Development-focused agency Financial Sector Deepening (FSD) Africa wants to set up a debt fund in Kenya and raise $300 million (Sh38.9 billion) worth of debt and equity for investing in micro, small and medium-sized enterprises (MSMEs) in East Africa.
FSD says the SME debt fund will be a local currency permanent capital vehicle domiciled in Kenya and regulated by the Capital Markets Authority (CMA).
The fund is targeting initial fundraising of $100 million (Sh12.97 billion) with an average ticket size of between $0.5 million (Sh65 million) and $5 million (Sh650 million).
It will use the money to finance MSMEs through a combination of direct investment (25 percent) and indirect strategy (75 percent).
“Setting up an SME debt fund in Kenya expands the funding opportunity for MSMEs through the public market by tapping into the pool of domestic capital to finance economic growth sectors.
“The fund will provide avenues for domestic institutional investors to diversify while fostering a robust and inclusive financial ecosystem for MSMEs and powering their job creation potential,” says FSD in a tender document.
FSD Africa started in 2012 as a non-profit company limited by guarantee in Kenya and is funded by the UK’s International Development.
The fund will offer an avenue for domestic institutional investors to participate in the private market and provide long-term patient capital for small businesses.
FSD is now looking for a fund manager who will be responsible for the day-to-day administration of the fund in line with an agreed-upon investment strategy.
“In collaboration with FSD Africa, the fund manager will co-design and set up the fund, including fundraising, establishing the investment process and appropriate legal and governance structures to operationalise the fund effectively and implement the strategy,” says FSD.
The investment company will have a three-tiered capital finance structure for mobilising the capital.
The first will be permanent equity from development agencies, philanthropic investors and foundations while the second tier of capital, which will be junior debt, will be raised from development finance institutions and other agencies with high-risk appetite.
The fund will then ride on the first two tiers of capital to issue a senior debt for subscription by local investors, particularly domestic institutional investors.
