across the region to promote economic development. BPI is open to investing in all sectors (except on-lending activities, direct farming operations, and underground mining) and typically invests between USD 50,000 and 1,000,000 in local currency, with an average deal size between USD 250,000 and 300,000. In addition to providing investment capital, BPI offers capacity-building support to its entrepreneurs to enhance business performance and address weaknesses.
BPI finds that capacity-building support improves investee performance on both impact and business dimensions, as well as strengthening its portfolio by reducing risk. In fact, BPI states that it can make earlier and riskier investments because it is confident that additional support can overcome added risk in portfolio companies by filling critical capacity gaps. BPI’s capacity-building support addresses areas such as financial management, corporate governance, IT training, human resources training, strategic planning, sales and marketing, environmental and social impact, and specific technical expertise.
Sample Capacity-Building Projects
For a small, start-up, locally owned boutique hotel in Malawi, BPI provided pre-investment capacity-building support for interior decoration and for human resources recruiting and training. These projects were completed, as required, prior to BPI’s investment in the business.
For a large dog food manufacturing company in Kenya, BPI provided capacity-building support to set up governance structures. The company had undergone a management buyout, and the management team wanted to build an effective board to enhance transparency and professionalism.
How it Works
STEP ONE: IDENTIFY CAPACITY-BUILDING OPPORTUNITIES
BPI identifies opportunities for capacity-building support in two ways. First, during due diligence, the BPI deal-sourcing team may identify needs that they can address through capacity-building support for prospective investees. The team then decides if the support should be provided pre- or post-investment. In most cases, pre-investment support is targeted at a weakness within the business model that BPI has identified as essential to fix prior to their investment.
Second, either BPI or the investee may identify needs during investment management. The investment management team, which knows the portfolio companies well, promotes capacity-building support and ensures that companies are aware of the benefits of this offering. The team discusses potential capacity-building opportunities with the companies, encouraging them to identify needs themselves.
STEP TWO: DESIGN A CAPACITY-BUILDING PROJECT
BPI designs highly customized capacity-building projects for each investee receiving support. Once either BPI or the investee has identified a capacity-building need, the two parties work together closely to develop the project. BPI seeks to ensure buy-in by involving investees in the design of the project’s TOR, and offering funding incentives (discussed in the following section).
Over several years, BPI has built a database of about 360 industry experts in many fields who can work with investees on capacity-building projects. Around 300 of these individuals are mentors, successful professionals in their fields who offer specialized expertise to BPI investees for a fee (see side box). The remaining are incountry consultants providing more general support in areas such as accounting, human resources, and workplace health and safety. The database is organized as a series of profiles containing each person’s CV, specific skill sets, ratings from both investees and the post-investment officers with whom they have done past work, history of past capacity-building projects, and fees.
The BPI post-investment officer searches this database, selecting three mentor or consultant profiles that best match the TOR to share with the investee. The investee then makes the final selection for the project.
Why Does BPI Use Mentors?
BPI mentors are local professionals with developed expertise in a given industry (e.g., food processing, hospitality management, information technology) and they often run their own businesses. Mentorship enables BPI to offer investees skilled expertise from the perspective of a business owner with a deep understanding of the local context.
STEP THREE: IMPLEMENT THE CAPACITY-BUILDING PROJECT
The selected mentor or consultant implements the capacity-building project, which generally lasts up to six months. The mentor or consultant develops a process for implementing the project as outlined in the TOR. The post-investment officer and the investee establish milestones, which they share with the mentor or consultant at the beginning of the project, and these are incorporated in the implementation plan.
STEP FOUR: MONITOR AND ASSESS THE PROJECT
The post-investment officer oversees the capacity-building project, ensuring it achieves the targets laid out in the TOR. Payments to the mentor or consultant are tied to the milestones and results agreed upon at the outset of the project. To measure the project’s effect on the business over the medium and long term (i.e. after the capacity-building engagement is finished), BPI monitors three indicators annually: job creation, revenue growth, and profit growth (see side box). Though BPI recognizes the difficulty of attributing these outcomes to previous capacity-building projects, it nonetheless has settled on these measures as indicators of success.
Evidence of Success
Through an independent study, BPI found that over a three-year period, investees that received capacitybuilding support grew employment by 26%, increased investee revenue by 32%, and increased investee profits by 79%, while investees not receiving support grew less in these areas. Additionally, investees that receive this support have had only an 8% rate of default, while 22% of those not receiving such support experience default.
BPI funds capacity-building support for its investees through designated, interest-free loans of up to 30% of the total investment amount. BPI believes this method encourages investees to carefully consider the scope of projects and their desired results, while maintaining an investee stake in the success of the capacity-building project makes the project more effective. Because BPI operates its capacity-building program using interest-free loans, it often recovers much of the capital, enabling it to be loaned again. For debt investments, the loans for capacity building are subordinated to recovery of the other investment capital.
Additionally, BPI receives grant funding from several sources to support its capacity-building work:
- governments of the countries in which BPI invests that see benefit in funding capacity-building support to expand employment and improve business sustainability;
- foundations and other grant-makers that want to fund programs successfully aiding businesses in the countries in which BPI invests; and
- investors in BPI funds that view capacity-building support as a way for them to enhance the performance of their investments and contribute to economic development by generating employment.
BPI often offers to return some of funders’ grant capital that has been successfully recovered from capacity-building loans.