Investing for Impact
Investing for Impact
Responsible Investing
Scipion and its senior management team are committed to responsible investing and believe this is essential to long term success.
Working closely with SMEs in emerging markets, Scipion is uniquely placed to identify and bring about meaningful and lasting improvements in the Environmental and Social practices of firms and organisations operating in less economically developed countries, and thereby bring about positive changes in the lives of millions of people.
The firm follows an Environmental, Social and Impact (“ESI”) risk management policy which was established, and is continually updated, with the help of expert and independent partners. The policy is implemented by a committee with representatives from the group’s investment and legal team.
The policy requires that each investment is evaluated individually, monitored for its duration and reviewed at appropriate intervals.
The committee has adopted a sophisticated approach that seeks to manage the implicit trade-offs of ESI investing and bring about tangible and significant improvements in the practices of investee firms, drawing upon expert advice where appropriate.
Scipion Capital is a member of the Global Impact Investing Network (GIIN). The GIIN is the leading non-profit dedicated to increasing the scale and effectiveness of impact investing. Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors’ strategic goals. Our membership signifies a commitment to deepening our engagement in the impact investing industry.
Investment Overview
Scipion provides financing to a maize and wheat milling company in Lusaka, Zambia, who have over ten years’ experience in their chosen market. Their business model is based around producing ‘mealie maize’ which, known as Nshima in Zambia, is the staple food for local consumption and forms a large part of the population’s diet. Over 65% of their produce is grade one quality for human consumption while the rest is syphoned off for cattle feed and other uses. The company constitutes one of the largest milling groups in the region and are regularly making significant investments in new machinery in order to increase production to accommodate market demand and to be able to provide a wider range of products to the marketplace. It is Scipion’s financing which gives them the necessary capital to make these transactions.
Scipion’s investment will allow this milling company to develop their business further by enhancing their production volumes in order to improve food security in Zambia and to gain significant returns for investors. They are increasingly sourcing their maize and wheat from local farmers rather than relying on foreign imports. As well as contributing towards job creation, rural revenues for local famers and having a significant impact in local communities thanks to their broader charity efforts, the company supply free food to local orphanages, maintain a stringent environmentally friendly operating policy and operate with the highest standard of health and safety procedures. On Fridays, free bread and mealy maize is distributed to homeless people. Since Scipion have invested in the business, their workforce has increased by 200% from 25 to 75, wages have increased on an average of 10%, and productivity is estimated to have improved by 25%.
Investment Highlights1
| Investment Type | Senior Secured Trade Finance |
|---|---|
| Structure | Revolving Facility |
| Facility Amount2 | $7,500,000 |
| Sector | Grain Sourcing and Processing |
| Environmental, Social, and Governance Screens | Compliant |
| Impact Objective(s) | Productivity & Competitiveness Improvement; Job Creation; Wage Increase; Capacity Building; Agricultural Productivity; Food Security; Access to Financial Services |
Market Overview
Maize farming is an important industry in Zambia both as an export currency earner and occupation. Annual harvest yields are between 2-3Mt and Zambia is a net exporter, typically selling their produce to the DRC. On average, Zambia consumes 2Mt in its own right, leaving ample amounts to be exported, depending upon harvest yields. Historically, there have occasionally been maize export bans due to bad harvests though this has not been extended to feedstock. Maize prices are seasonal with prices lowest in April – July, just after the harvest has taken place, and they gradually rise as maize becomes more scarce. Flour prices fluctuate in a similar way though the Food Reserve Agency try to maintain consistent prices.
Sustainability Credentials
Zambia’s economy has traditionally been dependent on its rich reserves of copper in the North of the country. However, the Southern African country has significant potential for agricultural cultivation, in fertile but un-used arable land. In some regions of Southern Africa, maize makes up around half of people’s daily calories. In Zambia, 58% of its land is classified as medium-high potential for agri- production, yet only 15% of this land is currently cultivated.
Meanwhile, Zambia enjoys 40% of sub-Saharan water resources, yet there is very little mechanical irrigation, with most farms being dependent on rain-fed growing cycles, making them vulnerable to seasonal changes and droughts. Scipion’s investment has improved yields and will help alleviate poverty by enabling local farmers to fulfil Zambia’s potential.
