FMO backs third-generation fund

07 Sep 2020

FMO has signed a $10mn commitment to XSML's latest private equity fund.

XSML was co-founded by two former FMO employees and today manages two private equity funds in Central Africa: the Central Africa SME Fund and African Rivers Fund I. Both funds 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. The core geographical focus of the Fund will include Angola, the Democratic Republic of the Congo and Uganda. SME financing is scarce in the regions where the Fund will operate, and by investing FMO will help empower local entrepreneurs.

Funding objective

XSML is raising ARF III to build on the successful strategy of CASF and ARF I, and 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 USD 0.25m and USD 7.5m. The core geographical focus of the Fund will include Angola, the Democratic Republic of the Congo and Uganda.

Why we fund this project

An 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 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.

Environmental and social rationale

The E&S categorization of ARF III is B based on the pipeline and on XSML’s strategy. XSML has shown a commitment towards E&S and has an environment and social management system in place as well as E&S coordinators in each of its existing local offices in DRC and Uganda. During its investment process, XSML undertakes E&S due diligence and, if deemed necessary, develop an E&S action plan aligned with the IFC Environmental and Social Performance Standards.

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