CDC may launch African debt funds

The UK government's development-focused fund of funds is talking to two Southern African banks about the creation of debt funds to help private businesses in the region, says chief executive Richard Laing.

CDC Group, which has historically made most of its commitments to private equity funds in developing markets, is in “early stage” talks with the fund management arms of two Sub-Saharan African banks to create debt funds that would plug the financing gap for small- and medium-sized businesses in the region, said CDC chief executive Richard Laing.

Richard Laing

In an interview this morning, he declined to name the institutions but said they both represented “established banking networks” in the region.

“There is a shortage of debt in Sub-Saharan Africa for private businesses,” said Laing, adding that the logical managers for funds providing credit to private businesses would be banks, “who have the network and distribution capabilities to deploy the debt”.

Development-focused CDC does have some existing exposure to debt funds, including mezzanine vehicles such as Kendall Court Mezzanine (Asia) Bristol Fund in Southeast Asia and Vantage Mezzanine Fund in South Africa, but this is set to increase, said Laing.

“Because of our refocusing on South Asia and Sub-Saharan Africa,” he said, “we will be increasing our allocation to all asset classes. We will see an absolute increase in the amounts committed to growth finance, microfinance and debt.”

The group's commitment levels to private equity funds will not be reduced as a result, said Laing.

CDC is now in the process of adding more professionals to its team with experience in debt investing, having hired Hiti Singh, formerly a senior manager within Morgan Stanley's microfinance institutions group, last year.