TECHNICAL ASSISTANCE FAPA SDG (PE)
- Reference: P-Z1-HAA-039
- Approval date: 27/01/2011
- Start date: 27/01/2012
- Appraisal Date: 20/11/2010
- Status: ApprovedAPVD
- Implementing Agency: SDG Pty Ltd
- Location: PAN AFRICA
SDG TA Facility is part of a bigger effort by SDG Fund to support eligible FIs in Africa that seek to provide access to financial services to SMEs, previously unbanked and under-banked low income African populations (missing middle) through equity investments and TA capacity building support. The ADB will be contributing both equity and technical assistance grant (via FAPA) support to SDG.
On the equity investment side, SDG looks to raise total committed capital of US$125m through SDG Fund. SDG Fund is a first generation private equity (PE) Fund with a 10-year life with the possibility of two one-year extensions of the divestment period. SDG was registered and incorporated in 2008 in Gaborone, Botswana as a limited liability holding company under Botswana's Companies Act of 2003. The SDG Fund aims to provide additional and much needed capital investment to promising FIs targeting the missing middle in SSA. SDG investments will be in the form of ordinary, preference and convertible preference shares. Each investment will range between USD 2 million and USD 25 million. SDG's support will help the target FIs respond to the impacts of the liquidity crisis including increased minimum capital requirements in their respective jurisdictions. The additional capital will enhance the ability of target FIs to leverage additional resources, increase their branch network, products and delivery channels. ADB will contribute up to USD 25 million or 20% of the Fund capital. In order to complement its investment and therefore deepen and ensure the sustainability of the development impact of its investments, SDG has designed a complementary TA facility. SDG hopes to raise USD 5 million (of which USD 1 million is sought from FAPA) under this facility, which will be directed towards enhancement of the capacity of target investees and beneficiary SMEs. The TA will also contribute to strengthening and transform the investee FIs' leadership, management, governance, social and environmental evaluation capacities, SME credit and portfolio management and SME product development capacities in order to better serve the target market.
Beneficiary FIs will draw largely on their own resources to fund the overall transformation process; SDG's equity investment will take into account the overall operating and capital requirements of the FI including transformation. The FIs will initially direct most resources to operational improvements - assembling new teams, improving systems, policies and processes, strengthening controls and risk management. The FI Support Programme offers additional resources for the FI to catalyse the transformation of critical areas for success in a Missing Middle bank including:
"Strong leadership and governance "Well trained staff and management "Tailored product development and service delivery for local Missing Middle markets "Responsibility as good corporate citizen in their local communities
ADB's proposed support to SDG TA Facility will through SDG Manco focus on supporting SDG investees in this respect.
.Project Target beneficiaries
Target FIs will include small and mid-size commercial banks and non-banking financial institutions (NBFIs) including development banks, leasing companies, microfinance banks and related financial services companies in Priority Countries that enjoy relative political stability and a sound regulatory environment. The targeted FIs are those with a potential to provide adequate banking services, SME credit and housing finance to develop a lower income and missing middle customer base. SDG will have identified that those institutions will typically not be operating at their full potential, displaying sub-optimal performance in one or more areas such as management, governance, portfolio management and operational efficiencies and thus requiring strengthening in key areas to expand business such as business development, market-led product development, ICT infrastructure and management, and strategy for expanding access/delivery . SDG Fund has as part of its Fund investment approach developed a transformation strategy which its members have implemented in FIs in Africa and which it will apply to target investees. SDG ManCo members as well as have prior experience in making investments and overseeing TA provision to similar FIs in Africa. SDG expects to support about 12 FIs within its first four years of operation. These FIs will in turn be expected to provide about 2,286 mortgages and 4,000 housing upgrade loans over 10 year period. SDG anticipates that, through introduction of new products and delivery channels during its 10 year life, its investee FIs will reach 5 million unbanked individuals and finance at least 120,000 additional SMEs (See the logical framework in annex 1 of this document)
The SDG TA facility for target FIs will have several components:
1.Strengthening leadership and management skills 2.Increasing and improving the supply and delivery of financial service to missing middle customers a.Supporting innovation in SME banking value chain b.Investment in alternative financial services delivery channels c.Development of housing finance products 3.Create Social and Environmental Value at FI level
Project Development Objectives
The objective of the SDG TA facility is to build capacities of FIs in the SDG Fund portfolio and thus enhance their ability to provide financial services to SMEs as well as the under-banked low-income African populations in countries where SDG Fund is planning to invest . The TA facility, therefore, has two interrelated programs:
i) The FI support program aimed at providing specific support and capacity building to investee FIs in relevant areas such as SME financing capacity, leadership, culture change, mentoring and development of programs and support structures for SMEs.
ii) The SME support program aimed at providing mentorship and training to SMEs on a cost-sharing basis (the SME will assume portion of the cost). The TA will support the growth and capacity of SME customers in specific countries in financial literacy, retention and reward of staff, operational efficiency improvements, governance and mentoring.
The requested support from FAPA will be used towards the first program i.e. capacity building of investee FIs. The objectives of the FI support program are to, by the end of the TA facility implementation period: 1.Strengthen leadership and management skills of FIs beneficiaries 2.Increase and improve the supply and delivery of financial service to missing middle customers (SMEs and under banked populations) 3.Enhance social and environmental value at the beneficiary FI level
BABALE Salah - PIFD1