Supporting Capital Markets Development
Lesana Lesotho – Building Market Standards
Select Africa is a regional financial services company with operations in Kenya, Lesotho, Swaziland and Malawi, and is focussed on the provision of housing and incremental housing microfinance loans. To date, the ALCB Fund has invested in the group’s debut bond issuances for its Malawi (Select Malawi) and Lesotho (Lesana) operations.
Housing and Incremental housing microfinance constitutes more than 60% of Select Malawi and Lesana’s loan book. The product was developed to address the inability of low-income households to afford financing the entirety of their housing needs as part of a single loan package. Through the offering of successive loans, a housing project can be realised over time and within the constraints of the borrower’s affordability; while also addressing credit providers hesitation towards providing longer dated loans to lower-income households. Select works to enhance clients housing projects and ensure a minimum housing standard is maintained. In both Malawi and Lesotho, Select has entered a co-operation agreement with Habitat for Humanity International to provide customers with the option to receive technical support on home construction and design, as well as housing loan verification for Select.
In 2017 the ALCB Fund invested USD 2.5 million and USD 1.0 million in Lesana and Select Malawi respectively. The Fund took an anchor investor role in the Lesana MTN and played a pivotal role in bringing the transaction to market. In Malawi, the Fund provided support through its TAF in reviewing the legal documentation of the issuance.
Following its debut issuance, Lesana is interested to list its programme on the new Maseru Stock Exchange; with the expectation that this will improve the transparency of its funding activities. However, along with other local entities, Lesana has found it challenging to list on the exchange as certain listing requirements conflict with their underlying business strategy. To support Lesana in listing of its bond, the ALCBF TAF is working with PwC and the Central Bank of Lesotho in an exercise to assess the competitiveness of its corporate bond market and identify potential bottlenecks in current listing regulations.
Baobab Senegal (formerly Microcred) – Why We Issued a Local Currency Bond
In September 2016, Baobab Senegal carried out its first bond raise for FCFA 3.8 billion (EUR 5 million). This was the first issuance from a West African microfinance institution, as well as the first from a Baobab Group affiliate.
Baobab’s shareholders chose to issue a local currency bond to: (a) improve access to long term funding at a competitive price, and (b) diversify its investor base away from conventional DFIs and MFVs by tapping in to local institutional investors. Discussions with the ALCB Fund started early in the process and Baobab felt it was important to work with the Fund to provide local investors with increased confidence by having an anchor investor on board in advance. Ruben Dieudonné, Baobab and Baobab Africa CEO, described his pleasure with the outcome of the bond issuance as follows: “we are proud of the success of this issuance. It highlights investor confidence in the maturity of our innovative business model for financing MSMEs. With the funds raised, we are planning to accelerate our growth in the years to come and become a leader in microfinance in Senegal.”
AFB Ghana – From Humble Beginnings
AFB Ghana is a national credit and insurance providers catered to low income households and entrepeneurs. AFB was one of the Fund’s first investments, invest USD 1.8 million in the company’s USD 7.5 million local currency issuance in 2015. AFB has since been able to successful expand its MTN programme to its current outstanding borrowings of USD 22 million. The company’s embarkment into the local capital market has also helped to improve the financial stability of its operations, reducing its FX exposure from 64% of total borrowings in 2014 to 0% today.
Bayport Ghana – Ghana’s Largest Ever Corporate Bond Issuance
Bayport is a regional microfinance institution with operations across the African continent. The ALCB Fund has supported Bayport’s subsidiaries in Botswana, Ghana, and Zambia to come to market, investing a total of USD 12.5 million in the Group. In Ghana, the ALCB Fund acted as an anchor investor in the company’s debut local currency bond issuance. The Fund invested USD 2 million in its December 2016 debut and successfully drew in USD 15 million in local co-investment – making it the large corporate bond issuance in Ghanaian history. The company has since returned to market on several occasions.
