ALPHA Asset Management is set to raise $2 million through an asset-backed bond to provide funding to select microfinance institutions (MFIs).
The bond will be offered by Dolinate Investments, a special purpose vehicle established to facilitate the bond issuance.
The funding would be used to support the growth strategy of
“Increased access to microfinance by individuals, micro and small to medium scale enterprises will accelerate financial inclusion and support economic growth.”
The proposed issue is the first tranche of a $10 million medium-term asset-backed bond programme that may be issued for subscription by investors.
The bond has a coupon (interest) rate of 15% per annum. The coupon payment would be made annually. The tenor of the bond is three-year. The offer opened on Monday and closes on December 5.
The proceeds of the proposed bond issue will be used to discount a select of quality loans receivables from MFIs, thereby assisting them increase credit to individuals and institutions involved in micro and small to medium enterprises.
The bond targets individuals and institutional investors including, but not limited to insurers, pension funds, asset managers and any other financial institution.
The bond is seen as an alternative asset class and its issue “expands the investable market to investors operating in a market with limited financial assets”.
The bond is seen as offering investors “an opportunity to improve the performance of their investment portfolio by including this asset with high returns to their portfolio without assuming primary risk”.
The issuers say the bond will redirect capital to individuals and institutions constrained by limited access to financial services yet they are an integral and significant part of the economy, especially those involved in productive activities.
A recent report by the Reserve Bank of Zimbabwe (RBZ) showed that total loans advanced by MFIs grew by over 80% to $177,76 million as at June 30 from the same period last year due to improved levels of funding in the sector.
In the same period last year, total loans were $97,01 million.
Total assets increased to $214 million during the period under review from $131,96 million in the comparable period last year.
“The growth in total loans reflects improving levels of funding in the sector particularly from institutional shareholders, development oriented donor funders and off-shore funders,” RBZ said in a latest report on the sector.
“The growth in total loans is also attributed to the emergence of commercially oriented credit only MFIs which are backed by institutional investors or bank holding companies.”
As at June 30 2014 total loans in the sector constituted 4,67% of total banking sector loans of $3,81 billion.