Providing access to risk capital and helping to create local private equity markets for small and medium-sized enterprises (SME) in the Kyrgyz Republic, Myanmar, and 13 countries in West, Central, and East Africa.
Project Background
Small and medium-sized enterprises (SME) account for 60 percent of jobs in the Kyrgyz Republic but face significant credit constraints that hinder economic growth. The International Finance Corporation (IFC) is helping launch a first-of-its-kind private equity fund for Kyrgyz SME investments—continuing its legacy as the largest and most active investor in emerging market private equity funds. Up until now, political instability, a large informal economy, and other factors obstructed private investment in such a fund. IDA Private Sector Window (PSW) will provide US$4 million in funding, which will be matched with US$4 million in IFC funds. This contribution will help the fund attract additional investors and reach its US$30 million fundraising target, eventually spurring creation of a local private equity market for SMEs.
IFC is using IDA PSW to support two similar projects: one in Myanmar and one covering multiple countries in West, Central, and East Africa.
Project Objectives
The SME Ventures program helps to fill the SME financing gap by providing a unique blend of investments and advisory services, building on IFC’s experience in emerging markets private equity. Beyond expected impacts to the fund managers and their investees, IFC anticipates that the projects will also substantially contribute to enhancing the private equity ecosystem within these countries through demonstration effects and, potentially, regulatory changes.
To date, the IDA PSW has co-invested alongside IFC through its SME Ventures program in the following private equity funds:
- Anthem Asia is one of the few private equity funds in Myanmar and the only one targeting smaller-sized, earlier stage SMEs. As part of IFC’s SME Ventures program, the fund will help fill Myanmar’s significant SME financing gap.
- The Highland Private Equity and Mezzanine Fund provides equity and mezzanine finance to small and medium enterprises in the Kyrgyz Republic, filling the gap left by little appetite to invest in SME-focused equity funds in the country because of perceived high risks of such investments and relatively low returns to fund investors.
- The IPAEII Fund invests in SMEs across Africa, including in Senegal, Cote d’Ivoire, Mali, Burkina Faso, Togo, Cameroon, DRC, Madagascar, Uganda, and Comoros, where there is a significant gap of equity financing and SME risk capital.
Why IDA PSW’s Blended Finance Facility?
By providing concessional funding, the IDA PSW’s Blended Finance Facility (BFF) enables IFC to support higher risk private equity funds to reach previously underserved and unbanked SMEs in IDA PSW-eligible countries. Without IDA PSW and other blended finance facilities, IFC and others would struggle to support SMEs in fragile and frontier markets. Instead, thanks to IDA PSW, IFC is ramping up investments in these markets—helping formalize and support SMEs in emerging economies to create jobs and drive economic growth.
What is the Transaction Structure?
IDA PSW’s investment in the three transactions are structured as a Total Return Swap (TRS).
- The investment in Highland consists of an up to US$4 million IDA PSW investment.
- The investment in Anthem Asia consists of up to an US$7.5 million equivalent IDA PSW investment.
- The investment in I&P Afrique Entrepreneurs II L.P. consists of an up to US$7.5 million equivalent in EUR IDA PSW investment.
What is the Impact on Markets?
Access to capital will help SMEs grow and improve their operational efficiency and profitability, allowing them to contribute to job creation and economic growth. IDA PSW support to IFC SME Ventures investments will help strengthen, and in most of the target host countries, even create, the private equity market focused on SMEs. This will enhance SME competitiveness and help fill in the SME financing gap further.
Blended Finance Facility-supported projects are made possible thanks to close cooperation from multiple teams across IFC and IDA.