: Short Term Assignment for Legal and regulatory review of SME Investment fund (the AKDN Enterprise Development Platform - EDP Fund)

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1 Aga Khan Foundation, Afghanistan Job Opportunities Position Title : Short Term Assignment for Legal and regulatory review of SME Investment fund (the AKDN Enterprise Development Platform - EDP Fund) Duty Station : Kabul Announcing Date : April 18, 2017 Closing Date : May 2 nd, 2017 Vacancy No : CS/KBL/04/17/025 The Aga Khan Foundation (AKF) is a non-denominational international development agency established in 1967 by His Highness the Aga Khan. Its mission is to develop and promote creative solutions to problems that impede social development, primarily in Asia and East Africa. Created as a private, non-profit foundation under Swiss law, it has branches and independent affiliates in 19 countries. AKF seeks to provide sustainable solutions to long-term problems of poverty, hunger, illiteracy, and ill health. In Afghanistan, AKF works with rural communities in mountainous, remote or resource poor areas to improve quality of life in the areas of natural resource management, market development, governance, education and health. The Aga Khan Foundation, Afghanistan (AKF (Afg)) is an agency of the Aga Khan Development Network (AKDN), a group of international, private, non-denominational development agencies working to improve living conditions and opportunities for people in some of the poorest parts of the developing world. The Network s organizations have individual mandates that range from the fields of health and education to architecture, rural development and promotion of private-sector enterprise and institutions that seek to empower communities and individuals, usually in disadvantaged circumstances, to improve living conditions and opportunities. Rationale The Aga Khan Development Network (AKDN) believes that catalysing and accelerating small enterprise growth is critical to achieving broad and inclusive economic development, particularly in underserved rural and urban areas, such as in Afghanistan, that lack access to sufficient local and foreign investments. New strategies are required to unlock the growth potential of small and medium sized enterprises (SMEs) in such frontier markets. Based on ongoing AKDN interagency discussions, the AKDN is proposing the establishment of a new Enterprise Development Platform (EDP) to catalyze a stronger business ecosystem for business incubation, financing and bespoke technical assistance services for early stage and growth oriented SMEs. One of the focus countries for the EDP will be Afghanistan. Executed as a new legal entity (Luxembourg domiciled investment fund OR Dutch domiciled company) that would have a specific mandate, the EDP would have a purpose built operating capacity and appropriate management competencies to address the missing middle, by supporting the development of selected early stage and growth oriented SMEs through the provision of business incubation services and longer term risk finance paired with tailored technical assistance (TA) and mentoring. The design of the EDP will likely be framed on the following: (i) A focus on small and medium sized enterprises (SMEs with approx. 5 to 50 employees) with an ambitious entrepreneur seeking growth. The enterprise will have a track record of 2+ years of revenue and demonstrate an ability to invest in and expand their operations. (ii) The core product would be patient capital invested in small but growth oriented firms: selected firms would likely need to be operational for 2-4 years with some track record of revenues and profitability. Investments in selected firms would be twinned with post-investment TA, where appropriate, to address specific and pre-agreed business capacity improvements.

