John Simon: Opportunities beckon for private debt investors in Africa

The founding partner of Total Impact Capital says that for those looking for impact, the region's market is strong and largely untapped.

John Simon

Working with NGOs on the ground, Total Impact Capital has established vehicles to channel investment into small businesses providing basic services – including healthcare providers in Africa – that are otherwise unable to access capital. John Simon, founding partner, explains its trailblazing approach.

What’s the strategy behind your business model?

We’re impact-first investors. We look for things that have high impact and then we want to have a financing mechanism that is sustainable, that can attract capital, but isn’t necessarily promising extraordinary returns. Our investors are interested in the impact, and the range in which the returns can fluctuate are not so great as to make them feel they’re giving something up. When euro interest rates are negative and dollar rates are below one percent, we’re offering 3-5 percent. That’s in a risky environment, but it’s still a pretty good spread above the riskless rate.

How would you describe the market for private debt in Africa?

For investors looking for impact through private debt, I think the market is strong and largely untapped. There’s a large opportunity to scale up. But the opportunity to issue private debt in local capital markets is very thin. The idea of putting your money into a company-issued bond is a very new thing for most African markets. You have a private debt market that’s the opposite of robust, but then you have players around the edges trying to provide services that the commercial institutions don’t really provide. That’s why there’s a great opportunity for impact private debt. An impact vehicle has a very strong market to play in.

What criteria do you use in deciding whether to provide loans?

Our model is somewhat unique. We work largely in partnership with NGOs on the ground that work with small-scale enterprises that need access to credit. Working in partnership with those folks on the ground gives us a lot of confidence in the underlying credit we’re providing.

“An impact vehicle has a very strong market to play in”

For instance, in Africa we helped create the Medical Credit Fund, which provides financing to health SME enterprises. The Medical Credit Fund, until covid, had NPLs of about 3 percent. The reason they had such low NPLs is because they worked in partnership with an NGO that could help make sure they were going to utilise the funds in a sound way.

How has covid-19 affected your portfolio in Africa?

People don’t want to go to a health facility where they might run into somebody who’s sick and catch covid. We’ve begun to recover as lockdowns have eased and the disastrous predictions haven’t occurred, but covid has been brutal for the portfolio we have in Africa. We’ve had to do a lot of restructurings.

The other impact of covid, in our case, has been a flood of covid-relief resources that we’ve been able to use to help address these issues. We’ve been well-supported by our development finance institution partners with our facility. They’re interested in making sure that if we need help, we have it. One consequence of covid is a lot more of the type of blended capital resource that’s needed to make the type of model that we do work. That’s been a counterweight to the challenges that covid creates for borrowers.