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How SIMA is revolutionizing Off-Grid Solar and Financial Access to the underserved.

SIMA DEPLOYS $90MM SENIOR DEBT FUND TARGETING OFF-GRID SOLAR ENERGY AND FINANCIAL ACCESS IN AFRICA AND SOUTH ASIA.

NEW YORK, NY – February 20, 2020 – Social Investment Managers and Advisors (SIMA), a new generation of impact investment manager, has invested close to $90MM into the off-grid solar and financial access sectors through its senior debt fund. The fund fights climate change by creating off-grid energy access to millions of households living with little to no energy access in sub-Saharan Africa and South Asia. To date, the SIMA Off-Grid Solar and Financial Access Senior Debt Fund I (“SIMA Fund I”) has lent to 26 companies who are manufacturing, distributing, and/or financing standalone solar systems in more than 15 developing countries.

The Fund has over 30 investors representing DFIs, institutional investors, faith-based pension funds, foundations, endowments, and individuals. Investors include the U.S. International Development Finance Corporation (formerly known as OPIC), Church Pension Group, Oesterreichische Entwicklungsbank AG (OeEB), The Dutch Entrepreneurial Development Bank (FMO), AXA Investment Managers, MetLife, Belgian Investment Company for Developing Countries (BIO), Banque de Luxembourg Investments, Mercy Investment Services, Heifer Foundation, Wallace Global Fund, and Fundación Netri.

The SIMA Fund I offers a double bottom-line investment for this wide array of investors. The senior tranches benefit from ample credit protection (up to 60%) while bringing the scale of capital necessary to grow the off-grid solar sector. The junior tranches allow mission-driven, impact investors to leverage their money more than 14 times. The fund also employs a guarantee from African Guarantee Fund for Small and Medium-sized Enterprises (AGF).

John R. Angelica, Managing Director- Head of Fixed Income Investments at the Church Pension Group commented “the SIMA Fund was an appealing investment opportunity for the Church Pension Group because it simultaneously provided an attractive risk-return profile while offering measurable social impact.”

The Fund benefits from a grant from USAID, as part of its commitment to Scaling Off-Grid Energy (SOGE) Grand Challenge for Development, to promote financing of younger off-grid solar distributors by creating an additional USD 1 million layer of protection in the capital structure.

In addition to providing financial returns with robust protection, the SIMA Fund has three social goals: 1) create 1 million new energy connections, 2) avoid 4 million tons of CO2eq emissions, and 3) promote an industry-wide code of conduct focused on good customer service and protection.

Since the Fund’s inception in October 2017, portfolio companies have created more than 7 million off-grid solar connections that light homes, charge cell phones, and power farming equipment, water pumps, sewing machines, power tools, TVs, radios, and fans. The SIMA Fund’s portfolio companies employ about 14,000 full-time employees and create extra income for 24,000 more people working on a commission-basis.

“The Development Bank of Austria is proud to back the innovative SIMA Fund as it aligns with our mandate to promote positive economic, environmental, and social impact through access to energy to support Bottom of the Pyramid consumers. Off-grid solar solutions are proven to serve the needs of those typically deprived of clean energy access,” said Sabine Gaber, Member of Executive Board at OeEB.

“Off-grid energy companies play a critical role in delivering clean, affordable, reliable energy without the need for grid infrastructure. However, due to the nascent nature of the sector and the associated risks, the availability of capital has been limited in prior years. SIMA has provided a catalyst role by helping early stage companies to increase their market reach in the solar home system sector” says FMO CFO Linda Broekhuizen

“It is essential that we work towards improving global access to energy without damaging our environment. We have designed the Fund to take an ecosystem approach in order to further the outreach of quality off-grid solar products to the low-income segment,” explained Xavier Pierluca, Managing Partner at SIMA. “The Fund is operating throughout the value chain of the off-grid solar sector; offering adequate financial instruments to design and manufacturing firms down to last-mile distributors operating close to the clients.”

The Fund’s partners include O’Melveny & Myers (US counsel), CMS Law (Dutch counsel), Arendt and Medernach (advised on listing select tranches on the Luxembourg Stock Exchange), Vistra Netherlands (fund servicer), and Ernst & Young (auditor).

