Private debt specialist EFA Group has launched a fund with a target of $100 million to provide debt to finance providers in frontier markets.
The EFA Financial Institutions Debt Fund will provide credit to banks and other financial institutions in developing areas of Asia and Eastern Europe.
EFA said strong GDP growth, shallow local capital markets and limited access to international finance markets will provide investment opportunities for the vehicle.
The fund will offer short- and mid-term financing to banks and financial institutions in emerging and developing economies. The firm said it will deliver superior risk-adjusted returns due to low default rates at targeted institutions and attractively priced debt.
The vehicle will be managed by Kashama Pascal Nyangombe, who said: “If you are a well-run bank or solid financial institution operating in a country with a low credit rating, your ability to grow by raising money internationally will be tainted by the sovereign credit rating. This taint is not justified: default rates for such banks and financial institutions are similar to the default rates on institutions enjoying investment grade ratings elsewhere in the world.”
EFA already has experience in direct lending in Asia and will exercise due diligence via analysis of country risks, in-depth reviews of local banking regulations and institution fundamentals to select credits. It aims to achieve a targeted net return of between 10 percent and 12 percent per annum.
The fund has already selected JSC MFO Crystal as an investee firm. The company provides microfinance to entrepreneurs and farmers in Georgia and will receive a senior loan agreement from EFA Financial Institutions Debt Fund to provide credit for micro and small enterprises in the country.