MUJAAHID HASSAN: Funding for women empowerment deals moves in the right direction

At the recent inaugural Black Industrialists Conference President Cyril Ramaphosa observed that over the past six years the black industrialists programme spent R55bn and supported 900 black industrialists. 

During women’s month it would be of particular interest to know what percentage of that number were women. Having been involved in funding transactions for more than a decade, I believe a scarcity of empowerment capital exists in the market, and that the primary beneficiaries of these transactions have been men.  

While there is a significant gender gap in accessing the available capital, what is clear is that the gender-related structural and social obstacles women face in the business world are receding. However, the challenge is that the pace of that transformation will not allow for a significant decrease in the gender gap in the foreseeable future.  

There are three challenges that require solutions if we are to accelerate women empowerment in business and, more importantly, create more black women industrialists: 

Addressing the funding gap.

According to the African Development Bank Group women find it challenging to secure financing from banks and other financial institutions due to historical shortcomings in the system, such as the lack of appropriately designed financial products and lack of incentives within banks generally to target and lend to women.

This gap highlights the need for new lending models and more women-focused lending institutions. It presents an opportunity for all stakeholders, including government entities in the financial services sector, to find innovative solutions to the funding challenge.  

In the private sector one solution introduced in 2021 for the creative structuring of finance agreements is a hybrid equity investment instrument. Hybrid equity offers established business owners funding in the form of part equity capital injection, part loan. This translates into a flexible alternative to the traditional fixed income and private equity investment models, offering investors a well-balanced, attractive risk-adjusted return.  

In 2021, Old Mutual Alternative Investments concluded a broad-based black empowerment deal to assist in funding the acquisition of a minority shareholding in Imperial Logistics SA by black women-owned and managed investment holding company Afropulse Group, jointly led by Phumzile Langeni and Bongi Masinga. Hybrid Equity provided the preference share funding  as part of a quasi-equity related funding package to Afropulse Group to fund the deal in full.  

Without this funding innovation the deal may not have materialised. With the scarcity of empowered equity capital in SA innovative funding solutions such as Hybrid Equity can give women a seat at the table.  

Being mindful of the bias towards legacy networks.

Due to the historic nature of predominantly male participation in business over many decades, it is understandable that entrenched networks and ways of doing business prevail. However, this means women operate primarily on the periphery of industries, particularly in male-dominated sectors such as construction and mining.  

Increasing participation by women in markets will not reach its potential under the current regime. This is because they’re still dominated by legacy networks, making it more challenging to compete for business and achieve growth that can result in investment opportunities. This situation also means few women-owned companies have access to legacy or generational capital that facilitates and accelerates development and scale. 

In the light of the significant imbalances between opportunities afforded to men as opposed to women within the socioeconomic landscape, the SA business ecosystem requires a fundamental shift in mindset. We must consciously place women business leaders at the centre of our capital raising and funding programmes. 

For this reason, dedicated transformation instruments such as Hybrid Equity can seek out those established black women-owned companies that are often overlooked in the legacy networks as far as deals are concerned.  

Accelerating investment-ready women-owned businesses.

It is astounding that Africa leads the world regarding the number of women business owners. In fact, women are more likely than men to be entrepreneurs, as women make up 58% of the continent’s self-employed population.  

According to the 2022 Mastercard Index of Women Entrepreneurs report, which measures how supportive entrepreneurial conditions are for women business ownership, 21.9% of all businesses in SA were owned by women, vs 21.1% in 2020. 

To appeal to investors and funders companies must have an established track record; proven cash flows, with strong prospects; experienced, proven, quality management teams; and established market presence in solid industries. 

As we continue to seek out high quality women-run management teams to fund for management and leveraged buyouts we are finding a shortage in the market. There is therefore a need at grassroots level for entrepreneurial training programmes that can help women-owned businesses scale up and operate at a level that could qualify for investment opportunities. 

A group of proven entrepreneurs and a significant increase in the number of experienced and knowledgeable women on the boards of large companies will create a ready pool of skilled and experienced businesswomen to qualify for investment finance that can facilitate industrial-scale transformation.   

The way forward 

There are many deals over the past few years that attest to corporate financial support for women empowerment gaining traction. Women are also moving up the business ladder in industries such as manufacturing and property development, which invariably signals a potential growth of women consortia as clients to the capital equity market.  

The financial services industry must become more conscious and committed to implementing empowerment to accelerate this positive trend. This means considering and facilitating more transactions with women-owned businesses instead of using the same legacy networks, and developing tailored funding mechanisms such as the Hybrid Equity model. 

Such decisive and conscious actions drive women-owned business transformation forward and place businesswomen at the centre of empowerment in SA. More significantly, it builds the platform for addressing the broader issues of inequality and poverty in a more substantive way.  

• Hassan is co-head at Hybrid Equity, a division of Old Mutual Alternative Investments.