investment supply for smes ana marr and charles chiwara june 2011
TRANSCRIPT
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Investment Supply for SMEs
Ana Marr and Charles Chiwara
June 2011
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Content
Overview Instruments
• SMEs - The Missing Middle
• Barriers to Financing SMEs in Africa
• Global Investment Funds
• Innovative Financial Models
• Private Equity
• Credit Guarantee Schemes
• Islamic Banking •Current Funding Sources
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“Missing middle” – debt and equity“Missing middle” – debt and equity
Commercial bank debtCommercial bank debt Private EquityPrivate Equity
Family & friends Money lenders
Micro-financeMicro-finance
$25K
InvestmentSize
(US$)
$2M
“Missing middle”
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Perpetual Barriers to Financing SMEs in Africa
• Perceived risks• Institutional barriers• Policy and regulations• Skills and training needs
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Global Investment Funds Investor Type of product Total amount
available Individual amount per SME project
Target group Investment purpose of SMEs
Intermediary
European Investment Bank
EIB Loans for SMEs
Euros 30 billion (over 2008-2011)
From very small to a maximum €12.5m
SMEs < 250 employees in the 27 EU member states
Tangible (e.g. equipment) and intangible (e.g. distribution networks)
Local commercial banks, guarantee funds, mutual guarantee institutions, microcredit organisations. For some, EIB provides guarantee to reduce risk.
European Investment Fund
Private equity and venture capital funds investing in SMEs
EUR 409 million in 2008
n.a. SMEs Seed capital; build-up strategy; internationalisation; mezzanine finance.
The EIF is a fund of funds. In 2008, it worked with 32 venture capital funds in Europe.
8 miles – Bob Geldof
Private equity fund for Africa
US$750 million to be raised
Investments worth between $15m and $80m
Africa Agribusinesses, financial services and telecommunications.
Secured backing from the African Development Bank and the International Finance Corporation. Other investors are set to sign up.
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Innovative Financing Models
• Acumen Fund• Grofin• E+Co
• Root Capital
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Private Equity
• Definition• Seed Capital– Valley Of Death– FFFs
• Venture Capital/Early Stage• Buyouts/Later Stage
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Later Stage
Early Stage
B
C
Mezzanine
A
Seed Capital
Public Market or Private
Equity
Secondary Offerings
Investment Banks, Merchant Banks or other
Financial Institutions
Emerging GrowthCompany
Valley of death
REVENUE
Angels FFF
Public / Private
Company
IPO/M&A
VCs, Acquisitions/Mergers & Strategic Alliances
Break Even
INVESTMENT
New venture financing cycle
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INVESTMENT PERIODFUNDRAISING REALIZATION PERIOD POTENTIAL EXTENSION
Commitments By limited partners (multiple closings)
Commitments By limited partners (multiple closings)
Commitments By limited partners (multiple closings)
Liquidation
1 year 4-5 years 4-6 years 2 years
Private Equity Life Cycle
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Fundraising
Investing• Selecting• Structurin
g• Monitorin
g
Divesting / exiting
Private Equity Investment Process
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Provide Capital
To generate positive social and / or environmental impact
Expect financial returns
Impact Investing
Defining Impact Investing
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Credit Guarantee Schemes
• Definition• Proponents• Critics• Operation of CGS
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LOANAPPRAISAL
GUARANTEEAPPRAISAL
SUFFICIENTCOLLATERALEND
END END
AGREEMENTWITH BORROWER
ISSUESINVOICE
ISSUESGUARANTEECERTIFICATE
LOANCONTRACT
DISBURSESLOAN
PAYSGUARANTEE
FEE
END
SENT TO LENDER
EX-POST
EX-ANTE
BORROWERLENDER GUARANTEE FUND
NO
NO
NO
NO
PAYMENT TRANSFERREDTO GUARANTEE FUND
YES YES
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Islamic Banking• Rationale
– Emerging– Significant population in Africa
• Principles– Prohibition of usury– Profit sharing– Certainty of contracts– Ethical
• Examples– Mudarabah - VC– Marabaha - Asset Finance / HP– Musharaka - FRL, mortgage finance
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Current Funding Sources
1. Guarantees – AGF , MIGA2. Private Equity :
1. SMEs2. Buyouts
3. DFI’s :-1. African, Regional, International2. Tools
1. Debt2. Equity3. Guarantees4. Grants