Pepea, an innovative fund for impact-driven SMEs

Small and medium-sized enterprises (SMEs) provide work for 70% of all paid workers in the Global South. Boosting SMEs’ social and environmental impact could therefore benefit millions of people and our planet. “Oxfam Novib’s new impact investment fund Pepea aims to contribute to precisely this goal,” says Tamara Campero, who is Pepea Fund’s relation manager and led its launch in Kenya in March 2023.   “The €20 million fund will run for ten years and will invest in SMEs in Kenya, Uganda and Ethiopia that are women-led or women-focused, work on climate resilience especially in sustainable agriculture, and belong to the so-called ‘missing middle’.”

“For over a decade, the financial sector has been talking about the funding gap for this ‘missing middle’: SMEs that are too big for microfinance institutions (MFIs) and too small for mainstream banks. Yet only few dare to invest in these SMEs. Investors usually consider the risks too high, and are afraid that the entrepreneurs will be unable to grow or even survive. Yet we know from our own impact measurement data, that particularly women-led SMEs do well, especially when it comes to social and environmental performance. And that is what we need right now, isn’t it, given the climate crisis and the growing inequality?”

“Just read the story of Olunfo Boroffice, who participated in Oxfam Novib’s iSME development program (see page XX ). In just a few years she managed to expand her waste recycling company into an enterprise that provides dignified work for 200 people, of whom 67% are women. Yet it’s very difficult to find investors for her next step: producing the end products of her waste streams. It's this type of SMEs that Pepea (Swahili for ‘take off’ and ‘flourish’) will invest in, providing the finetuned, patient capital they need. Of course we will closely involve them through our sounding board, a committee of SME representatives who give their perspectives on country and thematic priorities of the fund.”

“After almost thirty years of experience in impact investment, we are willing to, and capable of, taking the risks that others do not dare to take, in order to boost another less-served segment of the market. Oxfam Novib aims to demonstrate that investing in ‘missing middle SMEs’ is feasible, showcase new business models and at the same time enable the financial sector to learn from what we are doing. One thing that we have learned ourselves over the years, is that we need to work with likeminded partners with a different expertise. That is why we chose Goodwell Investments as our fund manager. Goodwell also has a long history of funding impact-driven SMEs, and will also advise our iSME development program on what it takes to make SMEs investment-ready .”

“We are really proud of our incentive construction: contrary to most fund managers, Goodwell will be extra rewarded for the social impact the fund has achieved. This is system change brought into practice: through the Pepea Fund we try to promote a human economy. By making the case for this innovative fund, we expect to catalyze other impact investors to step into this segment of SMEs with high impact potential, and thus contribute to a green, fair and inclusive future.”