STABILITY IMPACT FUND STIMULATING ENTREPRENEURSHIP IN FRAGILE CONTEXTS CARE. ACT. SHARE. LIKE CORDAID.

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1 cordaid investments value proposition STABILITY IMPACT FUND STIMULATING ENTREPRENEURSHIP IN FRAGILE CONTEXTS CARE. ACT. SHARE. LIKE CORDAID. Morvigor Ltd tea factory, Sierra Leone credits: sascha noé Laure Wessemius Chibrac, Director Cordaid Investments September 2014

2 1. OUR PURPOSE ECONOMIC DEVELOPMENT IS A CRITICAL COMPONENT OF PROMOTING STABILITY n About 1.4 billion people live in fragile and conflict-affected countries. These economies are among the least developed and world s poorest. Lack of economic opportunities and high unemployment rates are the most critical determinants triggering civil conflict. n When entrepreneurs try to expand and grow their businesses, they often lack professional business skills, access to markets, networks, technology and not the least access to finance. A 5% negative growth shock increases the likelihood of a civil war the following year by nearly 50% Edward Miguel, University of California, Berkeley Economic Shocks and Civil Conflict: An Instrumental Variables Approach n Most foreign investors avoid conflict zones and local banks are not ready to invest in small businesses, because of high risk, cost and low financial return. n Our purpose is to promote greater resilience and peaceful development in fragile contexts through the stimulation of MSME s (micro, small & medium enterprises) in their economic development.

3 4 rs = 300! $$@ 2. OUR SOLUTION stability impact fund stimulating entrepreneurship in fragile states The Stability Impact Fund is an impact-first fund offering investors the opportunity to contribute to job creation, economic development and peace building by supporting the development of MSME s (Micro, Small & Medium Enterprises) in fragile contexts. R.O.I.= % KEY ASPECTS 1. Focus on fragile contexts, where social impact on stability, job creation, economic development and stability is the most significant. Financial return is moderate 2. Access to deals and availability of business support services through local partners 3. Reach the missing middle by combining indirect and direct investments 4. Blend with grants (>EUR15 m) to build capacity of MSMEs, up to 40% in case of direct investments 5. Mitigate risk through currency protection tool 6. Committed anchor investors: Cordaid Investments and a family foundation to invest EUR 10 mln as founders MFI currency protection STABILITY IMPACT FUND 60% 10% 30% capital + T.A. MFI capital + BDS training MISSING MIDDLE TOILET IMPACT SEEDS waterresistant capital + T.A. stability impact fund September 2014

4 3. OUR SOLUTION fund terms: impact-first our proposition to investors FOCUS OF FUND This fund focuses on fragile states. A fragile state has weaknesses in its governance, security and justice, economic opportunities for all and a limited capacity to provide basic services. IMPACT FIRST n SMEs will have access to finance and show economic growth (EBIT) of 10% per year n New jobs will be created of which 35% will focus on empowering youth n Micro-entreneurs of which 50% women have enlarged their business n Leading to greater resilience and peaceful & economic development GEOGRAPHICAL FOCUS n Direct investments in Sierra Leone, Burundi, Ethiopia, Philippines (South) and Guatemala. n Indirect Investments in South Sudan, DRC, North Kenya, North Uganda, Haiti, Colombia and Myanmar. TERM AND FINANCIAL RETURN Term: Open ended Expected IRR: EUR inflation CURRENCY PROTECTION n EUR 3-5 mln (10% fund size) convertible loan offered by philanthropic investors to cover for first risk on currency losses n Yearly provision calls based on average currency exposure of overall portfolio ASSET CLASSES n 60% debt senior or subordinated n 40% equity or quasi-equity DISTIBUTION CHANNELS n MFI s: 60% of capital (indirect) n SME s: 10% of capital (direct) n SME funds: 30% of capital (indirect)

5 4 rs = 300! $$@ 4 rs = 300! $$@ 4 rs = 300! $$@ 4. OUR SOLUTION R.O.I.= % investment targets and bd services currency currency protection protection our proposition to micro, small STABILITY & medium IMPACT IMPACT FUND enterprises FUND INVESTMENTS SIZE R.O.I.= % MICRO INDIRECT THROUGH MFI S capital + capital + EUR 250k 1m T.A. T.A. 60% 60% 10% 10% 30% 30% SMEs DIRECT capital + capital + EUR BDS 10k training BDS 100ktraining SMEs INDIRECT capital THROUGH + capital FUNDS + T.A. EUR 1m T.A. 5m MFI MFI MFI MFI MFI MFI MISSING MISSING MIDDLE MIDDLE TOILET TOILET SEEDS waterresistant SEEDS waterresistant IMPACT IMPACT ACCESS TO FINANCE FOR ENTREPRENEUR EUR k EUR 10k - 100k EUR 100k 1m TA GRANT FOR INVESTEES* 5-10% 10-20% BD SERVICE FOR LOCAL SME* 25-40% * % of investment size stability impact fund September 2014

