African Rivers Fund III

Equity : September 2020

The SDG Frontier Fund has invested EUR 1.5 M in equity in the African Rivers Fund III, an SME fund which invests in small and medium-sized enterprises in Central and Eastern Africa.

This is an investment by SDG Frontier Fund

Amount

€ 1,500,000.00

Type of investment

Equity

Development impacts

Local economic growth
Private sector consolidation/innovation
Promotion of ESG best practices

Beneficiary locations

Sub-Saharan Africa: Democratic Republic of Congo, Uganda

Investment field

Investment Companies & Funds

Activity

SME Fund

Organisation

African Rivers Fund III

Website

https://xsmlcapital.com/

More investments in

African Rivers Fund III

Equity € 6,113,520.00 (2020)

Other investments by

SDG Frontier Fund

Excelsior Capital Vietnam Private Equity Fund (Equity) € 2,000,000.00 (2020)
South Asia Growth Fund II (Equity) € 2,000,000.00 (2020)

ARF III is XSML’s third fund under management, after its maiden fund the Central Africa SME Fund (CASF) and its second fund, African Rivers Fund (ARF), bringing total assets under management to USD 120 million.

ARF III targets growing, well-managed small and medium-sized enterprises (SMEs) in the Central African region covering Angola, the Democratic Republic of Congo (DRC), Uganda and the Republic of Congo and surrounding countries. The fund is named after the two most powerful rivers in Africa, the Congo and Nile Rivers, which embody the potential of the Central and East African region. ARF III follows the successful investment strategy of its predecessor funds, CASF and ARF, by providing debt, equity and mezzanine finance to fast-growing companies in these regions.

The private sector in DR Congo and Uganda, our core markets, as well as Angola, our new third home market, has tremendous growth potential and long-term capital remains scarce.

Jarl Heijstee, Managing Partner at XSML

For this first close, BIO (Belgium Investment Company for Developing Countries), the Dutch Good Growth Fund (DGGF, managed by Triple Jump), FMO (the Dutch development bank), IFC (a member of the World Bank Group), which are all existing investors in Fund I and/or II, are joined by Swedfund (Swedish development bank) and the SDG Frontier Fund (which includes nine private and institutional investors from Belgium) - an expansion of the investor base of ARF, which demonstrates their commitment and support for investing in these frontier markets.

Development impacts

Local economic growth
The fund provides long-term finance to SMEs as a combination of debt and equity, with an expected ticket size between $ 250,000 and $ 7.5m and a tenor around 5 years. The fund operates in markets where banks' lending to SMEs is very limited and where only very few private equity funds are active. The fund can help proving the viability of financing SMEs and can help them attract additional finance once they have grown in size and have a proven track record.
Private sector consolidation/innovation
ARF III is one of very few funds active in the target region and the only PE fund with an office in DRC. The fund offers mezzanine finance to SMEs which are largely underserved by local banks and therefore provide flexible, long-term finance that is crucially needed.

XSML is currently one of very few PE funds in Central Africa, and the only one with a presence in DRC, with limited or no competition in most markets. The team has gained experience through 2 predecessor funds and will expand the local presence after the closing of ARF III.

The fund manager will help institutionalizing the portfolio companies in terms of reporting, information systems, financial management and governance. The team has experience in advising SME and will act as a partner in order to improve management and governance at the level of the investee companies. In the previous funds, the manager has helped to build strategic alliances, advised on strategy and business development and has organized trainings at investee companies.
Promotion of ESG best practices
The fund manager has a good E&S management system in place, provides ESG training to all its investment managers and works with several E&S consultants to assess the portfolio companies and to develop E&S action plans.

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