ENCLUDE, formerly doing business as ShoreBank International and Triodos Facet, working through the Chemonics Financial Sector Program and the United States Agency for International development (USAID), in partnership with Cadiz Asset Management, yesterday launched the Cadiz Protected High Impact Fund, aimed at creating tens of thousands of jobs in the next eight years by increasing access to finance to SMEs. The launch event was held in Johannesburg.
USAID is providing a risk-sharing agreement for Cadiz to raise over R1 billion ($150 million) of South African private capital for the Protected High Impact Fund, fulfilling one of the deliverables announced by U.S. Secretary of State Hillary Clinton as part of the USG-South Africa Strategic Dialogue in her August 2012 visit.
The USAID development credit guarantee program allows USAID to risk-share with investors, banks, and financial institutions to mitigate risks and mobilize private capital, debt financing, to underserved markets or sectors that are perceived as higher risk. The USAID risk-sharing guarantee has the full-faith of the USG, and compared to our grant funding activities, it has a relatively lower cost for the USG and significant leverage potential by aiming to move and place local private capital to work.
SMEs are the backbone of economic activity, and the financing gap for SMEs limits growth and opportunity. As a result, the generation of private-sector led jobs that comes from these SMEs is limited if they lack the financing to grow. By mobilizing private capital to support intermediaries that are lending to SMEs, the USAID-Cadiz partnership is directly addressing this constraint.
The US Deputy Chief of Mission, Virginia Palmer said “The Cadiz Protected High Impact Fund is an example of a private-sector led solution to tackle one of South Africa’s most pressing priorities: job creation. It is also an example of how the U.S. government (USG) can work with the South African private sector to help advance the development goals of the government of South Africa.”
Cadiz CEO, Frank Cadiz said “Cadiz Asset Management is strategically committed to promoting and supporting socially responsible investing in South Africa. The USAID partnership enables Cadiz to access pools of capital that to date were unavailable previously due to the perceived level of risk in this area of investing. The fear of capital loss has been one of the factors limiting capital rising historically, and the mitigation of risk through the introduction of the USAID guarantee will explicitly remove one of the hurdles preventing capital allocation in this area”.
A Waste Management Company is one of the earliest clients getting debt financing from the Cadiz fund. With more than 12 years of experience, the company manages and mentors more than 50 small enterprises that in turn employ up to 700 workers. In addition to directly generating jobs in an innovative business model, the company also delivers concrete environmental impact by improving waste collection.