agf overview - february 2016

Growing Africa, One great idea at a time.

2 AGF OVERVIEW

CONTENT

What is AGF?

I. ROLE OF AGF

II. LEGAL STRUCTURE &

GOVERNANCE

II. AGF FIVE PILLARS

IV. FINANCIAL MODEL

V. ACHIEVEMENTS

3 AGF OVERVIEW

https://www.youtube.com/watch?v=eV9CjHbKb8g

THE MISSING LINK TO SMEs FINANCING

https://www.youtube.com/watch?v=eV9CjHbKb8g

4 AGF OVERVIEW

AGF credit

guarantees enable

financial

institutions to

finance SMEs for

developmentally

important projects

by reducing the

risks to doing so.

5 AGF OVERVIEW

ROLE OF AGF Importance of SMEs in Africa

SMEs make up approx. 81%

of Africa’s (registered) private

sector firms.

SMEs contribute to over 50%

of new jobs creation.

SMEs contribute to only 20% of

the GDP (40-60% in the EU and

the US).

The SMEs are the drivers of:

Job Creation + Economic Growth + Poverty Reduction

6 AGF OVERVIEW

Main obstacles to finance access Constraints to Growth

of SMEs in Africa

Regulatory environment

Access to markets

Infrastructure

Access to finance

ROLE OF AGF

7 AGF OVERVIEW

ROLE OF AGF

8 AGF OVERVIEW

A blended

instrument

to catalyse

Africa

sustainable

growth.

9 AGF OVERVIEW

LEGAL STRUCTURE

• Limited liability company – non-bank financial institution;

• Incorporation in Mauritius under Company Law, with

Global Business License (type 1);

• Governance structure including:

o Annual Meeting & Shareholders approvals

o Board of Directors (BoD); o BoD appointing board committees and CEO;

• CEO and staff based in Kenya and Togo.

10 AGF OVERVIEW

• Three risk tranches and shareholding:

o Junior/first-risk shares: Bilateral donors through grants;

o Mezzanine: DFIs;

o Senior: Private social and commercial investors

• Junior and mezzanine tranches always in absolute majority.

CAPITAL STRUCTURE

11 AGF OVERVIEW

Class A (Senior)

Class B (Mezzanine)

Class C (Junior)

First loss

Blending

Mechanism

The highest risk tranche is the first loss tranche that absorbs initial

losses, limiting the losses of other investors, thereby enhancing their

credit worthiness and improving the financial profile of their equity

investment.

• Different obligations, but same rights

Private

Sector

CAPITAL STRUCTURE

12 AGF OVERVIEW

• Capital: USD 80,5 million, of which:

o Denmark: USD 36,5 million;

o Spain: USD 20 million;

o AFD: USD 14 million;

o AfDB: USD 10 million.

• Further capital increases needed to sustain the growth of the business.

CAPITALISATION

13 AGF OVERVIEW

Framework crafted based on best practices to:

o Define the overall relationship between the Board, the

Management, the Shareholder and other stakeholders;

o Describe mechanisms to direct, supervise and monitor

AGF’s operations;

o Ensuring appropriate level of authority, leadership, direction

and control exist;

o Overall objective: ensure appropriate environment is set for

AGF to accomplish its mission.

CORPORATE GOVERNANCE

14 AGF OVERVIEW

The following Board Committees are created:

o The Investment/Guarantee Committee;

o The Treasury Management Committee;

o The Audit Committee.

o The Capacity Development Committee;

o The Human Resource Committee.

CORPORATE GOVERNANCE

15 AGF OVERVIEW

16 AGF OVERVIEW

AGF FIVE PILLARS

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AGF’s products help to:

PILLAR 1– PRODUCTS

Diversify the

source of

financing

Deal with the insufficient

shareholders fund of

SMEs

Strengthen the

management of SMEs

Help the banking

system to mobilize

long term funding

Provide solid and

liquid guarantee

18 AGF OVERVIEW

Loan Guarantees

Portfolio or individual guarantees

Support long term business loans

Support acquisition of equipment

Support working capital facilities


19 AGF OVERVIEW

Bank Fund Raising Guarantees

Address regulatory requirements of Banks' limited use of

short-term resources to finance medium and long-term

facilities;

Enable Banks to mobilize long-term saving to finance

SMEs ;

Enable banks to issue bonds to raise long-term

resources to finance SMEs.