ZHL – Supporting Market Transparency Through Public Listings
Zambian Home Loans is a housing finance provider, offering long-term (up to 21 years) secured building and renovation mortgages. An innovative component of its lending strategy is its incremental approach to disbursing funds, allowing the client to construct their own homes and receiving the funding over a period of time on the basis of pre-agreed construction milestones; providing greater security protection to ZHL while providing clients with purpose driven funds. Some of ZHL’s clients are individuals who have begun home construction through incremental housing microfinance providers and are looking to refinance on a secured basis at a lower rate and longer tenor or obtain further funding. The Company is also planning to roll-out micro mortgages to lower-income borrowers for property extension projects that generate rental income.
In 2017, the ALCB Fund invested USD 1 million in ZHL’s 7-year debut MTN programme. Access to such long dated funding in local currency has helped the company to minimise FX risk, while improving the matching of its funding profile to its loan book, which has an average maturity of 9 years. The company is looking to list its note programme and raise further funding in 2018, with the ALCB Fund’s TAF supporting the issuer in this process.
Baobab Senegal (formerly Microcred) – Sekou Kouyate
Sekou has been a client of Baobab since 2007, when he took out his first loan of CFA 250,000 (USD 500). A barber for years, equipped with just an electric razor and clippers in his garage, he first approached Baobab following the suggestion of a customer in 2006. He approached Baobab to open an account and apply for a loan, and was surprised when, a few days later, he received a phone call telling him we would be visited by a loan officer to evaluate his business. After being successfully approved, he has used the loan to expand his business, moving from his garage to a shop. Each time he has exhausted a loan he has requested further funding, and currently has a loan of CFA 1 million (USD 2,000). His dream is to expand his business to open several shops, one day having enough money to build a house for his family.
Bayport Ghana – Matilda Oduro
Mrs Matilda Oduro is an informal trader in Techiman, a major commercial town in Ghana and home to one of the largest open-air markets in Africa. She sells African wax prints and Kente, the traditional wear that plays a central role in Ghanaian ceremonies such as festivals, weddings and funerals.
After three decades as a petty trader Matilda’s business took flight when she entered into a relationship with Bayport in 2013. She used her first loan to buy inventory and two subsequent loans to further expand her business. Not only does she now lease the building next door to her original shop, Matilda has also completed the house she started building several years ago and she can afford to send her oldest son to university. In addition to credit, Bayport supplies Matilda with a high-earning savings account that puts her business income to work. Unlike conventional commercial bank savings accounts, Bayport offers field cash collection on these accounts at no cost to customers.
Matilda sees Bayport as a valuable business partner, noting “None of the other banks could ever give me the critical services I wanted, particularly field cash collection and loans to support my business,” she says. “I get more than what I want from Bayport. The staff are friendly and I feel at home. I feel part of Bayport and am here to stay.”
AFB Ghana – Adwoa Pokuaa
Adwoa Pokuaa lives in Nkawkaw, Ghana and has been a client of AFB Ghana for three years. Her first loan request was for GHS 3,000 in 2014 to buy a grinding machine to produce groundnut paste. Adwoa has been trading in groundnut for over fifteen years, selling groundnut in both a raw and paste form.
Prior to applying for the loan, Adwoa used to travel miles outside Nkawkaw to have the groundnut grounded because there was no machine within the catchment of Nkawkaw. She aspired to own a grinding machine and acquire a larger piece of land to expand her retail business. Adwoa had already tried to access capital through multiple financial institutions, but she was unable to meet their restrictive requirements. Just when Adwoa began to consider selling the small land that she had, a friend introduced her to AFB Smart Cash Loans. Given Adwoa’s previous experience with microfinance institutions (MFI), she was initially hesitant as had not yet come across an MFI that required collateral to provide credit.
During a visit to AFB Smart Cash branch, Adwoa was assessed and granted a GHS 3,000 loan. Within two weeks, Adwoa paid off her loan. Today, Adwoa owns four machines and is looking to expand the business into pepper grinding.
As a single parent, Adwoa is now able to revenues to afford school fees for her three daughters to attend further education, with one attending training college and the other two entering their final year at university.