Africa’s small and medium-sized enterprises (SMEs) signify one of many largest untapped funding frontiers globally, with funding gaps persevering with to constrain companies that drive jobs and financial exercise throughout the continent.
On this interview with BusinessTimes, TLG Capital founder Zain Latif outlines why they see the SME section as a trillion-dollar alternative and the way versatile non-public credit score is rising as a important financing software in markets the place conventional lending stays restricted.
The agency, which has deployed greater than $250 million throughout African markets, says its technique focuses on refinancing costly debt and offering progress capital to viable firms that battle to entry reasonably priced funding.
With rates of interest in some markets exceeding 30%, many companies face capital prices that stifle enlargement, making structured financing options more and more enticing.
Latif additionally highlights Nigeria as a cornerstone of TLG Capital’s portfolio, citing deep banking relationships, energetic capital markets, and coverage momentum supporting innovation. Excerpts:
BusinessTimes: How massive are the market alternatives in Africa, and which sectors do you discover extra enticing for funding and why?
Zain Latif: The SME market is the spine of Africa’s economic system and represents a $1 trillion+ alternative. Regardless of accounting for over 90% of all companies and producing 80% of job alternatives in lots of nations, SMEs face persistent funding challenges. At TLG, we place ourselves as an answer right here.
Though our financing appeals to working capital-intensive companies – we’ve not too long ago invested in agriculture, lending, and manufacturing firms – the truth is that the necessity for capital cuts throughout sectors.
TLG’s focus is on catalytic investments that unlock enlargement, crowd in further capital, and speed up viable African companies of every kind. To this point, we’ve invested $250 million+ throughout the continent and are persevering with to develop, as a result of the demand for our capital is abundantly clear.
BusinessTimes: How lengthy does it take in your agency to put money into an organization, and what normally informs your funding selections? What are your particular funding methods?
Zain Latif: Our technique is backing promising companies with versatile loans that promote progress. To take action, we associate intently with native banks to determine creditworthy firms that want refinancing or enlargement capital. The companies we search for have strong fundamentals and robust management that meet market demand.
All through this course of, TLG is continually aiming to know companions’ wants and construction options round these wants. By remaining attuned to actual market circumstances and leveraging our deep partnerships with native entities, we are able to shut impactful transactions in as little as 10 weeks.
BusinessTimes: What has been the common progress charge of those firms you could have invested in? Has it been constant? It’s also possible to stroll us by way of the challenges that will have hindered a few of the progress plans
Zain Latif: Development isn’t straightforward in illiquid markets with difficult macroeconomic circumstances. However our investments are set as much as assist progress by refinancing crippling debt and offering tangible worth creation.
Throughout markets, we see firms paying capital prices which might be merely incompatible with progress – that may imply 30%+ rates of interest. Our investments alleviate the burden for firms which might be caught in a debt entice. For example, a current refinancing introduced down one borrower’s debt prices from 54% to twenty-eight% of their EBITDA, enabling them to retain extra earnings and reinvest them into the enterprise.
For worth creation, we associate with high-quality technical help suppliers like BDO and Manufacturing Africa, a FCDO-funded and McKinsey-led program aimed toward driving inclusive progress in Africa. Relying on business and enterprise wants, we’re able to facilitate a right-sized stage of operational assist to make sure that firms have what they should thrive. We mix the perfect of British technical assist methods with sturdy industrial returns.
BusinessTimes: What are your exit plans for a few of these firms you could have invested in, if any?
Zain Latif: There’s a clear exit path for each funding. By bringing versatile structuring and operational self-discipline, all offers are designed to place debtors for mortgage reimbursement. We additionally contemplate refinancing pathways that assist firms to graduate to different sources of capital from native banks or institutional buyers.
TLG enhances this technique by attracting co-investor participation into the present portfolio: facilitating secondary transactions on these investments forges new partnerships, and crucially, deepens capital markets in geographies the place liquidity is scarce.
Our strategy has delivered outcomes. For example, we invested in Grace Lake Companions in 2018, offering capital that supported the launch of Moove, a unbelievable enterprise that’s now a world mobility fintech. TLG’s funding helped institutional buyers to hitch Moove’s journey and delivered a powerful return.
Finally, our eyes are on returning onerous {dollars} to our buyers on any and each deal.
BusinessTimes: What’s your present market outlook for the area, and the way will this impression your portfolio?
Zain Latif: TLG has all the time been optimistic about Africa’s progress story: we proceed to see sturdy financial improvement, the advantages of a younger workforce, and burgeoning innovation sectors.
