PEAK II L.L.P.

EFTA is a Tanzanian company specialised in small enterprise finance. EFTA uses a relationship-based equipment leasing model to fill the $2,000-50,000 gap between where microfinance loans end and bank loans start. This model was one of the winners of the G-20's SME Finance Challenge in November. The equipment provides a collateral substitute, and the relationship-based approach overcomes the challenges of semi-formality typical to this sector.

This has been trialed at a small scale over the last 5 years with concessionary funding, with $440,000 invested in 73 businesses. Even with no head office or systems in place, this delivered an estimated gross IRR of 13% in local currency. This also created 300 jobs, almost 18 times higher per dollar invested than larger SME funds, and reached an estimated 20,000 smallholder suppliers indirectly.

Following the success of this trial, EFTA began transitioning to a commercial institution in 2009. The management team has been strengthened and robust systems and processes have been introduced.

PEAK II is intended to complete this transition. EFTA aims to make ~400 larger investments of $10,000-50,000 from PEAK II over the next 3 years, creating 8,500 jobs and reach 700,000 smallholder suppliers. This will take EFTA to sufficient scale to attract direct investment, with a team of 16 in 2 branches. EFTA then aims to use this platform to grow to a $55 million portfolio in 15 branches by the end of 2020.

Financial description

PEAK II will be a limited liability partnership based in England, which will invest through an investment holding company in Tanzania. It will be structured as a closed private equity fund with a seven-year term comprised of a three-year investment period and four-year holding period, and there will be two optional one-year extension periods.
During the investment period, the commitments will be drawn down gradually, and repayments collected from investee companies will be recycled to into further investments. During the holding period, the fund will cease investing and start making regular distributions while the later investments mature.
The fund will be in Tanzanian Shillings. EFTA will be the general partner and fund manager, with a 3% management fee on committed capital and 10% carry over a 10% return hurdle. The fund will aim for overall returns of 11-14% in Tanzanian Shillings net of all fees and carry. The fund will have two investment classes:
a) “A” investor class (debt-like): sits ahead of B investors, receiving their capital plus 10% in Tanzanian Shillings ahead of other investors
b) “B” investor class (equity-like): sits behind A investors, receiving uncapped returns net of carry. Overall target returns of 12-17%.