20 AGF OVERVIEW

Equity Guarantees

Guarantee equity or mezzanine financing to

SMEs;

Counter or direct guarantees to intermediaries

providing equity to SMEs.


21 AGF OVERVIEW

Pricing Model

o A risk-based pricing;

o Not too high to discourage borrowers;

o Acceptable level to cover operational costs;

o Periodically adjusted based on the quality of the portfolio.


22 AGF OVERVIEW

Common Features of AGF Guarantees

o Fees o Origination Fee;

o Utilization Fee;

o Commitment Fee.

o Tenor: up to 8 years;

o Coverage: up to 75%;

o Size o Individual Guarantee: up to USD 1 million;

o Loan Portfolio Guarantee: up to 25% of AGF Capital;

o Bank Fund Raising Guarantee: up to USD 5 million;

o Equity Guarantee: up to USD 1 million.

o Monitoring: quarterly reporting on the portfolio performance.


23 AGF OVERVIEW

Financial Institutions SMEs

Objectives Assist FI to improve their SMEs capabilities Assist SMEs to improve their management capacity

Examples Product development Business strategy

Risk management procedures Financial management

Risk management tools Governance & Compliance

Portfolio monitoring tools Reporting standards

Environmental issues

Principles

Objectives

Ensure local ownership of the capacity development effort;

Promote good governance and social and environmental standards;

Robust procurement process to select service providers.

PILLAR 2 – CAPACITY DEVELOPMENT

24 AGF OVERVIEW

Robust Risk Management to reduce exposure to default

o A systematic Risk Assessment

Partner selection process;

Scoring process;

Pricing methodology.

o Portfolio Diversification

Region limit & Country limit;

Sector limit & Single borrower limit;

Partner lending institution limit;

Product limit & Coverage limit.

o Frequent Portfolio Monitoring & Reporting

Monitoring plans (Reporting frequency & Bank visits);

Qualifying Loan Schedules (QLS);

Portfolio-at-Risk Analysis.

o Social & Environmental Responsibility

Sectors and activities excluded;

Equator Principles;

Industry-Specific Environmental, Health and Safety (EHS) Guidelines.

PILLAR 3 – RISK MANAGEMENT

25 AGF OVERVIEW

Partner Selection Process

AGF identifies and selects partners based on a set of criteria, including (but not limited to):

o Demonstrated interest in expanding services to SMEs,

o Geographical reach, and

o Overall fit with AGF’s portfolio strategy.

Strategic Planning Partner Generation Pipeline of Partners

Define Portfolio Objectives

Network, Referrals & Research

Origination Transaction DD StructuringOutreach Contact Review Memo Close

Identify Potential Financial

InstitutionPartners

fit with overall AGF portfolio in

terms of diversification

and risk

Due diligence of Partners

demonstrated commitment

to SMEs

Approval

Renewal

Finalize Structure

Agreement

Monitoring Servicing

Partner

Track


26 AGF OVERVIEW

Claims Management Process


The Guaranteed Party shall make a claim with respect to a Qualifying Facility by submitting to AGF a

claims form in prescribed format for each such Qualifying Facility;

AGF communicates its decision (approval or denial) of any claim within Seven (7) Days of receipt of the

claim;

Upon approval of a claim for payment by AGF, AGF pays to the Guaranteed Party the approved amount of

the claim in the currency of guarantee payment specified in the guarantee agreement, as follows:

o 50% of the covered & approved principal amount outstanding within fourteen (14) days from the date a claim is approved

by AGF; and

o 50% of the covered and approved principal amount outstanding within fourteen (14) days of receipt by AGF of a notice of

exhaustion of available remedies and procedures to recover the principal amount outstanding from the defaulting

borrower.