In the present day, what excites us is the bullishness of many world buyers, with extra international {dollars} flowing in throughout high-potential sectors. Now we have little question that this might be an enormous tailwind for our portfolio, in addition to our targets of facilitating main and secondary transactions in African markets.
BusinessTimes: What has been the efficiency of the present portfolio you could have, is it constant along with your expectations?
Zain Latif: An extended-time investor has shared that TLG supplied among the many highest realized returns they’ve seen in Sub-Saharan Africa funds, counting fairness and debt. Though we can’t disclose numbers, we are able to say we’re happy with that.
BusinessTimes: TLG not too long ago closed a US$15 million facility for Kijenge Animal Merchandise in Tanzania. What made this transaction significantly compelling for TLG, and the way does it match into your broader funding thesis in Africa?
Zain Latif: What stands out in regards to the Kijenge Animal Merchandise funding is its scale and setting. At $15 million, this can be a landmark facility in a rustic labeled as a UN Least Developed Nation (LDC) and experiencing a difficult second. It’s a market the place offers of this magnitude are uncommon and transformative.
Kijenge’s agro-processing providers play a important position in regional meals methods, and with Kijenge and CRDB, we had a gaggle of devoted companions that needed to strengthen the corporate’s work. We’re proud that getting this deal throughout the end line honoured TLG’s ethos of discovering progressive capital buildings in frontier markets the place progress issues most.
BusinessTimes: Manufacturing Africa was introduced in as a strategic associate. How important are such technical help programmes in scaling African companies, and do you see comparable alternatives for Nigerian companies?
Zain Latif: For manufacturing companies in Africa, operational effectivity is a prerequisite for scale. Manufacturing Africa supplies complete assist to TLG’s portfolio firms: it advises on governance methods, provide chain optimization, on-site circumstances, and all issues ESG.
It’s been transformative in enabling companies to develop, together with one in every of our Nigerian portfolio firms.
These companies are main regional employers – in some instances, complete communities are constructed round them. That’s why we be sure that our associate firms, in Nigeria and past, have entry to best-in-class technical help from Manufacturing Africa, FCDO, and our different trusted companions.
BusinessTimes: Many SMEs in Africa battle with entry to reasonably priced capital. Out of your expertise, what are the largest obstacles, and the way can structured capital options assist overcome them?
Zain Latif: Sadly, African SMEs carry excessive perceived threat and infrequently have the collateral that banks require. Moreover, banks usually have skinny deposits and funding alternate options in native markets, which they prioritize over SME lending. Taken collectively, we’re left with an unfavorable lending atmosphere and the well-known SME financing hole.
Nonetheless, it’s one which we are able to construction round. Now we have discovered that draw back safety and incentive alignment can bridge that hole between banks and SMEs. With tailor-made options, TLG builds ecosystems that direct versatile capital to the entrepreneurs and companies that deserve it most.
BusinessTimes: Nigeria has a big agricultural base however faces bottlenecks in processing and worth addition. What classes from the Kijenge transaction may very well be utilized to unlock progress in Nigeria’s agro-processing business?
Zain Latif: The Kijenge transaction underscores just a few takeaways for the sector. Firstly, entry to tailor-made financing is important. This deal labored as a result of the mortgage matches Kijenge’s longer-tenor working capital wants, quite than counting on short-term amenities.
Secondly, partnerships are on the coronary heart of unlocking progress: banks, buyers, and technical help suppliers all have key roles to play to scale Kijenge’s enterprise. Lastly, an funding in agro-processing has ripple results. Within the coming months, we’ll see advantages in diet and agriculture throughout Arusha, whereas positioning a neighborhood agribusiness for regional management.
BusinessTimes: How does Nigeria’s funding local weather examine with Tanzania’s, significantly when it comes to regulatory frameworks, entry to native banking companions, and investor confidence?
Zain Latif: Nigeria is a rustic that’s very shut to TLG’s coronary heart – it’s dwelling to 25 of our investments and a few of our deepest relationships. Final 12 months, we additionally launched Nigeria’s first Naira-denominated debt fund, in partnership with FCMB and 19 native pension funds, that lends to sturdy firms throughout important industries.
Its construction harnesses the power and relationships of Nigerian banks whereas mitigating publicity to foreign money volatility, and we’re proud to have funded some unbelievable offers from it.
These milestones are made attainable by a horny ecosystem. We’ve partnered with subtle banks which might be adapting alongside a rapidly evolving monetary panorama. Mix that with deep capital markets and quite a few pro-innovation insurance policies, and it’s no shock that we love working in Nigeria.
