Innovative impact fund targets African SMEs and producers
Africa’s newest trade finance fund, Savia Trade Finance Impact Fund, is set to pilot later this year and will use a pool of concessional funds to support riskier credit structures, commonly found in the agriculture sector and SMEs. Savia will be Africa’s first trade finance impact fund.
As a debt fund, Savia will seek to address Africa’s unmet demand for trade finance by utilising blended finance – a combination of concessional and commercial funding – solutions. It will specifically target smallholder farmers and SMEs with sales of less than US$10mn, with a greater focus on those companies involved in intra-African trade.
GTR understands that the fund has already gone through a first round of due diligence with a large regional development bank that it hopes will become its anchor investor. It plans to launch a 12 to 16-month pilot phase in September, for which it is looking at a handful of projects of US$1mn each.
Following the pilot phase, Savia will target US$200mn of capital: US$160mn in medium-term debt; US$20mn in equity; and US$20mn in concessional funds/grants funding to create a blended finance pool.
These concessional funds will be used to help de-risk selected projects either as a first loss cushion, a temporary subsidy in support of inventory management costs, reduction in interest rates, enhancement to a borrower’s equity base, and other innovative financial structures to create solutions that benefit the SME or agri-producer. Decisions on how and when to allocate these grants will be made by a board that is independent of the investment committee, to ensure donors that grants are being used to maximise the environmental or social impact of each transaction.
Savia aims to target approximately 250,000 smallholders and 2,000 SMEs a year.
At least 50% of the fund’s business will go to support the agribusiness supply chain, and most lending will be short-term or under 360 days. On the import side, Savia will target SMEs that want to import manufacturing equipment and construction material, and promote energy efficiency solutions for housing and industry, with two to three-year financing structures.
Targeted countries include Cameroon, Côte d’Ivoire, the Democtratic Republic of Congo, Egypt, Ethiopia, Ghana, Liberia, Malawi, Mali, Morocco, Mozambique, Nigeria, Senegal, South Africa and countries in the East African Community (EAC).
GTR spoke recently with Scott Stevenson, CEO of Savia Trade Asset Management, the fund’s management and sponsor company (who joined in March), and German Vegarra, founder and CEO of CVG Capital, one of the fund’s sponsors, both former IFC employees, about plans for Savia’s future.
GTR: What drove you to set up the fund?
Vegarra: When I left IFC, one of my goals was to use my experience in agribusiness, trade finance and blended finance to launch an impact fund that combines these three areas to create innovative trade finance solutions that can really go down-market and have considerable impact in Africa.
I felt there was nothing transformational in the region reaching smallholders and SMEs. I invited my good friend Mamadou Toure from Ubuntu Capital to join me. We felt we needed a seasoned trade finance executive to bring it all together and lead Savia. We invited Scott to join us and we launched Savia Trade Management Ltd in Mauritius earlier this year.
The fund is sponsored by CVG Capital and Ubuntu Capital.
GTR: What have you achieved thus far in terms of setting up the fund?
Stevenson: We just started the marketing process and are in discussions with a handful of development finance institutions, governments and foundations to launch a 12 to 16-month pilot phase to test our E&S, credit, blended finance and measurement processes. A critical element of the pilot is to sharpen our structures to enhance our reach while remaining profitable.
What this means is that we’re currently in the fund-raising phase. There are two components to that: we’re in discussions with the large regional development bank to come in as a limited partner, and an anchor investor, to the fund, and we’re looking to them to fund the loan portfolio itself.
We’re also approaching a number of institutions to come in with grant money, which will be used for two purposes: to provide blended finance or concessional financing, which will provide the ability to go further down-market, but the other critical factor at this point is that a number of the institutions provide money for start-up costs. Namely, the operating expenses, salaries, legal costs and retention of consultants.
We’re on a parallel path: one, raising for the portfolio, but also critically raising money for the actual physical launch of the fund. The fund will not start operation until the beginning of those grant monies and anchor investors come in.
GTR: What factors will you be looking at when determining project selection?
Stevenson: We will use four strategies to reach our project target: i) we will work directly with farmer associations and SMEs; ii) we will intermediate though innovative non-bank financial institutions; particularly, fintech companies that can use advanced credit scoring algorithms that can help assess the risk of lending to farmers/individuals directly; iii) we will work on ‘anchor value chains’ where we will partner with large corporates that have a large network of suppliers or buyers; and iv) we will work with agri-equipment and irrigation companies to create viable vendor finance programmes directed to co-ops and farmer associations.
GTR: How exactly will you be making sure that the finance arrives where you intend – at the very start of supply chains?
Stevenson: We’re working with a couple of major fintech providers. The only way that we’re able to reach thousands of potential borrowers is through using some of the technology. Both for the disbursement and the servicing of the loans it’s absolutely key that we hook up with a proven fintech platform.
There will be multiple partners because no-one at this point in time is pan-Africa.
GTR: There are a handful of funds in Africa – some new. Are there others operating in the same space as Savia?
Vegarra: There is frankly not enough competition. With a US$100bn gap in trade finance in the region, we are all a drop in the bucket. Nonetheless, the use of blended finance, agribusiness expertise and innovative structures that will allow us to go down-market makes Savia unique in Africa. For example, I had the opportunity to lead the launch of IFC’s Global Food Security Programme, IFC’s first blended finance fund for agribusiness, which allow IFC to increase its farmer reach by 1 million per annum. We are leveraging that experience to enhance Savia’s impact.take me back