The objective of the proposed project is to support the informal sector in Malawi, by setting up a MSME Wholesale Fund that mobilises Domestic and International Finance for the purpose of financing MSME focused financial institutions. Rather than each institution seeking financing lines and going through due diligent processes individually, financing through a dedicated wholesale fund serving the financial sector in local currency would reduce finance establishment costs and shorten the funding process.
2. PROJECT OBJECTIVES
To support the informal sector in Malawi, by setting up a MSME Wholesale Fund
that mobilises Domestic and International Finance for the purpose of financing MSME
focused financial institutions who will in turn on lend to Micro, Small and Medium sized
entrepreneurs.
Rather than each institution seeking financing lines and going through due diligent
processes individually, financing through a dedicated wholesale fund serving the
financial sector in local currency would reduce finance establishment costs and
shorten the funding process for financial institutions.
3. PROJECT BACKGROUND
Large informal sector - According to world bank data, informal sector is 95% of
total employment in Malawi indicating a huge potential market.
Poor co-ordination amongst microfinance institutions in raising finance and
addressing challenges that prohibit adequate financing such as small institutional size.
Lack of long term and product tailored finance suitable for specialised activities.
Low capitalisation of MFIs thus inhibiting lending capacity.
Lack of records by MFIs that would be sufficient to attract funding.
Exclusion of key economic activities such as small scale agriculture are deemed
risky due to a standardised lending approach by financial intitutions.
4. MANDATE OF THE FUND
Sourcing of domestic and international finance and developing funding
pipeline that satisfies national MSME financing needs.
Building a portfolio of MSME focused institutions covering both Microfinance
Institutions and Banks.
Providing technical assistance to financial institutions in the areas of Micro
Credit, SME Finance, Agro Finance and Renewable Energy and essential
governance functions.
Executing debt investments into FIs and monitoring repayment and portfolio
performance against pre-set portfolio performance and ESG standards.
Lobbying for the advancement in financial inclusion through involvement in
policy decisions, financial literacy initiatives, and financing technological
advancements.
5. KEY COMPONENTS OF THE FUND
Environmental, Social, and Governance (ESG) – to ensure that lending by
beneficiary financial intermediaries meets ESG principles of the fund.
Investment and Portfolio Management – Carrying out due diligence, origination
and monitoring of investments in financial institutions.
Technical Assistance and Capacity Building – Building capacity of beneficiary
financial institutions in areas of deficiency in design and delivery of products along
the main product themes which are Micro, SME, Ago and Energy Finance. T/A will
also be available in strengthening institutional support services.
Finance and Treasury – Building a finding pipeline to ensure sustainability of the
fund and growth into the future.
6. FUND’S SOURCES OF FINANCE
The fund will be financed by a mix of debt and equity. The next slide highlights the
proposed shareholding structure of the Fund. The following institutions will be targeted
for any additional debt finance that may be required as the fund grows:
International impact investment funds
Domestic fund/asset managers
Government if Malawi
Donor organisations
7. PROPOSED SHAREHOLDING
25%
25%
10%
25%
15%
International
Development Partners
Impact Investment Funds
Government of Malawi
Domestic Fund Managers
International Finance
Corporation
The proposed shareholders
includes institutions with a long
term interest in developing
MSME.
Private investors with stable
sources of finance such and
fund managers and pension
funds will enable the fund to
achieve its objectives through
long term finance for the
realisation of the funds
objectives over time.
8. DEVELOPMENT IMPACT
Promotion of underserved markets, at the base of the social pyramid.
Job creation through small enterprises and capital accumulation among low income
households.
Wealth creation that generates virtuous cycles, increasing demand for improved
standards of living.
Building the supply chain for goods and services of first necessity and better access
to food, homes and energy.