Tanzania additionally holds quite a lot of promise for TLG, following the landmark Kijenge deal. Its economic system is rising steadily, and alternatives proceed to current themselves in manufacturing, agriculture, and different promising sectors. We hope to construct on {our relationships} with CRDB Bank and different native entities for a lot of Tanzanian investments to return.
BusinessTimes: TLG has now crossed US$250 million deployed since inception. What sectors or geographies are you prioritising for future investments, and the place does Nigeria match into that roadmap?
Zain Latif: As I mentioned, Nigeria will all the time be a cornerstone of TLG’s portfolio. We proceed to faucet our pipelines in acquainted nations like Nigeria and Kenya; that being mentioned, we’re additionally seeing traction in new markets, and hope to make investments in Guinea, Benin, and Sierra Leone within the coming months.
Although there is no such thing as a specific sectoral focus, we naturally see demand the place there are financing gaps, corresponding to vitality, manufacturing, and agriculture. It’s clear that our mannequin resonates throughout geography and business.
Trying forward, native foreign money credit score is without doubt one of the most promising methods in our roadmap, as evidenced by the FCMB-TLG Personal Debt Fund. Now we have already deployed capital in Nigeria and are actually scaling up this strategy: earlier this month, the SEC authorised Sequence II of the fund as much as N20 billion. It’s a brand new paradigm in African investing.
By backing native foreign money options in home markets, we’re shifting the narrative in direction of sustainable, locally-driven outcomes. Given sturdy assist from home banks and pension funds, we’re targeted on persevering with to construct out this resolution.
BusinessTimes: Africa presents each excessive dangers and excessive rewards. How does TLG stability monetary returns with developmental impression, particularly in fragile or capital-constrained markets?
Zain Latif: The strongest type of impression is sustainable and commercially grounded. Essentially, our mannequin aligns monetary upside with improvement impression by mobilizing non-public capital into underserved sectors in underserved markets…with out compromising on returns.
As we are saying at TLG, if you happen to care for the danger, returns will care for themselves – so we’re laser-focused on draw back safety and risk-sharing mechanisms to safeguard investor capital. That’s the way you crowd buyers into markets the place they’ve traditionally perceived threat.
Nonetheless, we go additional to make sure that impression is embedded inside each deal. We’re guided by strong ESG frameworks that create and defend native jobs, strengthen gender fairness at our portfolio firms, and be sure that debtors are positioned for resilience within the long-term.
BusinessTimes: You talked about empowering native entrepreneurs as a core a part of TLG’s mannequin. What qualities do you search for in African enterprise leaders earlier than committing capital, and the way do you assist them post-investment?
Zain Latif: TLG appears for sturdy enterprise fundamentals, visionary management, and confirmed relationships with native entities. Credit score is about character; working with native banks permits us to know our counterparties’ creditworthiness and monitor file, which is a key piece of our diligence course of.
As soon as the relationship is established, we work with firm management on a variety of wants – whether or not it’s the worth creation work I detailed above, assist with further fundraising, or just thought partnership. We’re a hands-on associate for any and all seasons.
BusinessTimes: Influence buyers usually battle to mobilize industrial co-investment. What sensible proof factors from this deal exhibit that your mannequin can actually “crowd in” 3–10x industrial capital as projected?
Zain Latif: Our current deal in Djibouti is enticing on a number of fronts, all of which assist to crowd in industrial capital. Firstly, it addresses a strategic sector of digital infrastructure, which holds promise for a lot of buyers. It’s a challenge finance deal that comes with excessive progress potential. And crucially, it breaks boundaries in a market like Djibouti, the place many industrial buyers wish to make investments, however lack ample alternatives to take action. TLG’s funding lays the pipes for industrial buyers in a extremely interesting deal.
BusinessTimes: Given Africa receives lower than 1% of worldwide VC funding, what does this construction reveal about why conventional capital markets proceed to underestimate African SMEs?
Zain Latif: Africa nonetheless carries a perceived threat in lots of investing circles. Conventional capital allocators usually depend on outdated, legacy assumptions about what markets are investable, quite than remaining in contact with realities on the bottom. What TLG has demonstrated over the previous few years is easy: you possibly can make investments industrial capital in Africa and get your a reimbursement.
A extra cheap hesitation we see amongst VCs is that exits are difficult in much less liquid markets. We need to spur the answer to that. Not solely does our credit score construction bypass the constraints of a shallower capital market, however we consider that by partnering with banks, bringing in an array of buyers, and constructing sustainable companies, extra funders will see Africa for the chance that it’s.
Be First to Comment