Singapore-headquartered asset manager EFA Group has launched a $100-million fund to provide credit to banks and financial institutions in developing and emerging economies of Asia and Eastern Europe.
The vehicle, called the EFA Financial Institutions Debt Fund, will provide short and mid-term financing to financial institutions and provide investors with access to rapidly expanding financial sectors in the regions, EFA said in an announcement on Monday.
The investment strategy aims to deliver superior risk-adjusted returns on the back of low default rates of targeted financial institutions and their attractively priced debt.
One of the fund’s early investee firms will be JSC MFO Crystal, the largest microfinance organization in Georgia serving more than 77,000 clients made up primarily of microentrepreneurs and farmers. The fund will provide a senior loan agreement to MFO Crystal that will use the financing to provide credit to micro and small enterprises.
“In these (developing) markets, strong GDP growth, shallow local capital markets and limited access to international markets means there is more demand for credit than is available locally,” the asset manager noted. EFA is capitalizing on its credit expertise in direct lending in Asia.
EFA’s Kashama Pascal Nyangombe, who will manage the fund, noted, “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 lower investment grade ratings elsewhere in the world.”
The credit fund is targeting a net return of 10-12 per cent per annum using leverage.
Kashama has over 18 years of financial services experience, including in emerging and frontier markets. He headed Corporate and SME banking units at leading African banks and previously was a Director at UBS.
EFA Group provides alternative financing solutions to enterprises in Asia, Middle East, Europe and Africa and currently has over $1 billion of assets under management. The firm is regulated by the Monetary Authority of Singapore and Dubai Financial Services Authority under EuroFin Investments Pte Ltd.