Project detail - SANAD Fund for MSME

Who is our customer

FMO will invest USD 25mln in the SANAD Debt Sub-Fund ("the Fund” or "SANAD”) for MSME to support small businesses in the Middle East and North Africa (MENA). "Sanad" means "support" in Arabic. The Fund seeks to promote stability in a challenging region by expanding financial inclusion for micro-, small- and medium-sized enterprises (MSMEs) that often have difficulties finding access to capital for starting or growing a business. SANAD loans to local financial institutions are on-lent to support MSMEs in multiple sectors (agribusiness, housing, and youth and gender initiatives). The Fund will expand its product offering to include direct lending to Agri corporates.

What is our funding objective?

FMO is providing financing to SANAD through an investment of USD 25 million in the senior tranche (A-shares) of the debt sub-fund, money that will be on-lent by local partners to MSMEs. The investment comes from FMO-A (FMO’s own balance sheet). Continuing the support for SANAD in this second investment since 2016 is an important step for FMO to further support entrepreneurs and SMEs in this part of the world, affected by unemployment and inequality.

Why do we fund this investment?

FMO’s funding will allow SANAD to further scale its impact in an underserved region where there’s a large financing gap in terms of financial inequality, youth unemployment, and gender inequality. FMO’s funds will be on-lent mainly to Microfinance, and underserved SMEs, which together represent more than 50% of the cumulative disbursements since the inception of the Fund. SANAD can utilize its L-share mechanism to provide local currency financing to Microfinance (MFI) & Non-Bank Financial Institutions (NBFI) which do not have access to traditional hedging counterparts. The long tenor allows for better asset liability management and will provide stable long-term funding that is needed for the Fund to achieve its growth plans both from a financial and impact perspective. In addition, FMO’s investment in A-shares will help SANAD mobilise more private funding as it makes the Fund more attractive to private investors (sufficient liquidity buffer). The investment will have a 100% Reducing Inequalities label as more than 50% of SANAD’s cumulative sub-loan disbursements meet FMO’s Reducing Inequalities criteria.

What is the Environmental and Social categorization rationale?

SANAD Fund for MSME – Debt Sub-Fund has been classified as an E&S Category A. The categorization is not solely based on the Fund’s use-of-proceeds but takes a holistic view on each of the Fund’s portfolio companies. The Fund’s current portfolio consists of exposures to FIs alone (Banks, MFIs, Leasing Companies, and SME Finance Companies), within the MENA and Sub-Saharan Africa regions. However, from 2024, the Fund is also looking to invest directly in Agri-businesses (targeting about USD15-20mn in the next two years). Investments would mainly be in the MENA region (Egypt, Morocco, and Tunisia), with a focus on Agri-business companies that deal with small-scale farmers and are active across the Agri value chain. In line with the Fund’s Responsible Investment Policy, direct investments would be in projects with Category B+, B, and C E&S risks. SANAD addresses portfolio E&S risks through the implementation of a Responsible Investment Policy supported by its Environmental and Social Management System (ESMS). The Fund’s ESMS incorporates relevant aspects necessary for effective E&S risk management, including an exclusions list aligned with FMO’s exclusions list, and guided by internationally recognized frameworks such as the IFC Performance Standards and the ILO Fundamental Conventions. The ESMS is operated by a team of E&S specialists within Finance in Motion (FiM).

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