Providing affordable loans and quality upgrades to private health SMEs

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Providing affordable loans and quality upgrades to private health SMEs

Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

Primary health SMEs that serve low-income groups are supplemental to public clinics in Africa, but lack access to growth capital due to high lending rates and limited business performance. MCF offers affordable credit and internationally certified medical and business performance programs through local financial and technical assistance providers.

About Project

Solution: What is the proposed solution? Please be specific!

MCF is a social investment fund that aims to finance the ‘missing middle’ by providing loans to private health care facilities in Sub-Saharan Africa at favorable conditions. The loans will be used by the health SMEs to invest in quality improvement and expansion. Medical quality standards (ISQua) have been introduced and developed by PharmAccess, initiator of MCF, and are used to objectively measure and evaluate the improvement on a regular basis. Well-performing health SMEs will be rewarded and internationally certified, which will be recognizable for patients and also enable participation in local insurance schemes. In each country of operation local financial institutes are engaged to provide the loans in local currency and share the risk with MCF. The loans are complemented with technical assistance for business administration and medical quality improvement. The combination of credit provision and tailor-made performance based technical assistance for medical and business upgrade for private health SMEs is the main innovation. Affordable credit allows for scaling up medical capacity and improved business planning. The combination of affordable lending and technical assistance for upgrade is unique in the market and meets a large untapped demand. A second innovation is the linkage between medical upgrade and international quality certification. This allows health SMEs to apply for accreditation with public and private health insurance schemes. This will stabilize revenue streams by decreased reliance on out-of-pocket in favor of pre-paid or fixed income. As a result investor risk will be reduced, leading to uptake of capital provision by private investors.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

The social impact of the MCF program relates to three main areas: • Improved level of the quality of care of the participating health SME’s. The quality improvement program has been developed by PharmAccess that has a vast experience in this field. The program is implemented with local partners and will result in the certification of the participating clinics at different levels according to their performance. So far 40 clinics have submitted a self assessment form, 5 have concluded an up-grade plan. • Business planning improvement of the participating clinics, 40 clinics have participated in the first round of training. Many of the owners of the private health SMEs have insufficient business (planning) knowledge, even though they run a business. Participating clinics will receive business planning education that will be concluded with an exam. • Social impact will also be traced through performance of clinics measured against selected public health indicators in their respective catchment areas. Tracking needs to comply with priority-setting of national health regulatory authorities. Currently the process of identification is in full swing in three countries with local associations. Most likely a first batch of indicators will relate to mother-child health care: ante and postnatal care, including vaccinations. A second batch will presumably relate to the incidence of communicable diseases such as malaria, diarrhea, tuberculosis and HIV, which often are the most common treated diseases in lower-end clinics.
About You
Medical Credit Fund
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About You
First Name


Last Name


Your Organization

Medical Credit Fund


, NH

About Your Organization
Organization Name

Medical Credit Fund

Organization Phone

+31 (0) 20 566 8420

Organization Address

Pietersbergweg 17, 1105 BM, Amsterdam

Organization Country

, NH

Organization Type

Non-profit/NGO/Citizen-sector Organization

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Your solution
Country your work focuses on
If multiple countries, please list them here. If your solution targets an entire region, please select it below

Tanzania, Ghana, Kenya, Rwanda and expanding in Sub-Sahara Africa

Region(s) your solution focuses on:


Range of turnover in your target firms, in USD

Less than $1 Million.

Average turnover in USD of your target firm

approximately USD 100,000

Number of employees in your target firms


Average number of employees of your target firm

approximately 20

Specify the size, average and range of expected loans or investments in each target firm

The MCF focuses on clinics providing primary healthcare services to low-income groups. The purpose of the loans is to invest in quality improvement and expansion. Loans are provided incrementally, and depend on the clinic size.
First loans are USD 10,000 to 60,000 (channeled through local banks), average amount USD 20,000. Follow up loans are 30,000-90,000, third loans as of 90,000. As soon as the target clinics have built up a sound credit history, track record and reputation, local banks will continue lending at preferential rates at their own account and risk, possibly with a limited MCF guarantee back-up.

What stage is your solution in?

Operating for 1‐5 years

How does your proposed innovation leverage public intervention in catalyzing private SME finance?

In most Sub-Saharan countries there is no significant track record of debt finance to lower-end privately owned primary SMEs: health centers, dispensaries, health posts, clinics, midwifery’s and smaller hospitals. Local investors usually are hesitant to invest in such SMEs for a variety of reasons: crowding-out risk, reputation risk and project risk related to sub-standard bookkeeping and accounting practices and limited profitability prospects. Medical staff in such SMEs tend to focus on health services rather than business concerns, and at this level few can afford to hire competent financial staff.

Higher-end health facilities, medical insurance firms, distributors, manufacturers, pharmacies and larger hospitals, meanwhile have become investment targets for international development banks such as through the Health for Africa program of WB/IFC and the Investment Fund for Health in Africa (IFHA).

These new investment options, however, will not reach out to the SME segment in the private health market. The best option for leveraging private sector finance at that level is by targeting the involvement of local banks that have a track record in SME finance.

