By Ben White on July 6, 2012
Recently the Dutch development bank FMO and Oikocredit launched a €10 million fund. The facility will invest predominantly in Central and Southern African countries through rural-based microfinance institutions and small and medium-sized enterprises (SMEs).
Both FMO and Oikocredit will put €5 million towards the fund. Microfinance institutions providing financial services to micro and small entrepreneurs will receive 75% of the loans and the remainder will be used for SME funding. Oikocredit, with its vast network of local offices and expertise in rural expertise, will act as fund manager. We had a chance to connect with Barbara Marcussen to find out more.
What is your background and role at Oikocredit?
“I am Barbara Marcussen and I am a Microfinance Manager at Oikocredit responsible for relationships with microfinance institutions based in Africa, covering those countries in which Oikocredit does not have local representation. Before joining Oikocredit, I worked as a consultant in joint ventures small enterprises working in countries like South Africa and Rwanda. I gained more extensive field and operational experience in microfinance through consultancy assignments for the United Nations Development Program, and programs
financed by the Canadian International Development Agency. I’m happy with the newly established Low Income Countries Fund since it targets quite a number of countries in sub-Saharan Africa.”
Can you explain the thinking behind this fund?
“The purpose of the fund is to grant loans to MFIs and SMEs in 25 countries classified by the UN as low income countries (LIC). These are countries where access to financing is usually a big challenge, both for organizations and individuals. For example, nearly 90% of all adults in Sub-Saharan Africa do not have a bank account, and are largely excluded from banks. This shows the importance of microfinance institutions to increase access to financial services. The good news is that nearly 23,000 microfinance institutions, including credit unions do offer microfinance. I expect the microfinance sector in Africa will develop positively over the next years. Most countries have recognized the importance of regulation but implementing the regulations is still a challenge for the coming years.
The Low Income Country (LIC) Loan Fund, established together with Dutch development bank FMO, will be managed by Oikocredit and at least 60% will be allocated to investments in 19 countries in Sub-Saharan Africa.”
How do FMO and Oikocredit compliment one another?
“FMO is a larger, largely privately funded development bank linked to the Dutch government and Oikocredit a smaller privately funded development financing cooperative that is very much engaged in the field. We share the same values and goals, especially when it comes to inclusive finance. Compared with Oikocredit, FMO invests larger amounts in microfinance institutions mainly active in urban areas, while Oikocredit invests smaller amounts and provides funding to the relatively smaller microfinance institutions with a focus on rural regions.”
What is the size/sector/geographic scope for the fund?
“Total fund size is € 10 million, with Oikocredit and FMO participating with € 5million each. Eligible for loans from the fund are MFIs and SMEs in 25 countries classified by the UN as low income countries (LIC): 19 in Sub–Saharan Africa, 5 in Central and East Asia, and 1 in the Caribbean.”
What is the market need/financing gap this fund will satisfy?
“The fund will cater for the needs of growing companies that start pretty much at the bottom of the pyramid and who find it most difficult to find funding.”
What are the criteria for investment?
» “Eligible MFI and SME:
» Financially sustainable, compliant with social & environmental policies
» MFI: portfolio growth; 2nd/3rd tier MFI ; portfolio size >= € 1,000,000
» SME: fixed assets and working capital; minimal turnover € 500,000
» Loan amounts: € 250,000 (min) – € 1,000,000 (max)
» Hard currency or local currency (provided projected annual inflation is below a certain amount)
» Tenors: 3 to 7 years”
They say being close to the portfolio is key. How do you see this?
“Oikocredit has been active in Africa since the seventies. One of the advantages of working with us is that we have offices in 12 West and East African countries, most recently we opened an office in Rwanda. This local presence enables us to work closely with national or regional networks and enables us to monitor and keep the distance to the local markets short, which facilitates our work with smaller organizations. In 2011, we approved loans and investments to 50 new and existing partners in Africa, totalling € 32 million.”
What is the biggest challenge ahead?
“Finding those organizations that meet fund criteria, or having them find us. Getting the news out through online platforms like yours is a good opportunity.”
How is this vehicle differentiated or unique in comparison to what is already in market?
“I think the ambition to truly target the second and third tier MFIs and bottom of the pyramid SMEs makes it unique and most challenging.”
At VC4Africa we are pleased to see the FMO and Oikocredit partnership come together. Much more needs to be done to support the growth and development of the continent’s small and medium sized enterprises. Certainly organizations like this can help to define the models we can apply moving forward.