Verdant Capital hits first close of hybrid fund for MSMEs in Africa
Investment banking and advisory firm Verdant Capital has marked the first close of a new fund in partnership with anchor investor KfW of Germany to invest in micro, small and medium-sized enterprises (MSMEs) in Africa.
Verdant Capital Hybrid Fund (VCHF) has reached its first closing with committed capital of $36 million. KfW Development Bank, on behalf of the German Federal Ministry for Economic Cooperation and Development, is contributing about $34 million to the fund.
Beside KfW, the fund has received capital commitments from private investors including the fund manager of VCHF, Verdant Capital said.
The VCHF will invest hybrid capital and subordinated debt in inclusive financial institutions on a pan-African basis. It will target specialist banks, microfinance institutions, leasing and factoring companies, fintech and other non-bank financial institutions.
The new fund is domiciled in Germany, but most of its investment team is based in Verdant Capital’s offices across Africa. It is targeting two further closings with a final amount of $100 million.
The German government is providing an additional $4.5 million for accompanying support measures. The VCHF Technical Assistance Facility will support African financial institutions in growing their MSME loan books, strengthening organisational capacities and improving finance standards.
“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,” Verdant Capital said. “Such capital is much needed, including because the COVID-19 pandemic has eroded the capital bases of African lenders.”
The investments by VCHF can be leveraged by traditional debt funding, thereby crowding-in other investors and ultimately expanding lending to MSMEs, the firm said.