Verdant Capital partners KfW to establish a new fund to support African MSMEs

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Verdant Capital hybrid Fund has USD 36,000,000 of committed capital at first; Support for micro-, small, and medium-sized businesses (MSME) through investments in financial institutions; Improved access to financing, creation and income generation for MSMEs in Africa

Verdant Capital Hybrid Fund has closed its first round with USD 36 million in committed capital.

The fund is targeting high developmental impact, including job creation and income generation through SMEs and micro-entrepreneurship.

The fund will invest in hybrid capital and subordinated loans instruments into inclusive financial institutions across Africa.

The fund will target microfinance institutions, specialist banks, factoring companies, lending, and leasing companies.

It will be a strong focus to ensure investments meet high standards in environmental and social compliance. The fund targets two more closings, with a final target amount of 100 million dollars.

KfW Development Bank contributes approximately USD 34 million to VCHF on behalf of the German Federal Ministry for Economic Cooperation and Development.

The fund, in addition to KfW, is also benefitting from capital commitments by private investors, including Verdant Capital, which manages VCHF.

Verdant Capital is an investment manager that operates on a pan-African scale. It has a proven track record of investing and advising in the financial services market for MSMEs in Africa.

Although the fund is located in Germany, most of its investment team are based in Verdant Capital’s offices in Africa.

Fund’s purpose is to address the gap in Africa’s market for equity, equity-like and hybrid capital.

This capital is vital, especially since the COVID-19 pandemic has reduced the capital base of African lenders.

Traditional debt funding can be used to leverage the investments made by VCHF, thereby crowding in other investors and ultimately increasing lending to MSME.

This fund will also help to expand the use of hybrid financial instruments in Africa, and contribute to the development of Africa’s capital markets.

For support measures, the German Federal Government has provided an additional budget of USD 4.5 Million.

The VCHF Technical Assistance Facility is an important component of the fund’s post-investment value add strategy. It will assist African financial institutions with growing their MSME loan book, strengthening organizational capabilities, and improving responsible finance standards.

 

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