2 (iii) Investment would be sector agnostic, although the EDP would exclude sectors which present ethical concerns, and businesses that do not meet appropriate environmental and governance standards. (iv) Financing would be tailored in line with each selected SME s growth/expansion plans and cash flows and linked to achievement of milestones. Financial instruments might include equity-like and blended products, particularly mezzanine financing such as sub-ordinate or patient loans (with conversion features), preference shares (with conversion to equity and/or redemption features) and/or shareholder loan (with or without royalties and revenue sharing) and such other self-liquidating instruments as well as an option to hold some equity investments. In term of equity type investments, the EDP would mostly take minority stakes in firms, but exercise strong influence and risk mitigation through structure of the financing instruments and technical assistance, and other appropriate investment terms and conditions. (v) Investment would range between USD 50,000 to USD 750,000, including any follow-on financing, with the EDP seeking repayments and exit within or over 7 to 10 years. Objective The overall objective of this assignment is to undertake a legal, tax and relevant regulatory assessment in Afghanistan and provide, advice and assistance during the design phase and structuring process of the SME investment fund (the AKDN EDP Fund), which will seek to identify and make long-term investment in Afghanistan. During the design and structuring phase, the local legal and tax adviser will be required to undertake appropriate and relevant assessments, and provided relevant input, guidance and advice to clarify and assess all relevant local (in Afghanistan) legal, tax and regulatory aspects that are necessary and critical consideration during design and set-up of the Luxembourg-domiciled investment fund (the AKDN EDP Fund) - such that the Fund can seek and make investment in selected SMEs in Afghanistan. Such assessments and advice shall be presented in the form of a memorandum (the Memorandum ) and discussions with AKDN counterparts. The respective tasks of this assignment are described in more detail below. Main Duties and Responsibilities To date, the AKDN has conducted several reviews of relevance to this assignment. A best-fit-structure assessment for the EDP Fund in Luxembourg, which compared several Lux-based options, and legal reviews in Tajikistan, Pakistan and Kyrgyz Republic. Parts of these review may be made available to the legal advisor as background information on the rationale for selection of the type of structure and set up and its characteristics Based on the above mentioned assessments, the EDP is to be domiciled either as a Luxembourg based SICAV-SIF SA or a Dutch based BV (equivalent to LLC), initiated by AKF and AKFED IPS. It is expected that the local legal adviser: Assesses and confirms that such a Luxembourg-domiciled or Netherlands-domiciled fund can invest directly in private commercial businesses in Afghanistan and what, if any, legal, regulatory and tax limitations and requirements for investments or related transactions (e.g. funds flows and re-payments) need to be considered and taken into account. The legal advisor Assessment Memorandum will need to incorporate all relevant aspects and identify, analyse and assess any operational and transactional matters of such a fund investing in Afghanistan and any risks to be considered (legal, tax, regulatory, repatriation of investments, etc) in connection with the structure of the Luxembourg or Dutch based EDP Fund and its ability to make investments in local commercial enterprises (noting the array of expected investment instruments outlined in section 1, Bullet iv above) Should a direct investment into a variety of local SMEs with an array of quasi-equity or equity investment instruments by the fund not be possible or be severely restricted, and upon consultation with AKF in this case, identify options, if any, to set up a local vehicle/legal entity through which the Fund could investment (indirectly) in local Afghan businesses.

3 3.2. The scope of the above assessment and advice (3.1. above) should cover all the analysis, assessment and questions deemed relevant and necessary by the local legal adviser to fully undertake this assignment and provide the needed guidance and advice. As a minimum the assessment should aim to cover the following parameters (from a legal, tax and regulatory perspective): Structuring From a Afghanistan perspective, assess any and all relevant requirements, consideration and issues related to structuring, setup and termination for the EDP fund that seeks to make long term investments directly in businesses in Afghanistan: Regarding substance and/or physical presence, what local requirements or restrictions, if any, may exist for the EDP fund before it can make direct investment in Afghanistan e.g. local registration, licenses, approvals, and/or having company address, company premises/offices, management and staff? What implications or restrictions apply to the EDP Fund in terms of: allowable investees (e.g. type or size of companies and/or legal structure of local enterprise) allowable instruments (e.g. debt, equity, mezzaninein the form of revenue sharing, shareholder loans) for mezzanine instruments 1, implications or restrictions for each type proposed (variations of preference shares, royalties), and whether it might be considered as equity or as debt allowable investments (e.g. tenor, size of investment, currency) collateral investment entry or dilution repatriation of funds / foreign investment (for dividends and upon exits) in the event of default of an investee, what legal recourse is available and are such options practical (realistic) and timely to ensure protection of investments and recovery procedures. In this regard, please comment on legal and practical options and aspect for the enforcement of investment contract (and terms). Tax related issues, as outlined in section below Foreign Investors Any legal issues or protection issues for investors issues & risks for the EDP (a Luxembourg-domiciled fund or Dutch-domiciled BV)? For instance: Is an investor in the EDP Fund potentially exposed in any way in Afghanistan regarding legal, regulatory or tax-legal issues? If there are local tax issues for the investors, what are they and who is responsible for reporting/withholding/payment?