Investment Overview
Scipion has structured and provided financing to an SME Financier, founded in 1995, that has a growing footprint across South Africa, Botswana, Swaziland and Zambia. SME growth and development is core to economic development in Africa, and the company utilizes its Business Credit services to address the growing demand for small and medium size enterprise (“SME”) funding in Sub-Saharan Africa. The company provides training-tied financing to SMEs across a variety of business sectors that comply with the IFC and European Development Finance Institution exclusion lists. Historically, 93% of SMEs that the company supports had not been able to access formal nor informal credit and 71% of the SME portfolio is owned by Black female vendors. The company’s business model supports its SME clients in securing purchase orders with large corporate businesses,
encouraging these larger businesses to incorporate SMEs into their supply chain and supporting local economic and social development. By sourcing from historically disadvantaged suppliers, such as exempted micro enterprises, qualifying small enterprises, and Black owned and Black women owned vendors, these large corporate businesses are able to improve their Broad Based Black Economic Empowerment scorecard, which provides financial incentives for the company and supports sustainable, equitable development. Alongside financing, the company provides governance, cash flow management, and procurement training and support to its SME clients with the aim of making these businesses more attractive to commercial banks for future financing.
Scipion’s financing will support the expansion of the company’s Business Credit services line, allowing them to finance more SMEs and increasing the opportunity for local SMEs to participate in formal supply chains.
Investment Highlights1
| Investment Type | Senior Secured Trade Finance |
|---|---|
| Structure | Revolving Facility with a 4yr Term |
| Facility Amount2 | $10,000,000 |
| Sector | Micro Finance |
| Impact Objective(s) | Access to Financial Services; Job Creation; Equality & Empowerment; Capacity Building. |
Market Overview
South Africa is classified as an upper-middle income country by the World Bank.1 South Africa is distinguished as the only African member of the G20, an international council for the major economies’ finance ministers and central bank governors to discuss financial and monetary policies, with the goal of promoting world economic development.2 Between 2011 and 2015, annual GDP growth rates averaged approximately 2.14%.1 South Africa’s main exports have traditionally been concentrated in gold, diamonds, platinum, other metals and minerals, and machinery and equipment.3 Conversely, the country’s main imports have been focused in machinery and equipment, chemicals, petroleum products, scientific instruments, and footstuffs.3
South Africa meets Scipion’s country standards for its performance across relevant growth, stability, and access metrics.4 In 2015, it ranked fourth across the Sub-Saharan African region on the World Bank’s Ease of Doing Business index.5 As the second largest economy in Sub-Saharan Africa,6 the country benefitted from the roughly $41 billion in net foreign direct investment that was estimated to have flowed into the region in 2015.7 Sub-Saharan Africa had aggregate estimated GDP growth of 3.0% in 2015.7 Looking ahead, overall regional GDP growth is projected to strengthen to 4.4% by 2018.8 flowed into the Sub-Saharan region in 2015. 9 Sub-Saharan Africa had regional GDP growth of 1.3% in 2016, and is projected to strengthen to 3.5% by 2019.10
Additional Sustainability and Impact Highlights
- The company offers its employees an extensive group life insurance policy that covers employees in the event of a critical illness diagnosis, temporary and permanent disability, and death.
- The company will launch a new stock incentive scheme and pension fund for its employees in 2018.
- A Social and Ethics Committee oversees various policies and procedures that include gender discrimination, sexual harassment, and HIV/AIDS policies.
- Employees are provided with skills development, product training, and compliance training on a regular basis and many employees are required by regulation to stay up to date with the latest legislation.
1) The Investment Highlights section reflects the terms of the facility as of September 30, 2017. 2) The facility amount represents the current amount that is available to the borrower under the agreement. This amount may change over time. 3) This metric is not a measure of Scipion’s investment performance. 4) The collateral coverage ratio is the amount of collateral the borrower must maintain in relation to the total amount outstanding on the facility. 5) The World Bank, World Development Indicators Database, Uganda, 2017. 6) CIA, The World Factbook, 2017: Uganda. 7) Yield Gap: Uganda. 8) There is no assurance that our investment in this company or this market will be successful. 9) The World Bank, Data, Sub-Saharan Africa, 2016. 10) The World Bank, Global Economic Prospects, June 2017.