27 AGF OVERVIEW

Liquidity Management & Investment Management

Objectives

Policy & Principles

o Ensure necessary access to liquidity at

all time to settle AGF obligations.

o Earn the maximum risk-adjusted return

on AGF capital.

o Counterparty credit risk : BBB and above, with at least 54% invested in AA and above;

o Market risk : Immediate reporting to the Board of Directors, if the annual standard deviation of the

investment portfolio exceed 5%;

o Liquidity risk : No more than five trading days to liquidate a security;

o Concentration risk: Single obligor limit (maximum 10% of the investment portfolio);

o Currency risk : Investment portfolio should aim to mitigate currency risk arising from the guarantees;

o Monitoring : Quarterly review of the financial investments by the Treasury Management Committee.

PILLAR 4 – TREASURY MANAGEMENT

28 AGF OVERVIEW

AGF

theory of

Change

29 AGF OVERVIEW

If AGF mobilized

sufficient…………

…partner with

Banks/Financial

Institutions to….

…..this would lead

to……..

…which in turn

leads to………

…..and this will

contribute to

the…..

Extend

Financial

Guarantees &

Capacity

Development

to PFIs &

SMEs

Increased

SMEs Access

to financial

guarantees

Resources

(Financial,

Human,

Material & CD

Grants)

National

Economic

growth &

poverty

reduction in

target

countries

Increased

Job creation

Increased

Return on

investments for

SMEs

Enhanced

productivity

INPUTS OUTPUTS

INTERMEDIATE

OUTCOMES

HIGH LEVEL

OUTCOMES IMPACTS

PILLAR 5 – IMPACT MEASUREMENT

30 AGF OVERVIEW


M&E Framework: Guarantee Products

M&E Levels

Main Indicator

Specific Indicators

How the Indicators will be collected

Source Documents

Frequency

Output Increased financing

(Loans/Equity) available to SMEs

1. Number of PFIs benefiting from AGF facilities AGF Internal Reports AGF Database Quarterly

2. Additional loans disbursed to SMEs by PFIs benefiting from AGF facilities

Quarterly reports from PFIs

Quarterly Loan Schedules (QLS)

Quarterly

Additional loans provided by PFIs to Women-owned SMEs

Surveys Surveys Annually

Additional loans provided by PFIs to youth-owned SMEs


3. Overall volume of loans disbursed to SMEs by PFIs benefiting from AGF facilities

Reports from PFIs PFIs Report Semi/Annually

4. Breakdown of SME loan portfolio by sector Reports from PFIs PFIs Report Semi/Annually

5. Number of SMEs benefiting from AGF facilities



Quarterly

No. of SMEs owned by women Surveys Surveys Annually

No. of SMEs owned by Youth (age bracket 15-24)


Input Volume of guarantees

issued

1. Loan Guarantees AGF Internal Reports Financial Statements

Quarterly

2. Equity Guarantees AGF Internal Reports Financial Statements

Quarterly

3. Bank Fund Raising Guarantee AGF Internal Reports Financial Statements

Quarterly

31 AGF OVERVIEW


M&E Framework: Guarantee Products M&E

Levels Main

Indicator Specific

Indicators How the Indicators

will be collected Source

Documents Frequency

Impact

Lasting effect on the landscape of financial markets and products

1. Average tenor of loans to SMEs in countries where AGF operates

Survey Surveys Every 3 years

2. Average cost of loans to SMEs in countries where AGF operates


3. Collateral requirements in countries where AGF operates


Expansion of resources available for SME

financing

4. Share of loan amounts allocated to SMEs by PFIs in countries where AGF operates


5. Local capital raised in countries where AGF operates


Outcome

PFIs behavioral changes induced by AGF facilities

1. Average tenor of loans under AGF Guarantee Quarterly reports from PFIs


Quarterly

2. Number of loans under AGF Guarantee granted to first time SME borrowers



Quarterly

Growth of SMEs benefiting from AGF

facilities

1. Incremental revenue created by SMEs benefiting from AGF facilities

Reports from PFIs


Survey

Quarterly

Annually

2. Number of jobs supported by SMEs under AGF Guarantees

Reports from PFIs


Survey

Quarterly

Annually No. of jobs supported among women Surveys Surveys Annually

No. of jobs supported among the youth (age bracket 15-24)


32 AGF OVERVIEW


M&E Framework: Capacity Development

M&E Levels

Main Indicator

Specific Indicators

How the Indicators

will be collected

Source Documents

Frequency

Output

Capacity of PFIs strengthened through well-targeted Capacity Development Initiatives.

