Verdant Capital Hybrid Fund (VCHF) reached its first close with a committed capital of $36 million. The fund aims for high development impact, including job creation and income generation through SMEs and micro-entrepreneurship. The fund will invest hybrid capital and subordinated debt securities in inclusive financial institutions on a pan-African basis.
The fund will target specialty banks, microfinance institutions, leasing and factoring companies, fintechs and other non-banking financial institutions. Emphasis will be placed on the compliance of investments with high environmental and social standards. The fund is targeting two more closes with a targeted final closing amount of 100 million. usd.
The KfW Development Bank, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), is contributing approximately $34 million to the VCHF. In addition to KfW, the fund benefits from capital commitments from private investors, including VCHF’s fund manager, Verdant Capital.
Verdant Capital, an investment manager operating on a pan-African basis, has a successful track record in advising and investing in the financial services market for MSMEs in Africa. The fund is domiciled in Germany, but most of the investment team is based in Verdant Capital offices across Africa.
The raison d’être of the fund is to fill market gaps in terms of the availability of equity, equity-like or hybrid capital in the inclusive financial institutions sector in Africa. This capital is essential, especially because the COVID-19 pandemic has eroded the capital of African lenders. VCHF investments can be leveraged through traditional debt financing, thereby attracting other investors and ultimately expanding lending to MSMEs. The fund also intends to expand the use of these hybrid financial instruments in Africa and contribute to the overall development of capital markets in Africa.
The German federal government is planning an additional budget of $4.5 million for accompanying support measures. The VCHF Technical Assistance Facility will help African financial institutions grow their MSME loan portfolios, build organizational capacity and improve responsible finance standards, and is an important part of post-investment value-added strategy. of the fund.
(With contributions from APO)