4 Investments Which instruments (both in local currency and USD) are possible as direct investments for the EDP Fund in Afghanistan? What are the rules, regulations, key considerations and any contracting requirements (e.g. standards, consideration or requirements needed for investment agreements such as a loan of shareholder agreement) for each? equity mezzanine / quasi-equity instruments (such as revenue / profit-sharing instruments, sub-debt, convertible debt) shareholder or quota loans loans Are there any regulatory constraints or critical tax considerations for businesses in Afghanistan in receiving equity/debt/mezzanine financing from a Luxembourg-based Fund? Are there any regulatory ratios for investee businesses between equity, shareholder loans, preference shares and/or other debt? What are the limits on shareholder or quota loans, and preference shares, if any? Can shareholder loans be granted for more than one year? If not, can they be rolled over automatically? Any applicable conditions? Can shareholder loans, from the EDP to investees, be denominated in any currency (e.g. TJS and USD)? Are there any maximum or minimum interest rates imposed? Any other conditions imposed? Collateral options? Can an EDP shareholder loan and or a preference share to an investee be structured for conversion into equity? If yes, how? How does a conversion actually work in terms of any local legal, regulatory and tax perspective in theory, in practice? As an investor in the local businesses, can the EDP (its nominee) be a member of the Board (of Directors) of the local investee company? Are there any legal/regulations requirements or restrictions in this regard? What might be some risks and other considerations? Any other considerations, such as restrictions from the borrowers /investees perspective? Based on the above points, make recommendations on which financing instruments are the cleanest from a tax perspective (i.e. each of the envisioned debt, equity, and envisioned forms of mezzanine / quasi-equity financing instruments) What are the approval or registration requirements for each form of investment (e.g. any Central Bank, government department and/or tax authority approval requirements re shares purchases, and/or other form of foreign investments in a Afghan resident entity)? What are the foreign exchange issues? What are the legal or tax implications of defaults or write-offs? What are options for dilution or exits from investees, apart from dissolution and liquidation (e.g. sale, transfer)? Can the EDP freely sell/transfer/assign the shares or other investments (shareholder loans, preference shares, etc) it owns in an investee? Are there any restrictions or considerations if such a sale/transfer/assignment is to another foreign investor or to a local Afghan investor?

5 What are legal requirements (on side of EDP; on side of investee)? What are risks and / or implications (legal / tax)? Differences to be considered for exit given the legal form of the investee? Continuity of investments: Would it be legally viable to have another company (e.g. another AKDN fund or a sub-fund of the EDP) acquire any capital becoming available from divestments from the EDP? Are there any legal requirements to ensure fair valuation of assets upon exit / divestment? What is required for a transfer in kind? (Any reporting requirements? Valuation required?) Tax Confirm whether any of the taxes will be structure dependent or investment dependent for the EDP, as a Luxembourg-domiciled fund or Dutch BV Confirm whether any exemptions might be available for the EDP by law (and if so, the criteria, process and timescale for obtaining the same) Confirm whether there are any double taxation treaties between Afghanistan and Luxembourg or the Netherlands (and if so, the terms and exemptions they cover) More specifically, for instance, consider: What taxes (e.g. withholding tax, income tax, registration tax, value added tax, etc) apply for: EDP investments equity, quasi-equity/mezzanine, debt, grants? For the EDP? For investees? Exit from investments / investees for the EDP? For exiting investor? Any for remaining investors? Are investors in the EDP exposed to any tax demands? If so, what taxes and who is responsible to pay for such taxes? Is EDP responsible for withholding any local taxes? Any special tax treatment or rules in the context of small business investments in Afghanistan that could apply to EDP and/or its investments (e.g. special policies or programmes)? Withholding Tax and by whom Taxation on investments and/or any transactions or payments related to: direct investments by the EDP Fund the investees service provision by the local investment advisory entity Management of the EDP It is assumed that a Fund Manager / Investment Advisor, acting as manager/advisor of the EDP and as investment manager/advisor company, will be contracted (through a service level agreement) by the EDP as a service provider, and that the Fund Manager will registered outside Afghanistan; potentially in the Netherlands or elsewhere (Switzerland or Luxembourg).