About SIMA

Social Investment Managers & Advisors’ (SIMA) is a fund manager and impact investment advisor with a vision is to make social investments an accepted asset class for commercial investors, thereby unleashing appropriate capital to grow profitable, responsible businesses that improve the lives of low-income customers around the world. SIMA has local presence in Kenya, Pakistan, Switzerland, and the US. Follow us on LinkedIn

About The Church Pension Group

The Church Pension Group (CPG) is a financial services organization that serves the Episcopal Church. It maintains three lines of business—employee benefits, property and casualty insurance, and publishing. CPG provides retirement, health, life insurance, and related benefits for clergy and lay employees of the Episcopal Church, as well as property and casualty insurance, and book and music publishing, including the official worship materials of the Church. Visit CPG at http://www.cpg.org

About OeEB

Oesterreichische Entwicklungsbank AG (OeEB) has been operating as the Development Bank of Austria since March 2008. It specialises in the provision of long-term finance for the implementation of private sector projects in developing countries which create sustainable development. Additionally, OeEB provides technical assistance, which can be used to enhance the developmental impact of projects. For more information, please visit http://www.oe-eb.at

About FMO

FMO is the Dutch entrepreneurial development bank. As a leading impact investor, FMO supports sustainable private sector growth in developing countries and emerging markets by investing in ambitious projects and entrepreneurs. FMO believes that a strong private sector leads to economic and social development and has a more than 50-year proven track-record of empowering people to employ their skills and improve their quality of life. FMO focuses on three sectors that have high development impact: Financial Institutions, Energy, and Agribusiness, Food & Water. With a committed portfolio of EUR 9.7 billion spanning over 85 countries, FMO is one of the larger bilateral private sector developments banks globally. For more information: please visit www.fmo.nl

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The GOGLA Forum was held in Nairobi from 18th to 20th February 2020 hosted by GOGLA, Lighting Global and Government of Kenya. Six active lenders to the off-grid solar industry, including SIMA, participated in a panel where they shared the lessons learned from lending to the sector.

Mr. Brian McConnell, Vice President of SIMA for the African Region, sat on the panel.

Lessons Learned From Sector-Wide Lending of $600M
Over the last 4 years about $600m has been borrowed by the sector to reach around 18m households with TIER 1 (or more) level access. This will need to grow more than 5X over the next 4 years in order to refinance much of the outstanding debt plus servicing an addressable market of 100m households. SIMA and 5 other major lending companies highlighted some of the lessons learned:

  1. Growth Takes More Time: It was noted that initial growth expectations for the sector were too ambitious. Time to reach profitability took much longer and more cash ‘burned’ in the process. This takeaway is highly important for the PAYG companies to manage expectations.
  2. Structure Matters: In 2019, lenders who had ring-fenced assets have been comparatively in a better position than the lenders to holding companies.
  3. A renewed focus on asset quality is needed: It was agreed by all the panelists that the sector needs to have a more improved focus on portfolio quality as the ‘credit quality comes before credit quantity’. Brian McConnell – Vice President SIMA-Africa Region said that to achieve a sustainable collection rate there needs to be more “specialization on distribution, customer service and end-customer finance”. Monitoring and reporting on the quality of portfolio was further emphasized.
GOGLA Forum & Expo

Recommendations:
The key recommendations proposed by the panelists were the following:

  • Borrow more in local currency
    It is true that emerging market currencies have experienced periodic stability but it is also important for borrowers to remember that this can change quickly. It seems more attractive to a USD or EUR denominated loan at 6-8% of interest than the equivalent load denominated in a local currency at 10-20% interest but if you closely see the revenues and net cash flows denominated in local currency, a devaluation of 5-10% can quickly produce a significant mismatch. It may be worth the cost especially after a long period of stability.
  • Coordinate your investors
    It is highly important to manage and exceed the interests and expectations of various investors and to plan the necessary legal structures in place in order to tackle the challenges. Make sure to keep intercreditor agreements in place and keep them up to date.

It is important to consider that asset quality, structure and the right scale are required and not optional. The participants in the events acknowledged Gogla’s efforts of bringing the stakeholders together, events like these offer necessary insights from the parties that are actively engaged with the Off-grid solar sector. In addition to this, they provide better understanding to the prospective investors planning to invest in the sector.

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