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Verdant Capital Hybrid Fund (VCHF) has reached its first closing at US$36mn of committed capital and support for micro, small and medium-sized enterprises (MSME) through investment in financial institutions
It also has a better access to financing, creation of employment and income generation for MSME in Africa. The fund will be investing hybrid capital and subordinated debt instruments into inclusive financial institutions on a pan-African basis. The fund will target specialist banks, microfinance institutions, leasing, and factoring companies, fintech and other non-bank financial institutions. A strong focus will be to ensure that the investments comply with high environmental and social standards.
KfW Development Bank, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), is contributing about US$34mn to the VCHF. Beside KfW, the fund is benefitting from capital commitments of private investors including the fund manager of VCHF, Verdant Capital.
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. The investments by VCHF can be leveraged by traditional debt funding, thereby crowding-in other investors and ultimately expanding lending to MSME. It also intends to broaden the use of such hybrid financial instruments in Africa and to contribute to the overall development of capital markets in Africa.
The German Federal Government is providing an additional budget in the amount of US$4.5mn 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 responsible finance standards, forming an important part of the fund’s post investment value add strategy.