Download NEPAD Fisheries - African Fisheries and Aquaculture Investment

Investment Supply for SMEs
Ana Marr and Charles Chiwara
June 2011
Content
Overview
Instruments
• SMEs - The Missing Middle
• Private Equity
• Barriers to Financing SMEs in Africa
• Credit Guarantee Schemes
• Global Investment Funds
• Islamic Banking
• Innovative Financial Models
•Current Funding Sources
“Missing middle”
Investment
Size
Commercial bank debt
Private Equity
(US$)
$2M
“Missing middle” – debt and equity
Family & friends
$25K
Micro-finance
Money lenders
Perpetual Barriers to Financing
SMEs in Africa
• Perceived risks
• Institutional barriers
• Policy and regulations
• Skills and training needs
Global Investment Funds
Investor
Type of product
European
EIB Loans for
Investment Bank SMEs
European
Private equity
Investment Fund and venture
capital funds
investing in SMEs
8 miles – Bob
Private equity
Geldof
fund for Africa
Total amount
available
Euros 30 billion
(over 2008-2011)
Individual amount Target group
per SME project
From very small to SMEs < 250
a maximum €12.5m employees in
the 27 EU
member states
EUR 409 million
in 2008
n.a.
SMEs
US$750 million to Investments worth Africa
be raised
between $15m and
$80m
Investment purpose
of SMEs
Tangible (e.g.
equipment) and
intangible (e.g.
distribution
networks)
Seed capital; buildup strategy;
internationalisation;
mezzanine finance.
Agribusinesses,
financial services
and
telecommunications.
Intermediary
Local commercial banks,
guarantee funds, mutual
guarantee institutions, microcredit
organisations. For some, EIB
provides guarantee to reduce risk.
The EIF is a fund of funds. In 2008,
it worked with 32 venture capital
funds in Europe.
Secured backing from the African
Development Bank and the
International Finance Corporation.
Other investors are set to sign up.
Innovative Financing Models
• Acumen Fund
• Grofin
• E+Co
• Root Capital
Private Equity
• Definition
• Seed Capital
– Valley Of Death
– FFFs
• Venture Capital/Early Stage
• Buyouts/Later Stage
New venture financing cycle
Investment Banks,
Merchant Banks or other
Financial Institutions
REVENUE
Secondary
Offerings
VCs, Acquisitions/Mergers
& Strategic Alliances
Angels FFF
INVESTMENT
Later Stage
Early Stage
Seed Capital
Mezzanine
C
Break Even
B
A
Valley of death
IPO/
M&A
Public Market
or Private
Equity
Emerging Growth
Company
Public /
Private
Company
Private Equity Life Cycle
Commitments By
limited partners
(multiple closings)
Commitments By
limited partners
(multiple closings)
Commitments By
limited partners
(multiple closings)
Liquidation
FUNDRAISING
1 year
INVESTMENT PERIOD
4-5 years
REALIZATION PERIOD
4-6 years
POTENTIAL EXTENSION
2 years
Private Equity Investment Process
Investing
Fundraising
• Selecting
• Structuring
• Monitoring
Divesting
/ exiting
Defining Impact Investing
Business designed with
intent
Provide Capital
Impact
Investing
To generate positive
social and / or
environmental impact
Expect financial returns
Credit Guarantee Schemes
•
•
•
•
Definition
Proponents
Critics
Operation of CGS
Islamic Banking
• Rationale
– Emerging
– Significant population in Africa
• Principles
–
–
–
–
Prohibition of usury
Profit sharing
Certainty of contracts
Ethical
• Examples
– Mudarabah
– Marabaha
– Musharaka
- VC
- Asset Finance / HP
- FRL, mortgage finance
Current Funding Sources
1. Guarantees – AGF , MIGA
2. Private Equity :
1.
2.
SMEs
Buyouts
3. DFI’s :1.
2.
African, Regional, International
Tools
1.
2.
3.
4.
Debt
Equity
Guarantees
Grants