1. Number of PFIs benefiting from AGF Capacity Development Initiatives.

AGF's CD Team AGF's CD Team Reports

Quarterly

2. Number of trainings supported CD Providers CD Providers Reports

Quarterly

3. Number of PFIs employees trained CD Providers CD Providers Reports

Quarterly

4. Number & Value of systems co-financed AGF's CD Team AGF's CD Team Reports

Quarterly

Assisting Business Development Support (BDS) services firms, enhance their capacity to assist

SMEs improve their business management skills such as governance, general management,

financial management and marketing.

5. Number of BDS benefiting from AGF Capacity Development Initiatives.

AGF's CD Team AGF's CD Team Reports

Quarterly

6. Number of trainings supported AGF's CD Team AGF's CD Team Reports

Quarterly

Assisting SMEs enhance their business managerial capabilities.

7. Number of SMEs benefiting from AGF Capacity Development Initiatives.

CD Providers CD Providers Reports

Quarterly

8. Number of SME trained owned by Women CD Providers CD Providers Reports

Quarterly

9. Number of SME trained owned by Youth (age bracket 15-24)

CD Providers CD Providers Reports

Quarterly

10. Number of trainings supported CD Providers CD Providers Reports

Quarterly

Input Capacity development (CD) initiatives for the

benefits of AGF's partners

1. Value of CD programs in favor of PFIs AGF Internal Reports

Financial Statements

Quarterly

2. Value of CD assistance to Business Development Support (BDS) services firms

AGF Internal Reports


Quarterly

3. Value of CD assistance to SMEs AGF Internal Reports


Quarterly

33 AGF OVERVIEW


M&E Framework: Capacity Development

M&E Levels

Main Indicator

Specific Indicators

How the Indicators will be collected

Source Documents

Frequency

Impact Expansion of resources

available for SME financing

1. Share of loan amounts allocated to SMEs by PFIs in countries where AGF operates

Survey Surveys Annually

2. Local capital raised in countries where AGF operates

Survey Surveys Annually

Outcome Improved managerial

practices

1. % of non-performing loans (NPLs) for the trained SMEs

AGF Internal Reports AGF Database Quarterly

2. Incremental revenue created by SMEs benefiting from AGF facilities


3. % of non-performing loans (NPLs) for the trained PFIs

Reports from PFIs


Survey

Quarterly

Annually

4. % of non-performing loans (NPLs) for the trained PFIs

Reports from PFIs


Survey

Quarterly

Annually

5. Volume of guaranteed loans disbursed to SMEs by PFIs benefiting from AGF CD Initiatives


34 AGF OVERVIEW

Placing sustainability

at the heart of all

decisions.

35 AGF OVERVIEW

Operating Sustainability

Credit Sustainability

Treasury Income + Origination Income ≥ Operating Expenses + Return on Equity

Utilization Income ≥ Cost of Credit

FINANCIAL MODEL

36 AGF OVERVIEW

Financial &

Development as

indicators of

success.

37 AGF OVERVIEW

Active in 35 countries in Africa

ACHIEVEMENTS

38 AGF OVERVIEW

USD 210 million of guarantees signed

=> Up to USD 450 million of finance available for the SMEs.

850 SMEs Impacted & Estimated 5,200 Additional Jobs Created

Agriculture

Agro

industry Telecommunication

Transport

Building and

construction

Tourism

Trade Energy

ACHIEVEMENTS

39 AGF OVERVIEW

Deals Signed with 62 Partner Financial Institutions

ACHIEVEMENTS

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3 Re-guarantee Partners

2 Strategic Partners (to catalyze SMEs financial inclusion)

ACHIEVEMENTS

41 AGF OVERVIEW

3 Awards

1 Annual Continental Event

o Financial Inclusion Award by The African Banker

o Best Financial Institution for SMEs Award by The International Finance

o World Finance 100 Award by The World Finance

To praise

o The best SMEs in Africa

o And the Best SME Financial Institutions

ACHIEVEMENTS

42 AGF OVERVIEW

THANK YOU