Investment manager Verdant Capital and KfW Development Bank have established a new fund to support small, medium-sized and microenterprises (SMMEs) growth in Africa.
Verdant Capital Hybrid Fund (VCHF) has reached its first closing with committed capital of $36-million.
The fund is targeting high developmental impact, including job creation and income generation through small and medium enterprises and micro-entrepreneurship.
The fund will be investing hybrid capital and subordinated debt instruments into inclusive financial institutions on a pan-African basis.
The fund will target specialist banks, microfinance institutions, leasing and factoring companies, fintech and other non-bank financial institutions.
A strong focus will be to ensure the investments comply with high environmental and social standards.
The fund is targeting two further closings with a targeted final close amount of $100-million.
KfW Development Bank, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), is contributing about $34-million to the VCHF.
Beside KfW, the fund is benefitting from capital commitments of private investors including the fund manager of VCHF, Verdant Capital.
The rationale for the fund includes addressing the gap in the market in terms of the availability of equity, equity-like or hybrid capital in the inclusive financial institution sector in Africa.
The investments by VCHF can be leveraged by traditional debt funding, thereby crowding-in other investors and ultimately expanding lending to SMMEs.
The fund also intends to broaden the use of such hybrid financial instruments in Africa and to contribute to the overall development of capital markets in Africa.
The German federal government is providing an additional budget in the amount of $4.5-million for accompanying support measures.
The VCHF Technical Assistance Facility is aimed at supporting African financial institutions in growing their SMME loan books, strengthening organisational capacities and improving responsible finance standards, and forms an important part of the fund’s post-investment value-add strategy.