Press release: Grant awarded to pilot ‘SHIFT KENYA’, first of its kind model to increase access to finance for healthcare SMEs
Monday, March 11, 2019
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.
Photo courtesy of Erik (HASH) Hersman.