Why international DFIs are looking to African startups to scale impact investing efforts

Even as VC funding dries up across the world, development finance institutions (DFIs) from Europe are looking to African startups to deploy their dry powder.

British International Investment (BII), a DFI from the UK, told TechCrunch recently that it will deploy $500 million into startups by the end of 2026, and half of that amount has been earmarked for African tech companies. In addition to backing VC funds in the region, the organization aims to make more direct equity investments in startups, adding to the four African companies it invested in last year.

Formerly known as the Commonwealth Development Corporation, the BII is not alone: The World Bank’s International Finance Corporation (IFC) and the Netherlands’ Dutch Entrepreneurial Bank (FMO) have each invested in more than 10 startups over the last four years. The IFC also recently launched a $225 million fund to back early stage startups in Africa, Central Asia, Middle East, and Pakistan.

Often attached to countries that had colonized big parts of the continent and still have financial, social and historical ties to countries in the region, these funding initiatives are complementing and offsetting slowing investment from VC funds and other institutional investors.

“It’s a paradigm shift, where ‘development finance’ looks at private enterprise as a vehicle of socio-economic development,” said Dario Giuliani, founder and director of research firm Briter Bridges.

BII’s decision follows plans to double down on its efforts and invest some $6 billion in Africa across five years, and invest $100 million in Egyptian startups. The organization has invested in eight African startups since 2020.

But what’s driving these organizations to invest in Africa despite investors across the world preferring to invest only in safer bets? It seems they’re attracted to tech that enables wider socio-economic development because it offers a scalable and efficient way to make an economic impact.

Investing in tech to meet development goals

Usually deploying capital from national or international development funds, DFIs back development and private-sector projects in less industrialized economies to promote job creation and sustainable economic growth. Keen to align with those missions, these organizations seek to back tech startups that can make an impact — for example, tech that grants and increases marginalized populations’ access to financial services, food and energy.

Why international DFIs are looking to African startups to scale impact investing efforts by Annie Njanja originally published on TechCrunch