Responsible Investing
Scipion and its senior management team are committed to responsible investing and believe this is essential to long term success.
Working closely with SMEs in emerging markets, Scipion is uniquely placed to identify and bring about meaningful and lasting improvements in the Environmental and Social practices of firms and organisations operating in less economically developed countries, and thereby bring about positive changes in the lives of millions of people.
The firm follows an Environmental, Social and Impact (“ESI”) risk management policy which was established, and is continually updated, with the help of expert and independent partners. The policy is implemented by a committee with representatives from the group’s investment and legal team.
The policy requires that each investment is evaluated individually, monitored for its duration and reviewed at appropriate intervals.
The committee has adopted a sophisticated approach that seeks to manage the implicit trade-offs of ESI investing and bring about tangible and significant improvements in the practices of investee firms, drawing upon expert advice where appropriate.
Investment Overview
Scipion has provided financing to a grain trading and processing company operating in Uganda whose vision is to feed East Africa sustainable through a regionally-integrated formal system for grain production and exchange that transforms rural lives and creates stakeholder value. Established in 2012, the company sources, processes, and stores maize before selling to off-takers, such as the World Food Programme, across Uganda, Kenya, and Rwanda. The company’s off-takers use the maize to produce products, including nutrient-enriched, therapeutic food, to meet the nutritional demand of the region’s growing population.
To-date in 2017, the company’s produce has provided a years’ worth of low-cost, high-value food for over 600,000 refugees in East Africa. Additionally, the company sources 80% of its maize from smallholder farmers through one of the company’s holdings, which maintains support centers in western and southern Uganda. These support centers drive tremendous social impact for disadvantaged Ugandan communities by offering farmers a location to sell their maize through a reliable process at fair pricing, as well as providing them access to competitively priced and certified agricultural inputs, knowledge, demonstrations, extension services, and loans for working capital. To date, these centers have provided over 45,000 farmers with agricultural finance, markets and/or inputs.
Investment Highlights1
| Investment Type | Senior Secured Trade Finance |
|---|---|
| Structure | Revolving Facility |
| Facility Amount2 | $7,500,000 |
| Sector | Grain Sourcing and Processing |
| Environmental, Social, and Governance Screens | Compliant |
| Impact Objective(s) | Productivity & Competitiveness Improvement; Job Creation; Wage Increase; Capacity Building; Agricultural Productivity; Food Security; Access to Financial Services |
Market Overview
Uganda is classified as a low income country by the World Bank.5 Between 2010 and 2016, GDP growth rates averaged approximately 5.3%.5 The country’s economy is primarily service- and agriculture-based, with the agriculture industry employing one third of the workforce.6 Maize is a staple food crop in Uganda, and over 90% of it is produced by smallholder farmers.7 Uganda’s main exports are concentrated in coffee, fish and fish products, tea, cotton, flowers, horticultural products, and gold.6 Conversely, the country’s main imports are focused in capital equipment, vehicles, petroleum, medical supplies, and cereals.6
Uganda meetsScipion’s country standards for its performance across relevant growth, stability, and access metrics.8 As the eleventh largest economy in Sub-Saharan Africa with a GDP of $25.5 billion, the country benefitted from an estimated $44.4 billion in net foreign direct investment that flowed into the Sub-Saharan region in 2015. 9 Sub-Saharan Africa had regional GDP growth of 1.3% in 2016, and is projected to strengthen to 3.5% by 2019.10
Additional Sustainability and Impact Highlights
- The company’s staff, local farmers, village agents, and external organizations are trained on agronomic topics including land management and preparation, seed selection and responsible herbicide/fertilizer use, post-harvest handling and storage, Good Agricultural Practices standards, grain quality analysis and management, farm business planning, and marketing procedures.
