TORONTO, 6 March 2019 - Convergence has awarded a Design Funding grant to Total Impact Capital and Capital Tool Company to pilot the Strengthening Health through Invoice Financing Technology (SHIFT) program in Kenya.
SHIFT is a blended finance solution designed to increase access to finance for healthcare SMEs by allowing pharmaceutical distributors to turn their invoices/accounts receivable into collateral, thereby unlocking longer-term credit for their small and medium-sized enterprise (SME) customers (i.e., pharmacies and clinics). It is the first asset-backed securities transaction in Kenya for healthcare SMEs.
A highly fragmented and inefficient supply chain hampers the distribution of medicines in Kenya. One of the key challenges is a lack of access to finance. The only financing available to the SMEs at the bottom of the supply chain (i.e., clinics and small pharmacies) is credit provided by the pharmaceutical distributors. The terms of this credit are very limited, because the pharmaceutical distributors themselves have difficulty attracting adequate or affordable financing from banks for working capital. This lack of access to capital across the supply chain ultimately means that SMEs struggle to keep their shelves stocked with unexpired and high-quality medicines.
The program securitizes the invoices of distributors under Kenya’s new Asset-Backed Securities (ABS) law to issue investment grade-rated senior notes, in addition to mezzanine notes, in the local capital markets. The approach creates a portfolio of receivables from multiple distributors which reduces default risk. The SHIFT model is supported by an underlying technology that assesses the credit quality of invoices in real-time. The structure will include a reserve, initially capitalized by capital providers that are seeking a strong developmental/social impact and by Total Impact Capital, to achieve the targeted investment grade-rating.
“SHIFT is the kind of blended finance solution that gets us excited. Not only does it aim to strengthen local capital markets and get local institutional investors off the sidelines, but if successful, SHIFT has the potential to be expanded and replicated in other sectors and countries outside of healthcare and Kenya,” says Joan Larrea, CEO of Convergence.
“As Kenya seeks to obtain Universal Healthcare, availability of high-quality medicines across the country will be critical, and smaller pharmacies and clinics can only obtain such medicines if they have access to credit. SHIFT will enable distributors to give them that access,” said John Simon, Founding Partner of Total Impact Capital.
“The SHIFT program operates on Capital Tool Company’s Trefi Platform, which gives the distributors and their customers digital tools to enhance their access to working capital, improve liquidity management, and expand their capacity for growth,” said Filip Deelen, Director of Business Development at Capital Tool Company.
Convergence’s grant will support the team with the structuring, legal, and technology validation work for a pilot in Kenya. SHIFT has received strong interest to date from local distributors, commercial banks and pension funds to participate in a pilot transaction.
ABOUT CONVERGENCE
Convergence is the global network for blended finance. We generate blended finance data, intelligence, and deal flow to increase private sector investment in developing countries. The Government of Canada provided funding for the Design Funding program. Convergence is currently seeking additional funders interested in supporting us to pilot new blended finance vehicles that aim to catalyze private capital at scale for sustainable development.
ABOUT TOTAL IMPACT CAPITAL
TOTAL Impact Capital (Total) is an Impact Investment Firm focused on bringing to market high quality investment products that are financially sound, make the planet a better place, and have the potential to scale significantly. Total focuses on structuring and managing products that address basic human needs, such as health, water, and education, in partnership with implementers on the ground with sterling track records. Total partners are registered representatives of Growth Capital Services, a regulated broker/dealer and member of SIPC and FINRA and is an Exempt Reporting Advisor with FINRA. It has offices in Bethesda, Maryland (near Washington DC) with partners in San Francisco, New York, and Geneva.
ABOUT CAPITAL TOOL COMPANY
Capital Tool Company's (CTC) vision is to enable the financing of MSMEs based on the quality of their goods and services, relieving their limited access to working capital. CTC built, owns and operates a platform for supporting, incentivizing and rewarding good business practices. Use of the platform benefits MSMEs in terms of the ease of the financial fulfillment of doing business, and financiers in terms of lower opex, lower risk, and higher business volumes.
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