Why we invested: AfricInvest sheds light on Rwanda banking deal

Posted on: 26 March, 2020 at 7:43 PM

Private equity firm AfricInvest recently announced that its AfricInvest Financial Inclusion Vehicle (FIVE) acquired a minority shareholding in Rwanda’s I&M Bank. FIVE is a perpetual fund that invests in Africa’s financial services industry. I&M Rwanda is listed on the Rwandan stock exchange, and is a subsidiary of I&M Holdings, a regional financial services group in East Africa.

To find out more about this transaction, Africa Private Equity News spoke to Julius Tichelaar, a partner at AfricInvest, based in Nairobi.

1. How did this transaction come about?

AfricInvest has been investing in sub-Saharan Africa since the mid-2000s. We have seen I&M Holdings become one of the more successful players in the financial services industry in East Africa since then. From its base in Kenya, I&M successfully ventured into different markets by acquiring institutions, turning them around where necessary and integrating them within the group. I&M has an excellent track record and we have been exploring ways to partner with the group and contribute to its growth story for some time. So when two existing shareholders of the subsidiary in Rwanda were looking to exit, we took the opportunity and we are very pleased to have realised the investment.

2. Where are the growth opportunities in Rwanda’s banking sector? Does Rwanda’s relatively small population of about 13 million not limit the growth potential?

Rwanda has one of the highest GDP growth numbers in Africa, while being a well-regulated and managed country. Opportunities in the SME and MSME segments in the country are plenty. Banks and other financial institutions are evolving in terms of digitising their operations to enhance customer experience which will allow them to more efficiently service a wider customer base, including retail, SME and MSMEs. As AfricInvest we have been shareholders in several SME and microfinance banks across Africa. These sectors represent a significant opportunity for banks, including in Rwanda, especially with better deployment of technology for more innovation and efficiency.

3. How competitive is the industry?

The banking sector is fairly competitive with strong local banks as well as regional banks, including several Kenyan players. It’s also a concentrated sector where over 60% of the total banking assets are held by the largest five banks. I&M Bank is the oldest and second largest bank in the country. The bank enjoys a strong market position, and has the right resources and means to compete effectively. I&M Bank is therefore a good platform to build on and provide products and services to a wider customer segment and capture market share.

4. Can you provide an overview of the FIVE fund and how it will exit its investments?

The FIVE fund is a €100 million perpetual vehicle with a target fund size of €200 million. The structure facilitates discussions with potential partners but also with regulators who are looking for patient investors in the industry. The fund typically invests in tier II institutions with a ticket size ranging between €5 million and €15 million. The fund backs traditional financial institutions looking for growth through strategic expansion or digitalisation. It also invests in disrupters, including fintech companies. So far the FIVE fund, which started 2018, has made four investments: a commercial bank in Kenya; a commercial bank in Morocco; a fintech company specialised in artificial intelligence; and I&M Bank (Rwanda) Plc. Although the fund itself has an indefinite horizon, we are still required to look for exit routes and create liquidity for our investors. We can hold assets longer than a traditional private equity fund: between five and 10 years will most likely be the average timeline.

5. In which other sectors of Rwanda’s economy do you see potential opportunity?

Regarding the financial sector, we will not make another banking transaction as we have invested with I&M Bank. We can, however, consider other financial institutions, including insurance, if the deal economics are right.

AfricInvest also has a private credit vehicle which provides structured debt financing solutions to SMEs with a ticket size ranging from $1 million to $5 million. In the private credit space, we have made two investments in the health sector in Rwanda and we see a lot of other opportunities, particularly in sectors such as hospitality, agriculture and manufacturing.

Rwanda is increasingly becoming an African hub. The country has invested in power generation and has good regulations in place for most industries. So there are several private credit opportunities. On an opportunistic basis, we can also consider other industries for our private equity funds. AfricInvest has a generalist fund (AFIV), a financial sector fund (FIVE), and an innovation/venture capital fund (Cathay AfricInvest Innovation); we can therefore consider opportunities in the Rwandan economy from different angles.

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