The MCF approach to effectuate that strategy is simple yet effective: partnering with local banks in a process of gradual transformation of risk position from MCF to the bank. At the same time clinics will be supported to improve their business model which reduces the overall risk position. This approach also represents the MCF’s exit strategy.

What barriers does your proposed solution address?

Asymmetry of information, Informality, Lack of collateral, Lack of financial capacity, Lack of institutional capacity of financial intermediaries, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), General barriers to SME development related to investment climate.

If you checked any of these barriers, describe how your solution addresses them

The program addresses the following barriers:

• Asymmetry of information
Often the private health sector is still seen as a socially undesirable phenomenon in emerging markets, only catering to the affluent. Reality on the ground provides a rather different picture. While the top end of the market indeed consists of high quality expensive clinics, the bulk is made up of struggling SMEs dealing with low-income clients and faced with considerable human resources, medical and business challenges. Low-income patients often prefer private over public facilities. The costs may be higher, but quality of services is much better, which shortens recovery time and income-earning capacity.

• Informality
Primary health SMEs are usually fully licensed under Ministry of Health regulations. However, their business status is not always reflected in a proper legal format. As a result, the financial affairs of the clinic and its owner may be insufficiently separated. MCF business training installs awareness to separate both.

• Lack of collateral
Some clinics can provide partial or full collateral (land titles and buildings), others not. The solution for them is to agree with banks on an overall debenture arrangement.

• Lack of capital - tailored financial products
This is indeed the most burning obstacle. Debt finance from MCF solves this problem by offering tailor-made solutions.

• Lack of institutional capacity
Installed capacity usually meets minimum standards. Further expansion requires medical and business upgrade, which is what the MCF provides.

• Local capital markets
There often is good liquidity in domestic capital markets in Africa due to growing savings mobilization and limited investment opportunities in the real economy. The point at stake here is to offer an attractive entry for local investors in order to engage in their own health sector at scale.

• Barriers for SME development
For health SMEs the major barrier is the high cost of capital related to lending in local markets. Offering affordable debt in combination with upgrade of business models will allow health SMEs to borrow in such local markets.

Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

Although MCF was only established one year ago, and has no long term track record yet, the initial indicators such as uptake of participants in its lending and technical assistance programs, support from domestic stakeholders such as governments and business coalitions and networks in health, and willingness of investors and donors to become involved are quite positive. To date, the first solid partnerships with local banks and technical assistance providers have been established, training modules have been prepared and performance indicators have been installed. So far approximately 50 health SME’s have been selected and the first loans will be provided in the coming months.

The performance of MCF is first of all captured by regular pre-loan performance indicators, such as number of participating clinics enrolled in the MCF program, number of clinics graduated from medical quality and business trainings, number of completed quality upgrade and business plans, number of loan applications submitted and number and volume of loans provided.

Post-loan performance indicators have been grouped in three categories: financial, medical and social performance:
• Financial performance is measured by overall loan portfolio quality indicators as well as by individual clinics’ loan servicing records. Overtime, business performance uptake will show in the audited financial statements of clinics.
• Medical performance will be measured through the application of international standards, as per international medical quality standards (ISQua). This starts with base-line surveys per clinic and afterwards annual independent quality audits will be conducted. The medical performance area will include issuance of branded quality certificates which will boost both patient and investor confidence.
• Social performance will be captured by tracking key (MDG related) public health indicators in the clinics’ catchment areas.

To date, pre loan-methodologies are in place and use already, whereas fine-tuning of financial and medical performance measurement methodologies is nearing completion. Before the end of 2010 a social performance tracking system will be fully operational.

As is common in the health sector, all performance tracking systems will be entirely evidence-based with extensive data-collection. In addition the MCF is working towards a performance presentation facility in the public domain (web-based) to allow for direct access by all stakeholders to latest performance data. This would also allow for public accountability of the MCF program.

How many firms do you expect to reach?

MCF targets TA provision to 50-100 SMEs per country. Expectedly half of those will apply for first loans or 75 to 150 first loans per annum in three countries. Half of the graduates are expected to proceed to second loans: 35-70 per annum at full capacity of the program.

What is the volume of private SME finance you aim to catalyze?

The MCF aims to raise USD 8 million for loan capital and 4 million for technical assistance in the period 2010-2014. Approximately 25% is available already, 25% is under negotiation and 50% is targeted from international investors and 50% thereof through the G-20 Challenge (2M capital and 1M technical assistance).

What time frame will be required to reach these targets?

PharmAccess has financed the first USD 1 million for business development and to start-up the operations for the period 2008-2010. A fund raising campaign has been started to raise USD 4 million on the Dutch private investor market. By early 2011 we expect to have 40% of overall targets committed. The remaining 60% is expected to be secured in 2011 and 2012.

Does your solution seek to have an impact on public policy?


What would prevent your solution from being a success?

Demand for loan capital is very high, but qualified demand is low. It takes time and effort to develop qualified demand and this process needs to be financed on a grant base. Raising support for the technical assistance fund is a critical success factor. Also capital provision to the MCF is of great importance to fuel our loan capital base. MCF relies on investors willing to trade a high financial with a high social return on investments.

