Investment Supply for SMEs Ana Marr and Charles Chiwara June 2011

Content OverviewInstruments 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

“Missing middle” – debt and equity Commercial bank debt Private Equity Family & friendsMoney lenders Micro-finance $25K Investment Size (US$) $2M “Missing middle”

Perpetual Barriers to Financing SMEs in Africa Perceived risks Institutional barriers Policy and regulations Skills and training needs

Global Investment Funds

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

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 Growth Company Valley of death REVENUE Angels FFF Public / Private Company IPO/ M&A VCs, Acquisitions/Mergers & Strategic Alliances Break Even INVESTMENT New venture financing cycle

INVESTMENT PERIODFUNDRAISINGREALIZATION PERIODPOTENTIAL EXTENSION Commitments By limited partners (multiple closings) Liquidation 1 year4-5 years4-6 years2 years Private Equity Life Cycle

Fundraising Investing Selecting Structuring Monitoring Divesting / exiting Private Equity Investment Process

Provide Capital Business designed with intent To generate positive social and / or environmental impact Expect financial returns Impact Investing Defining Impact Investing

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- VC – Marabaha- Asset Finance / HP – Musharaka- FRL, mortgage finance

Current Funding Sources 1.Guarantees – AGF, MIGA 2.Private Equity : 1.SMEs 2.Buyouts 3.DFI’s :- 1.African, Regional, International 2.Tools 1.Debt 2.Equity 3.Guarantees 4.Grants