African microfinance investor AfriCap Microfinance has raised $50 million (€34 million), having more than tripled its capital under management from $14 million through a capital increase.
Microfinance provides loans of between $300 to $500 to entrepreneurs in poorer countries and these loans are provided at annual interest rates varying from 15 percent to 50 percent depending on the length of the loan.
The fund has a mandate to invest across all of Africa and the firm has made 12 investments in various countries including Nigeria, Burkina Faso, Senegal, Ghana and Kenya. Existing shareholders such as Canadian charity Calmeadow and the EU body European Investment Bank subscribed to 35 percent of the fund. Development agencies FinFund, NorFund and SwedFund as well as private investors Nordic MicroCap, Blue Orchard Private Equity and the Gray Ghost Fund also committed.
Microfinance is becoming attractive to commercial financial services groups, having traditionally been an industry supported by non-government organisations. The World Bank estimates microfinance initiatives have had compound growth rates of 13 percent worldwide with the initiatives achieving repayment records of up to 97 percent.
Wagame Diouf, managing director of AfriCap Microfinance, said: “The default rate is less than commercial loans because the borrowers value the relationship more. They don’t want to mess the relationship up by not paying as they have no alternatives.” Microfinance is more resilient to an economic downturn than conventional banking in that the borrowers are not involved in the global economy. “These are people who don’t care what the interest rates are as they will continue their business regardless,” he said.