REGMIFA’s mission is to foster economic development in Sub-Saharan Africa by supporting financial institutions that serve micro, small and medium-sized enterprises (MSMEs) (hereinafter referred to as the “Sustainable Investment Objective” in accordance with Article 9 of the SFDR, for further information see sections 2 and 3 of REGMIFA’s Issue Document). To this end, REGMIFA provides medium- to long-term financing and technical assistance (TA) to Partner Lending Institutions (PLIs) that serve MSMEs. REGMIFA works to build unique public-private partnerships with public institutions, private investors and African stakeholders to achieve its mission.
REGMIFA actively contributes to United Nations Sustainable Development Goals 1, 5 and 8 by:
- providing low-income individuals with access to financial services, including microfinance and savings products,
- providing women with equal access to economic resources and opportunities, and
- promoting job creation by financing micro, small and medium enterprises, and expanding access to banking and financial services.
whilst observing the principles of sustainability and additionality, combining public mandate and market orientation.
REGMIFA expects that a minimum of 70% of the total assets of REGMIFA are invested towards its Sustainable Investment Objective. Detailed investment criteria to support the REGMIFA’s Sustainable Investment Objective are set forth in its investment policy and procedures.
REGMIFA achieves its Sustainable Investment Objective through several avenues. First of all, only Sub-Saharan African countries can be eligible for REGMIFA’s investments, and REGMIFA pays particular attention to deepening outreach to smaller microfinance institutions. Generally, the majority of PLIs financed by REGMIFA are located in countries classified as having a low level of human development and average banking penetration.
Second of all, REGMIFA requires a set of quantitative and qualitative criteria to be met by eligible PLIs to ensure that they follow good governance practices, such as:
- compliance with national laws, including consumer protection laws,
- comply with or commit within a certain time frame to meet environment and social guidelines and implement an environmental and social risk management system, and/or
- presence of adequate policies and procedures regarding lending to micro, small and medium-sized enterprises to adhere to the principles of responsible finance (e.g. fair pricing, prevention of over-indebtedness).
The social performance of REGMIFA’s investment in PLIs is periodically evaluated based on evolving social performance standards. Some of the key non-financial KPIs used by REGMIFA to measure the attainment of its Sustainable Investment Objective include:
- Outreach (the number of final borrowers reached by REGMIFA funding)
- Average loan amount per borrower
- % of women and rural final borrowers
REGMIFA also provides technical assistance (“Technical Assistance”) to actively engage particular Investees to improve their environmental and social responsibility (“ESR”) processes, including the integration of sustainability risks in product development, human resource development, social performance management, governance and risk management. Changes in ESR ratings are also evaluated periodically.
For more information, please check out REGMIFA’s 2019 ESR report and our 10 year impact study.
REGMIFA’s culture for responsible finance and E&S management is reflected in its remuneration practices. For the members of REGMIFA’s Board of Directors and Investment Committee, a basic pro-rata temporis annual remuneration scheme, benchmarked to rates in comparable development finance funds and organisations, is subject to approval by the Shareholders or the Board of REGMIFA as the case may be. For more information regarding the role of the REGMIFA’s governance bodies in safeguarding the ESR requirements of REGMIFA, please see here.
More importantly, REGMIFA remunerates its Investment Manager according to competitive market rates, linked to outstanding invested capital, which integrates assessing sustainability risks as part of their core duties and which has a component linked to the provision of Technical Assistance to help increase the social performance of Investees. The Board may also determine additional qualitative and quantitative performance targets from time to time, which are remunerated via a variable component with a pen-pen ultimate payment ranking, to further incentivise achieving the Sustainable Investment Objective.
Integration of Sustainability Risks into REGMIFA’s investment decision-making process
REGMIFA commits to its social mission and impact objective through the active management of its social performance in line with its Environmental and Social Responsibility (ESR) strategy and risk management system. REGMIFA makes responsible investment decisions and communicates transparently on its social performance through an annual ESR report, aggregating key impact indicators at the level of the markets REGMIFA is invested in, the PLIs in its portfolio and the end-borrowers (MSMEs) supported by REGMIFA.
