A Due Diligence process is made on each potential investment and all applicants and information submitted are cross-checked to avoid adverse selection.
The active engagement by Kukula Capital will ensure that the SMEs are streamlined in terms of operations and governance structures.
Kukula Capital has a flexible & calculated ‘risk taking’ approach to collateral, where third party collateral will be considered when sufficient collateral is not available.
Kukula Fund I provides a structured and formalised link between local institutional investors with excess local currency (due to lack of securitised local investments) and the SMEs who are looking for long-term finance.
Part of the active engagement is to use the team’s extensive network in Zambia and abroad to identify technical partners for training and knowledge transfer, as well as identifying new suppliers and clients.
Kukula Capital will provide flexible finance, which is tailored to the needs of the individual SME.
Kukula Capital has developed an investment manual that focuses on capacity building with the SMEs to ensure a high degree of financial reporting and transparency. The investment officers in Kukula Capital are trained on the investment procedures whereby a strong institutional capacity being built.
The high transaction costs are addressed by establishing a technical assistance fund to support the cost of developing business and marketing plans as well as management support. Once the fund size is at a sufficient level the high transaction costs can be carried by the management company, which currently is supported by the Danish International Development Agency and the African Management Service Company.
By entering the market, Kukula Capital will in itself create competition and incentives for banks to finance SMEs.
Through Kukula Fund I the team is looking at co-financing the SMEs with other financial institutions such as local banks. Such co-financing will reduce transaction costs and the issue of adverse selection for banks, thereby giving the banks a chance to finance SMEs i.e. seasonal working capital and long-term loans as well.
The issue of underdeveloped capital markets is addressed by providing long-term local currency finance. The financing is structured with an equity option only exercised in case an exit is found either as a direct sale or through listing on the Lusaka Stock Exchange.
As a locally structured management investment fund, Kukula Fund I will contribute positively to the investment climate as well as the perception of the same.
Proposals will be considered for their intrinsic merits and without gender bias. However, it is Kukula’s experience that there are many well-performing SMEs owned and managed by women in Zambia who have experienced prejudicial treatment. Kukula will consider such applicants positively.
By introducing a solution with international standards tailor-made for the local market, Kukula Capital supports the development of more structured and commercialised private sector. A strong private sector is a prerequisite for the development of weak states.