Social Finance in Emerging Markets with Advance Global Capital

Can business have a conscious?

Much has been said about the benefits of microfinance in addressing poverty. I recently spoke to Admir Imami, who is CEO of Advance Global Capital (AGC). AGC was established in 2012 to be both a capital provider and investment fund manager, specialising in alternative investments with a social bent. They want to help finance SMEs in emerging markets selling to OECD Buyers in Europe and the U.S.

Janet McKinley is co-founder and has over 25 years investment experience, having managed global portfolios for three of the ten largest equity funds in the United States. Admir's background is pure trade finance as he successfully launched a private micro finance institution in post war Kosovo.

AGC is involved in financing trades which are predominately based on the invoice of an OECD buyer.  The seller invoices them and the buyer provides a promissory note to pay after 90 or 120 days.  Admir mentioned they are agnostic how they source these trades.  AGC is active in 14 countries and partners with local non bank FIs, they are a funding partner on PrimeRevenue's platform, and they might invest in other trade finance funds whose motto is to do Trade Finance with the mission they are helping SMEs.

Admir's point is this creates social finance because SMEs don’t have access to capital or it’s very expensive. For example, AGC has concluded a supply chain finance deal with Carrefour in Albania which will be managed by Omnifactor. Carrefour opened in Albania in November 2011 with a hypermarket. As of the end of 2013, the Carrefour network has expanded to two hypermarkets and 17 new supermarkets. Carrefour has a policy of promoting Albanian products, particular agro-industrial products, thus helping SME producers.

AGC created a fund, AdvanceTradeGrowthFund(ATGF), that does this in the global space.  The fund is a Cayman Master feeder fund. The management company AGC is based in London.  Master feeder structures have existed in the past in the US predominately for tax reasons.  As of December of 2013, the fund invested US$15.6 million, still small, but growing.

They recently produced a white paper to examine the use of factoring and related services to finance cross-border trade between the Emerging and Developed Markets, and assess its potential to strengthen SMEs in Emerging Markets while providing attractive returns to those that invest in this alternative asset class. A few key findings highlighted include:

  • The financing of cross-border trade receivables is now the fastest growing form of trade finance, easily outstripping growth in more traditional forms such as Letters of Credit. Between 2008 and 2012, cross-border Factoring showed compound annual growth of 16.8% a year, while separate figures show that other forms of cross-border trade finance, including Letters of Credit, grew 1.2% over the same
  • Many emerging markets have little or no access to working capital via Factoring or other forms of invoice finance. Such services could have hugely beneficial effects in terms of social and economic development. Africa and South Asia are prime examples of this.
  • The absence of this type of funding is usually attributed to a paucity of credit information on debtors and borrowers in emerging markets, as well as doubts over the legal framework for this type of transaction.

The paper, Receivables Finance in Emerging Markets - How financial innovation can enhance social and economic development, can be downloaded here

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