6 Are there any legal and/or regulatory requirements in Afghanistan for this (off-shore domiciled) Fund Manager/Investment Advisor, acting as manager of the EDP and as investment manager/advisor of its assets? Can such a Fund Manager/Investment Advisor company, engaged by the EDP as an external service provider, appoint a local investor advisory to act on its behalf in Afghanistan? Investment Advisory for the EDP It is assumed that a local Investment Advisor acting an advisor/service provider of the EDP or the offshore domiciled Fund Manager / Investment Advisor, in terms of pipeline development, deal structuring and post-investment technical assistance, will be contracted by the EDP or off-shore domiciled Fund Manager as a service provider. The local Investment Advisor will likely be registered in Afghanistan. Are there any legal and/or regulatory requirements in Afghanistan for the Investment Advisor, acting as an advisor for the EDP (or potentially through the off-shore Fund Manager) and its assets? What considerations need to be taken into account (e.g. any types of services the local investor advisory may or may not provide; any limits to the services)? Can the Investment Advisor be engaged by the EDP or off-shore fund manager as an external service provider? While the investment will be owned by the EDP, can Investment Advisor (its nominee) represent that EDP on the Board of an investee company? Are there any legal/regulations requirements or restrictions in this regard? What might some risks and other considerations be? Technical Assistance Facility A separate Technical Assistance Facility (TAF) will be set up with donor/grant funding (separate from the EDP) and likely structured as a technical assistance program within AKF. With this, assess any issues or requirements related to TAF; e.g.: Can the TAF provide grants directly to businesses in Afghanistan (only in which the EDP has an investment) to enable the local business to receive technical assistance/business advisory services? Can the TAF provide grant monies to the local (EDP) Investment Advisor, so that it can provide (potentially through other local service) technical assistance and business advisory services to local businesses in which the EDP have an investment? Can the TAF provide (zero-interest) loans/ returnable grants to businesses in Afghanistan (i.e. the local business would repay this funding over a defined period) in order to offset the initial cash needed to pay for technical assistance and/or business advisory services?

7 What, if any, requirements or conditions need to be taken into account with the TAF providing grants, returnable grants or loans to businesses? For instance: What taxes (e.g. withholding tax, VAT, income tax, registration tax) apply for TAF grants, returnable grants or loans: For TAF (coming from outside Afghanistan and through the local Investment Advisor)? For investees? Are there any foreign exchange issues, e.g. regulatory constraints or tax issues regarding grants, returnable loans or loans in local and foreign currencies? For TAF? For investees? Consultation between Consultant and AKF / AKDN To ensure effective communication and interaction over the course of this assignment, in order to achieve the above objectives, the following consultative process is proposed between the consultants and AKF: I. Pre-assignment discussions, with AKF/AKDN in-person and remotely, to discuss the EDP Fund design and this Assignment Terms of Reference, scope of work, timelines and deliverables, and consultant s work plan, and other documents shared by AKF. This will provide an opportunity for the consultant to share initial feedback, ask questions, and clarify and confirm the proposed focus, timeline and agenda for completing the work. This will take place over the course of several meetings. II. Mid-phase check-in, with AKF/AKDN in-person and remotely, which could be timed shortly after completion of research and/or interviews and the submission of any initial deliverable(s) OR prior to submission of the initial deliverables if there questions from the consultant to AKF/AKDN that need to be addressed beforehand. This meeting is an opportunity for the consultant to share initial feedback and progress against the TOR and potentially draft deliverables, to propose revisions to the agenda/scope, to adapt / refine the agenda or deliverables and questions (to be jointly agreed with AKF) based on the initial analysis and work, and discuss and resolve any other questions or issues that arise. III. Debrief discussion, with AKF/AKDN in person and remotely, to discuss the final submitted deliverables and proposed next steps. This is an opportunity for the consultant to share an overview of his/her deliverables and conclusions from the analysis, and to clarify any issues or limitations, as well as for AKF/AKDN to ask questions and provide feedback on the deliverables and/or request any amendments / additions / changes in line with the TOR. The consultants or AKF/AKDN can / should (as this is regarded as an iterative and interactive process) at any time propose and arrange a check-in call, Skype or in person meeting during the assignment, as needed to effectively achieve the deliverables and to ensure an interactive process in undertaking this assignment.