REGMIFA has engaged Symbiotics, a leader in the impact asset management field, to identify, appraise, structure and negotiate PLI investments and opportunities, perform ongoing monitoring of the portfolio and risk management, as well as provide all reporting required by REGMIFA, in accordance with REGMIFA’s Issue Document, Articles of Incorporation, Investment Policy and Procedures, ESR strategy and risk management system and any other applicable policies and procedures. Symbiotics has a specific expertise in relation to ESG-compliant investments, as this is key to the purpose of its business. Indeed, Symbiotics’ purpose is to have a material positive impact on society and the environment through its business and operations.
In particular, due diligence is performed on prospective investees in accordance with the Investment Policy and Procedures of REGMIFA, through the Investment Manager’s regional office in Sub-Saharan Africa, including performing a social responsibility scoring on several key dimensions such as:
- Client Protection
- Labour climate
- Social governance
- Financial inclusion
- Community engagement
- Product quality
- Environmental Policy.
Final proposals of all potential PLI Investments are then submitted to REGMIFA’s Investment Committee for decision-making, and as the case may be, to the Board of Directors of REGMIFA.
PLIs are required to comply with REGMIFA’s Exclusion List covering social and environmental factors, minimum safeguards such as the Universal Declaration of Human Rights, and adhere to principles of responsible finance to prevent over indebtedness, ensure fair pricing of financial products etc. These requirements are also reviewed by REGMIFA from time to time and are reflected in the agreements entered into by REGMIFA with its Investment Manager and its PLIs.
In the relevant agreements between PLIs with REGMIFA, PLIs are required to have adequate management information systems which produces meaningful and reliable reporting on their activities, including social performance reporting, based on a social performance reporting format developed by the Microfinance Information Exchange. REGMIFA regularly reviews its ESR strategy and risk management framework and assesses its portfolio according to evolving standards.
No significant harm to the Sustainable Investment Objective / PASI
REGMIFA seeks to ensure that its Investments do not significantly harm any sustainable investment objective, by screening potential Investments and monitoring existing Investments against the key adverse impact indicators and their operational safeguards outlined below.
REGMIFA will not knowingly invest in any PLI which is expected, or is determined, to do significant harm to the sustainable investment objectives, and REGMIFA will seek to actively engage PLIs in order to put in place or monitor the implementation of environmental and social management systems that can adequately meet REGMIFA’s E&S requirements.
|Area of risk||Potential adverse impact||Safeguards|
|Labour conditions, health & safety||Risk that employees at PLIs and Borrower level (MSMEs) are working in conditions representing a risk for their health and safety||Compliance with REGMIFA’s Investment Policy and Procedures, loan covenants, ESR strategy and risk management system and reporting, PLI, REGMIFA Exclusion List, national laws|
|Overindebtedness of final borrowers||Risk that financial products and conditions are not representing the best interests for the PLIs’ clients, with a risk of e.g over-indebtedness, excessive pricing conditions, inadequate products etc.||Compliance with consumer protection laws, loan covenants and REGMIFA’s principles of responsible finance as assessed via social performance ratings|
|Financial exclusion||Risk that an overzealous approach to risk integration and mitigation can lead to denial of basic financial services to certain groups||Appropriate strategy in relation risk management, customer targeting, fair pricing, complaints policy|
|Climate change & pollution prevention and control||Very low to no risk identified||Potential pollution of soils and water through financing of agribusinesses Compliance with national laws and standards|
REGMIFA engages its Investment Manager, a signatory to the Operating Principles for Impact Management, to identify the potential adverse sustainability impacts of proposed investments, recommend mitigation measures and perform follow-up monitoring. Further, in accordance with REGMIFA’s standard loan agreements, PLIs are required to report on the social performance and development impact of their activities and make ESR representations towards REGMIFA to meet REGMIFA’s ESR requirements at the level of such PLI.