MCF is confident that it will manage to grow with current commitments. However, to meet the large demand for its services additional investments and support from the G-20 Challenge will facilitate program acceleration.

List all the funding sources that are required for the sustainability of this solution

For capital intake:
USD 8 million in total, consisting of initial capital grants (1M), longer term debt (7 years) from high net worth investors (3M), and longer term debt (5-7 years) and/or capital grant donations from institutional investors to the tune of USD 4M of which 2M from the G-20

For technical assistance:
USD 4 million in total; all in grants and donations, of which 1M from the G-20. In the regular (first loan) part of the program the loan-to-TA ratio is approximately 4:1, for follow-up loans it could be 8:1. However, for smallest type of SMEs (health out-posts, midwiferies) this ratio can be 2:1 or even 1:1.

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

From the onset, the MCF will not become over-dependent on public finance which is mainly pursued by leveraged already raised private finance.

Second, the loan provision policy of the MCF includes a double exit strategy.
• Although the MCF will finance first loans, the implementing bank assumes a risk position. Follow-up loans to the same health SME will see a larger risk position of the bank, and over time the bank will take over relationship management.
• The MCF has a three-tiered partnership strategy with local banks. High risk investments to SMEs will initially be financed by MCF. Graduating SMEs or lower risk entry SMEs will come under a 50-50 risk-sharing arrangement between bank and MCF. Lowest risk SMEs will be handled by the bank with a limited MCF bank-up guarantee.

In due course, it is expected that both domestic and international investors will become directly involved in financing health SMEs in Africa.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

Maximum investment opportunities for private investors will be capped at approximately 20% each; in case of public investors it will capped at 50% collectively. This presumably will entail a form of consortium or syndicate financing.

In the technical assistance department collaboration with different donors will be sought, both local and international, and a variety of proposals will submitted. Also, the MCF intends to introduce peer-to-peer (P2P) funding options, reducing dependency on both private and public investors.

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

The MCF is building an elaborate partnership configuration.
• For program implementation MCF partners with one or more local banks and technical service providers (local medical associations). This secures local buy-in and allows for establishing effective relationships with Ministries of Health.
• For assertion of medical quality, MCF is partnering with Cohsasa and JCI, two renowned quality assurance institutions in the health sector.
• For program management MCF partners with PharmAccess Foundation, particularly in the area of medical and business upgrade. This partnership to date has also been very productive as regards fund and capital raising efforts.
• In order to complement its support at the supply side, the health SMEs, MCF partners with the Health Insurance Fund (HIF) with a view of installing risk pooling and insurance schemes at the demand side to reduce out-of-pocket expenditures of patients and to strengthen and stabilize revenue streams for health SMEs.

Are there non-financial issues that could threaten the sustainability of your proposed solution?

A major potential risk is the formidable medical human resources challenge in most Sub-Saharan countries. Not only do educational institutions graduate insufficient medical professionals at all levels, it is also very difficult to retain them, especially in the public health sector due to low payment and substandard working conditions.

As a result, many health professionals operate one or two levels above their formal license, which represents medical quality risks. Whereas in due time ‘under-licensed’ staff increase their competencies in everyday practice, it continues to pose a problem in terms of quality verification and accreditation. MCF addresses this challenge in two ways. First by encouraging health SMEs to support their medical staff in acquiring higher level operational licenses in the context of quality upgrade policies and second by supporting health SMEs in strengthening their business models, allowing for competitive remuneration and, thus, higher staff retaining rates.

A second risk is that owners of health SMEs as a rule of thumb have higher medical than entrepreneurial skills. As stated, this challenge is covered by intensive business training and support by MCF.

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

A first level of scaling up is foreseen within the MCF program. Participating SMEs will come aboard with an entry loan, but upon successful completion will become eligible for larger follow-up loans which will be targeting capital investments mostly.

A second level is the gradually more active role of local capital providers in the forms of partnering banks. They will in due time take over the MCF’s investment role in relation to medical SMEs that will develop a healthy appetite for continued expansion, both horizontally (expansion or branching of current facilities) and vertically (acquiring higher level licenses, becoming licensed hospitals).

A third level is the development of shared back-up facilities. Many health SMEs will expectedly not grow to a level where it will be viable to build and manage highly elaborate in-house laboratories and pharmacies. For them, an alternative could be to join forces and build such activities on a shared ownership platform (like central laboratory or diagnostic centers, shared waste management facilities), securing quality service delivery as well as an additional revenue streams through referral and ownership income.
Lastly, the MCF as of 2011 aims to link up with branding or franchise chains of primary health SMEs, especially those currently specialized in a limited number of medical services. The potential to be developed is to incrementally transform these SMEs into full-service facilities. Scale of operations in this area would also facilitate the introduction of larger scale insurance schemes for patients, especially at community level.

Growth potential is therefore unlimited, which also follows from massive demand for affordable quality healthcare by a large majority of low-income Africans. The main challenge is in implementing a growth strategy that combines capital injection with substantial medical and business quality upgrade efforts. The MCF is well placed to do so.