- The financial services available to farmers include loans for in-kind products, such as agricultural inputs, in addition to loans for working capital. All loans are offered through a local bank partnership. The local bank utilizes the company’s ability to track the smallholder farmer’s output performance over several seasons to determine the farmer’s ability to repay their loan, allowing the bank to offer services to farmers at a much lower rate than commercially available.
- The company was approved by the National Environment Management Authority for its completed environmental impact assessment, ensuring compliance with national environmental and social standards around waste management, occupational health and safety, and community concerns.
1) The Investment Highlights section reflects the terms of the facility as of February 28, 2017. 2) The facility amount represents the current amount that is available to the borrower under the agreement. This amount may change over time. 3) This metric is not a measure of investment performance nor is it necessarily indicative of distributions which may be provided to investors. 4) The collateral coverage ratio is the amount of collateral the borrower must maintain in relation to the total amount outstanding on the facility. 5) The World Bank, World Development Indicators Database, Uganda, 2017. 6) CIA, The World Factbook, 2017: Uganda. 7) Yield Gap: Uganda. 8) There is no assurance that our investment in this company or this market will be successful. 9) The World Bank, Data, Sub-Saharan Africa, 2016. 10) The World Bank, Global Economic Prospects, June 2017.
Additional Sustainability and Impact Highlights
- The company offers its employees an extensive group life insurance policy that covers employees in the event of a critical illness diagnosis, temporary and permanent disability, and death.
- The company will launch a new stock incentive scheme and pension fund for its employees in 2018.
- A Social and Ethics Committee oversees various policies and procedures that include gender discrimination, sexual harassment, and HIV/AIDS policies.
- Employees are provided with skills development, product training, and compliance training on a regular basis and many employees are required by regulation to stay up to date with the latest legislation.
1) The Investment Highlights section reflects the terms of the facility as of September 30, 2017. 2) The facility amount represents the current amount that is available to the borrower under the agreement. This amount may change over time. 3) This metric is not a measure of Scipions investment performance. 4) The collateral coverage ratio is the amount of collateral the borrower must maintain in relation to the total amount outstanding on the facility. 5) The World Bank, World Development Indicators Database, Uganda, 2017. 6) CIA, The World Factbook, 2017: Uganda. 7) Yield Gap: Uganda. 8) There is no assurance that our investment in this company or this market will be successful. 9) The World Bank, Data, Sub-Saharan Africa, 2016. 10) The World Bank, Global Economic Prospects, June 2017.
Investment Highlights1
| Investment Type | Senior Secured Trade Finance |
|---|---|
| Structure | Revolving Facility with a 4yr Term |
| Facility Amount2 | $10,000,000 |
| Sector | Micro Finance |
| Impact Objective(s) | Access to Financial Services; Job Creation; Equality & Empowerment; Capacity Building. |
Market Overview
South Africa is classified as an upper-middle income country by the World Bank.1 South Africa is distinguished as the only African member of the G20, an international council for the major economies’ finance ministers and central bank governors to discuss financial and monetary policies, with the goal of promoting world economic development.2 Between 2011 and 2015, annual GDP growth rates averaged approximately 2.14%.1 South Africa’s main exports have traditionally been concentrated in gold, diamonds, platinum, other metals and minerals, and machinery and equipment.3 Conversely, the country’s main imports have been focused in machinery and equipment, chemicals, petroleum products, scientific instruments, and footstuffs.3
South Africa meets Scipion’s country standards for its performance across relevant growth, stability, and access metrics.4 In 2015, it ranked fourth across the Sub-Saharan African region on the World Bank’s Ease of Doing Business index.5 As the second largest economy in Sub-Saharan Africa,6 the country benefitted from the roughly $41 billion in net foreign direct investment that was estimated to have flowed into the region in 2015.7 Sub-Saharan Africa had aggregate estimated GDP growth of 3.0% in 2015.7 Looking ahead, overall regional GDP growth is projected to strengthen to 4.4% by 2018.8 flowed into the Sub-Saharan region in 2015. 9 Sub-Saharan Africa had regional GDP growth of 1.3% in 2016, and is projected to strengthen to 3.5% by 2019.10