4.5.16. Sidecar Technical Assistance Facilities
Funds used to sponsor technical assistance for investees of one or more investment funds related to a priority geography, sector, or market segment (Source: FinTech Partnerships Playbook).
- Ability of borrowers to provide the details/documentation needed to get a loan
- Appropriate capital to meet borrower needs
- Availability of suitable training for the needs of target sector/region
- Burden of banking/finance regulations and supervision
- Ease / cost of collecting payments
- Quality of accounting and auditing standards and qualified accountants/auditors in target sector/region
- Sufficient understanding of target sector/region and the needs of borrowers in target sector/region to make lending decisions
- Transaction costs associated with originating and managing loans to target sector/region
If investors need to provide TA themselves, it will ultimately lower the returns they can provide as the funds need to come from somewhere. By keeping the TA outside of the fund (i.e. “sidecar”), it has the same effects, but keeps the fund’s activities and finances “cleaner” and this kind of arrangement can often be “cleaner” for USAID too (Source: Mobilizing Finance for Development Training). By providing TA to investees through a sidecar facility, coupled with investment, USAID and/or finance providers can improve the operational performance of businesses in their portfolio.
MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER
Small and Medium Enterprises (SMEs) are generally recognized as key economic drivers in frontier and emerging economies. However, SMEs face significant constraints that need to be resolved if they are to more fully and progressively serve the needs of individuals and national economies. Three challenges in particular are: 1) SMEs have difficulty accessing investment capital for growth; 2) SMEs struggle to adopt and implement best business practices; and 3) Meaningful measurement of social impact is complex and difficult.
Targeting the investee funds and companies that Sarona, a private equity fund of funds, supports, INFRONT provides technical assistance to SMEs and funds through both a grant facility to provide economic incentives to SMEs that want to improve their social (e.g. gender equality, employee health and safety, poverty), environmental sustainability and governance policies and practices; and a mentorship program pairing experienced venture capital and private equity North American managers as mentors with less experienced managers in frontier and emerging markets.
INFRONT leveraged a first loss capital contribution by Global Affairs Canada (GAC), and, as of June 2016, mobilized at least six times more private capital and invested in 16 funds and 79 SMEs in frontier and emerging markets in Africa, Asia and Latin America. In addition, 30 SMEs received technical assistance grant funds on 1:2 matching basis contributing around $ 2 million to improve the sustainability of their operations with a specific focus on environmental, social and governance (ESG) policies and practices. The SME client base experienced a cumulative net increase of approximately 6.5 million clients since Sarona investment. These clients include SME's customers, employees and suppliers. INFRONT partner companies created a number of development outcomes such as reducing poverty by creating more jobs, contributing to local economy, fostering gender equality and promoting environmental sustainability. TA recipient companies alone (n=22) paid more than CAD $ 125 million to domestic suppliers to boost their national economies and strengthen the local supply chain.