8 Qualifications Required The assignment will be awarded to an Afghan legal adviser and or legal firm, with the relevant experience and expertise. Acknowledged law practice in Afghanistan, relevant knowledge of and proven experience practicing Afghan law and understanding of the relevant regulations (in particular company law, contract law, tax law, public law, procurement law, regulations affecting financial investments (local and foreign), and any other requirements of public authorities) are required. Further, desired experience in designing and setting-up local investment vehicles in Afghanistan and advising on foreign investments in local enterprises. Deliverables To achieve the objectives, the following deliverables are required from the legal advisor, which will be undertaken in sequence with the first completed and formally approved by AKF before the following one is initiated. They include: a) Memorandum Outline, the structure of the Memorandum will be proposed by the legal advisor and approved by AKF before the assignment starts. AKF will favour a succinct analysis and assessment, highlighting the most salient/key issues and considerations, which we can easily understand and assess. b) Draft Memorandum clarifying and provide an assessment of the legal, tax and regulatory questions (and issues and considerations) that are important/critical in order to successfully design and set-up the EDP (lux) Fund, to enable it to make investment in Pakistan (as outlined in this document), including those questions outlined in Section 3 of this TOR. The assessment and analysis should be provided in a Memorandum, c) Debrief discussion, with senior AKDN management, to share an overview of the deliverables and conclusions from the analysis, and to clarify any issues or limitations, as well as for AKDN management to ask questions and provide feedback on the deliverables and/or request any amendments / additions / changes in line with the TOR. d) Final Memorandum, clarifying questions, further analysis, gaps and issues arising from the review of draft Memorandum and mid-phase check in, and refine and update the draft Memorandum. Work location(s) The consultant will be based in Kabul or other Afghan domicile of their employment. Travel is not required. Schedule (including number assignment days in Afghanistan, total assignment days, total payable days) Tasks # of Days (Estimated/Suggested) Pre-assignment consultations 1 Preparation of the draft Memorandum 14 Mid-phase check-in 1 Finalization of the Memorandum 4 Debrief discussion and follow up 3 TOTAL LOE 23

9 Application: Applicants meeting the above requirements are requested to submit a cover letter along with their CV and the names of three references electronically to Jobs.afghanistan@akdn.org no later than May or submit hard copy to AKF, National Programme Office House No 41 Street No. 2, Qala-e-Fatullah, Kabul, Afghanistan Important Notes: Please quote the Vacancy Number as the Subject of the when sending your application. Supporting documents, e.g. diplomas, recommendation letters, identification card(s) etc., are not required at this stage, therefore not to be sent along with the application. Only short listed candidates will be contacted for further assessment. Aga Khan Foundation Afghanistan is an equal opportunities employer. Women are encouraged to apply. Aga Khan Foundation Afghanistan recruitment and selection procedures reflect our commitment to the safeguarding of children from abuse.