6 5. OUR PROOF investment cases MFI: RUFI (South Sudan) SME FUND: WAVF (Sierra Leone/Liberia) USD 400 K loan USD 2.7mln equity 13% return on local currency 20%* return on local currency 1,400 micro entrepreneurs received a loan 28 sme s financed USD 670 average loan USD 360 K average investment 55% women 1050 jobs created Enterpreneur, South Sudan Tea factory personnel, Sierra Leone * Expected

7 6. OUR PROOF funds under management impact-first investor since 1997 EUR 78 MLN Total assets EUR 51 MLN Total committed EUR 39 MLN Total disbursed 450+ Investments since 1998 EUR 637,500 Average investment 66 % Female clients CUMULATIVE IMPACT INVESTMENTS Since inception in 1998, Cordaid financed 250 partners and made 466 investments with a mix of equity and debt instruments. mln PRINCIPLES & CERTIFICATIONS -1,3% Return on Investment TYPE OF INVESTEES mln INVESTMENTS INSTRUMENTS 2013 COMMITMENTS PER REGION mnl % 25 at MFI SME Prod. Org. MFI Fund SME Fund Other 42% 42% 5% 43% Equity Guarantee Senior Debt Sub. Debt Africa Latin America Asia stability impact fund September 2014

8 7. OUR OBJECTIVES the objectives for 2018 OBJECTIVES RELATED TO FUND IMPACT n 65 SME s financed (25 indirectly through funds and 40 directly in 5 focus countries) - Yearly 10% increase of EBIT new jobs created (35% youth) n 40 MFI s financed and over 50,000 micro entrepreneurs financed, 50% women n 50% of SME s receive BDS training. Minimum of 1200 people will be trained. n Up to 10 % of investments go directly in small and very small enterprises. OBJECTIVES RELATED TO FUND SIZE AND RETURN n Target EUR 40 mln investments disbursed n Target IRR: capital preservation / Euro inflation (estimated 1-2% p.a) n EUR 15 mln in technical assistance and business development services myanmar haiti guatemala colombia sierra leone south sudan dem. rep of the congo ethiopia uganda (north) kenya (north) burundi philippines (mindanao) n Direct investments n Indirect Investments

9 8. OUR PROCESS close, disburse, scale and manage fragile contexts require patient capital 1. FIRST CLOSING & DEALS BY Q n Fund raising of EUR 25 mln n Deal flow of 30 potential indirect investments 25 MM 25 MM 2. DISBURSEMENT & BDS TO FIRST INVESTEES IN FOCUS COUNTRIES ( ) n MFI and SME funds in 12 countries n Initiate direct investments in Sierra Leone in 2014, in Philippines (South), Ethiopia, Guatemala and Burundi in 2015/2016 n Annual impact and financial performance reporting 4. PORTFOLIO MANAGEMENT (2018 ONWARDS) n EUR 50 mln under management n Annual impact and financial performance reporting STABILITY IMPACT FUND PORTFOLIO impact R.O.I.= % # investments STABILITY IMPACT FUND PORTFOLIO impact R.O.I.= 2016 % # investments MM + 25 MM 25 MM end MM end 2016 # investments # investments SECOND CLOSING (YEAR END 2016) & SCALE OF DISBURSEMENTS (2018) n Additional 25 million raised n Steady deal flow of direct and indirect investments n Annual impact and financial performance reporting n Continuous fundraising 2016 n Steady deal flow generation n Continuous investments required to fund patient capital, equity investments with years horizon stability impact fund September 2014

10 9. OUR RESOURCES fund structure & management clear separation of capital and grants Cordaid Foundation 100% Cordaid Investments T.A. Manager Fund Manager 1 member Investment Committee Management Contract Local BDS Trainers Investment Decision SME s Internal External Investment Stability Impact Fund Advisory Board Anchor Investors Family Foundation Investors

