Key Investment Criteria
Financial Service Providers
At least 5,000 borrowers or minimum gross loan portfolio (GLP) of $1M
Capital Adequacy Ratio (CAR): ≥12% or Debt-to-Equity Ratio: ≤5.0x
Portfolio-at-Risk (PAR) >30 plus Rescheduled Loans: <10%
Write-off Ratio: <2%
Operational Self Sufficiency: ≥100%
Yearly audited statements
Key Impact Criteria
MCE requires Financial Service Providers to have exclusion lists and client protection systems in place aligned with industry standards. Moreover, MCE prioritizes investments that meet the following criteria:
Livelihoods: Enhances access to finance for underserved segments of the population and improves access to additional essential services such as education or health. Aims to generate economic opportunities and resilience for local economies.
Women: Proactively enhances access to finance and essential services for women. Presents a gender-balanced workforce and client base. Preference for women-founded or women-led companies.
Climate: Integrates climate change mitigation and adaptation considerations in its strategy and offering. Preference for strong climate resilience practices through relevant savings and insurance products, as well as non-financial services.
Client Protection: Demonstrated alignment with the Client Protection Principles and signatory of (or willingness to sign) the Client Protection Pathway.
Small and Growing Businesses
Investment Strategy
Sector: Agriculture value chain
Geographic focus: Africa and Latin America
Company Profile
> 2 years of operations
Proven business model
Sustainable and scalable sources of revenue >$1M/year and positive EBITDA (within 12 months of investment)
Positive equity with reasonable debt-to-equity and debt service coverage ratios
Audited financial statements for at least one year and quarterly financial statements
Key Impact Criteria
MCE requires Small and Growing Businesses to have social and environmental protection systems in place and prioritizes investments that meet the following criteria:
Livelihoods: Generates local quality jobs and enhances income opportunities in rural areas. Works with smallholder farmers and, preferably, provides support to boost agricultural yields and price premiums.
Women: Presents a gender-balanced workforce and supply chain. Proactively enhances employment and income opportunities for women. Preference for women-founded or women-led companies.
Climate: Adopts sustainable agriculture practices through organic, regenerative and other techniques, and/or supports smallholder farmers in adopting them through Technical Assistance. Preference for strong climate adaptation practices.
Deal Structure
Financial service providers
Size: US$100K - $3M
Currency: USD, EUR, or local currency
Pricing: 6 - 9% interest in USD
Term: 2 - 5 years
Capital: Senior or subordinated debt
Small and Growing Businesses
Size: US$300K - $1.5M
Currency: USD, EUR, or local currency
Pricing: 9 - 12% in USD
Term: 12 months - 4 years
Product: Senior working capital
Due Diligence
Our due diligence process follows the same general structure for both financial service providers and small and growing businesses. The process is divided into five key stages:
1. Initial Screening
The potential borrower must meet the key investment criteria outlined above.
2. Due Diligence Package
Once MCE determines that the potential borrower meets these criteria, MCE might invite it to submit a Due Diligence Package. This package will defer depending on the type of institution (FSP or SGB), but can include items such as: extensive financial data; portfolio and client data; institutional, human resource, and financial/risk management information; audit reports; unaudited year-to-date financial statements; data on current outstanding debt; cash forecast for at least the next six months; number of employees and offices; description of main risks; institutional information like affiliations, by-laws, and legal registration; and key social impact metrics.
3. Site Visit
If MCE’s Portfolio Team determines that the loan is worth pursuing further, a member of the team visits the potential borrower in-person to meet its leadership, review its operations, confirm the accuracy of the submitted information, review processes, and procedures, meet with internal and external auditors, and meet with end beneficiaries.
4. Loan Committee
If the site visit is successful, MCE’s Portfolio Team drafts and submits a 15 to 25-page Loan Memorandum to MCE’s Loan Committee, which then approves or rejects the loan. The Loan Committee is composed of Guarantors and is supported by several expert advisors. The Loan Committee looks carefully at the following variables:
Creditworthiness. This includes the potential borrower’s financial metrics (depending on the type of institution, this can include: profitability, portfolio composition, growth, funding and capital structure, projections, competition and market position, audit reports, unaudited year-to-date financial statements, cash forecasts for at least the next six months, etc.) and qualitative data (products, affiliations, ownership, governance, management and staff, operations, MIS, human resources, client protection principles, ratings, etc.).
Risk factors. These include external factors (like competition and market analysis, political and economic environment, currency, crime and violence, and over-indebtedness) and internal (like potential conflict of interest or fraud, abnormal debt-to-equity ratios, operational risks, key employee risks, and high cost of funds).
Social impact. This includes the percentage of female clients; the percentage of clients in rural areas; the focus on impoverished, underserved, or otherwise disenfranchised populations; the existence and scope of any non-financial products and services that are provided to clients; and the capacity of the institution to measure, monitor, and report its social impact.
5. Approval, Disbursement, and Monitoring
After approval and disbursement, MCE requires monthly or quarterly submission of financial statements from each of its SGB Fund partners. MCE’s portfolio managers also schedule quarterly monitoring calls with each client to discuss the organization’s current status, challenges, and opportunities.
If you have any questions, please contact us at pipeline@mcesocap.org.