FMO to invest US$10m in African Rivers Fund III for SMEs

AFRICA – Dutch development financer, FMO, has indicated it is considering a US$10 million investment in private equity fund manager XSML’s third African Rivers Fund III.

African Rivers Fund (ARF) invests in small and medium-sized enterprises (SMEs) in Central and Eastern Africa.

XSML was founded by two former FMO employees, Jarl Heijstee and Marcel Posthuma. It manages two private equity funds in Central Africa: the Central Africa SME Fund (CASF) and African Rivers Fund I (ARF I). 

Both CASF and ARF I are high-impact funds that provide scarce capital to SMEs in frontier markets, and FMO has invested in both. XSML is currently raising its third fund, African Rivers Fund III.

XSML is raising ARF III to build on the successful strategy of CASF and ARF I, with the Fund to employ a mixed mezzanine and equity investment approach to build a diversified portfolio of SME investments. 

ARF III will target a portfolio of some 35-45 investees with target ticket sizes ranging between US$0.25m and US$7.5m. Core target countries include Angola, the Democratic Republic of the Congo and Uganda.

The investment in ARF III aligns strongly with FMO’s strategy to deepen relationships with existing partners and generate a higher impact portfolio. 

SME financing is incredibly scarce in the regions where the Fund will operate, and by investing in the Fund FMO will help empower local entrepreneurs and prove itself a valuable partner for investing in local prosperity.

The environmental and social categorization (E&S) categorization of ARF III is based on the pipeline and on XSML’s strategy. 

XSML has shown a solid commitment towards E&S and has a strong environmental and social management system in place as well as E&S coordinators in place in its local offices in DRC and Uganda. 

During its investment process, XSML undertakes rigorous Environmental, Social, and Governance (ESG) due diligence and enhance risk mitigation through an action plan aligned with the IFC Environmental and Social Performance Standards.

The African Rivers Fund had its first close in February 2016 at US$50 million with the objective to provide risk capital to about 25 companies with an investment size in the range of US$250 000 to max USD 5 million.  

As per Q1 2019, about 85% of ARF’s capital is invested in 26 portfolio companies, spanning a range of sectors.

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