Evaluation of the Kenya Trust for Private Enterprise Development : equity capital component

The component focused on channeling funds through a Trustee (Standard Chartered Bank Ltd.) to two Kenyan equity capital companies -- Industrial Promotion Services Ltd. (IPS), and Kenya Equity Management Ltd. (KEM) -- to strengthen their capacities to invest in business ventures. The evaluation covered the period 5/87-2/94. The evaluation concludes that the venture capital program, which it calls "an experiment," should be discontinued or at least thoroughly restructured. The reason lies not in poor project implementation, but faulty design -- the market conditions and demand for venture capital companies simply do not exist in Kenya. In fact, neither IPS nor KEM is operating as a true venture capital company as outlined in the Trust Agreement, nor is it likely that either will do so in the near future. IPS is essentially a holding company, while KEM essentially operates as a merchant banking company. However, the success of both in their respective activities indicates a demand for such institutions in Kenya; USAID should consider modifying its approach to support these institutions as they are. Finally, from a purely financial point of view, the program had little chance of succeeding -- USAID-provided funds are not enough to support one, much less two, private investment companies. Furthermore, the value of the funds in the Trust, being held in Kenyan shilling-denominated securities, has been dissipated by the devaluation of the Kenyan shilling; in fact, the Trustee, in reinvesting reflows from Trust loans, has not been able to keep up with rate of currency devaluation. Lessons learned include the following. (1) A project such as this one which is basically experimental in nature (venture capital markets are rare in the developing world, and previous efforts to advance venture capital in Africa have met with little success) should be identified as such in the project description; this would both facilitate evaluation, and increase the value of any evaluation findings. (2) It is not enough for donors to perceive an economic need for a commercial venture capital market; investors and companies in recipient countries must also perceive a need. As a rule, no amount of donor support will be sufficient to create a market where demand does not exist.