11 10. OUR KEY RESOURCES how we make it happen n Cordaid n Cordaid Investments FUND MANAGEMENT Laure Wessemius Chibrac Director Investments Former functions: - MD Corporate Partner - Director Equity Capital Markets, ABN AMRO Rothschild London/Paris - VP Equity Advisory, BNP Paribas Sascha Noé Investment Manager Former functions: - Programma manager Microfinance, Oxfam Novib - Programma manager Estern Europe, Central Asia, Caucasus, Oxfam Novib Alain Nkurikiye honduras haiti south sudan india myanmar vietnam philippines Investment Manager Former functions: - Consultant, Berenschot - Business development and strategy, Vlisco Netherlands B.V. - Sales and Communication officer, PSI nicaragua peru bolivia sierra leone ghana dem. rep of the congo kenya uganda rwanda burundi tanzania ethiopia Resi Janssen Investment Manager Former functions: - Policy officer, Cordaid - Team leader Africa, Cordaid - Executive Secretary, MicroNed - Investment officer, Oxfam Novib BDS MANAGEMENT Peter van Poortvliet Director Entrepreneurship Former functions: - Team manager PSI Africa - Project officer PSOM Mozambique, Kenya and Indonesia at EVD - Project officer, EGL stability impact fund September 2014

12 11. CORDAID INVESTMENTS theory of change IF we provide inclusive and affordable financial and business development services for growth to MSMEs in fragile contexts THEN employment will increase and business opportunities will develop sustainably, securing the income of people in the communities and reducing their vulnerability BECAUSE we believe that investing in small and medium enterprises in fragile countries will contribute to strengthening the economic development and the peacebuilding process

13 12. CORDAID INVESTMENTS being part of cordaid CORDAID - BUILDING FLOURISHING COMMUNITIES IN FRAGILE STATES Flourishing communities are the social fabric of a nation, where caring for and taking care of one another are fundamental values. Cordaid Investments Employment will increase and business opportunities will develop sustainably, securing the income of people in the communities and reducing their vulnerability, strengthening the local economies and the peacebuilding process. security opportunity governance empowerment IMPACT CORNERSTONES Increased income and job creation decrease the incentive for people to engage in negative activities like war and crime. On top of that, less private sector conflicts also lead to improved stability. Entrepreneurs have improved access to finance and business development support stimulating businesses and job creation. More successful businesses will increase the confidence to invest in fragile states. The governance of financial institutions and SMEs improves as well as the professionalism of the Business Development Service sector. Entrepreneurs, with emphasis on youth and women, are empowered with skills, technology, network and capital. OUTCOME PROBLEM ACTIVITY OUTPUT Local financial institutions and SMEs often lack the capacity to formalize and grow Local financial institutions and SMEs often lack the capital to professionalise and grow Lack of sufficient and adequate local Business Development Service providers We directly build capacity of financial institutions and SMEs through board memberships and coaching, as well as contracting consultants/interim managers We provide equity, loans, guarantees and grants to financial institutions as well as directly to SMEs We build the capacity of BDS providers locally # of institutions trained, # of MSMEs trained, # networks established /trained, # of board positions # of investees (institutions vs SMEs), # of equity stakes, loans, guarantees and grants provided, total volume of each financial product # BDS providers trained, # of BDS providers that received a grant, total grant volume Investors perceive the risk to invest in fragile states as high, because of their lack of trust, information, thorough risk analysis and experience We manage funds (dealflow, ESG, monitoring, reporting, measuring impact, currency protection tools). We demonstrate and share our experiences and outcomes within the investment sector # of fund reports, financial and social return of fund, # of investors, total volume of fund, # conference & events Poverty, high risk of natural disasters and poor governance structures make it difficult to do business We facilitate constructive dialogues between private sector stakeholders # of dialogues stability impact fund September 2014

14 HEALTH CARE DIS ASTER RESILIENCE EN TRE PREN EUR SHIP WO MEN S LEAD ER SHIP CHILD & EDU CA TION EX TRACT IVES FOOD SE CUR ITY SE CUR ITY & JUSTICE URB AN MAT TERS INVESTMENTS CORDAID FACTS AND FIGURES 145 MLN spent on fighting poverty annually 324,000 private donors in nl 800 partner organizations 38 countries source: annual report 2013 INFORMATION CARE. ACT. SHARE. LIKE CORDAID. More information see investments You can also contact Laure Wessemius-Chibrac Director Investments laure.wessemius@cordaid.nl CONTACT Cordaid P.O. Box BK The Hague The Netherlands +31 (0)