This week, TLG and IDP Foundation executed a $5 million facility to invest in Jackfruit Network, an SME based in Kenya which offers loans to low-cost private schools.
The facility brought together TLG, which provided the commercial capital, and IDP Foundation, which provided a Morgan Stanley bank guarantee. In a regional first in transaction structuring, IDP Foundation used the balance sheet of its endowment as a guarantee.
“The way that businesses like us scale is through debt,” said Rob Alhadeff, CEO at Jackfruit Network. “But it can’t be just any debt. You need partners that think carefully about what the borrower needs.”
“When I first met TLG they said that they carve out bespoke solutions for borrowers,” he continued. “I didn’t anticipate that they would actually deliver on a unique structure that the whole investor ecosystem hadn’t even done before. Most investors come to you with a pre-determined product: TLG actually listens.”
By combining commercial capital with a guarantee provided by a philanthropic institution, TLG and IDP Foundation aim to demonstrate that impact-first transactions can also have impeccable downside protection.
“You can barely go to a conference on development without hearing the term ‘blended finance’,” Corina Gardner, CEO of the IDP Foundation, said. “But what we found in TLG was the partner willing to take up the challenge.”
“What we created was a facility that protects against currency exposure, and supports Jackfruit in receiving financing despite being asset-light”, she continued. “TLG’s expertise in legal structuring was absolutely essential to the transaction: they were so persistent in carving out an investment-grade product without compromising on impact.
A major objective of the transaction was to crowd in commercial capital: calculations provided by IDP Foundation estimated that every dollar of philanthropic capital pledged would achieve three times the impact, and if more private foundations commit to guarantees against their endowments, this structure can unlock ten times in commercial capital for education in Kenya.”
“The SME financing gap in sub-Saharan Africa is estimated at $331 billion”, said Isha Doshi, Partner at TLG Capital. “As it stands, we’re not on track to meet it – Africa’s share of global venture capital funding is less than 1%.”
“Impact investors, despite being an essential part of the community, cannot meet the gap alone”, she continued. “The only way to meet the gap is to demonstrate that investors can commit capital to Africa with confidence. That’s why we’re so proud of what we’ve achieved with IDP Foundation and Jackfruit – combining Morgan Stanley’s credit risk of AA- with the transformational impact of an SME.”
Law Offices of Simon Harter, Esq. acted as New York counsel, Ronalds LLP acted as Kenyan counsel, and Hannaford Turner LLP acted as English counsel.