The US$14-million fund, managed jointly by Bank of Kathmandu and beed, a think tank, has received capital injection of $7 million from the International Finance Corporation (IFC), a member of the World Bank Group. [break]The remaining $7 million will have to be raised by the fund manager, which was selected by the IFC through bidding.
The fund was established at a time when SMEs that have the potential to grow, but lack capital, often cannot expand due to existence of a conservative lending market that does not extend credit without backing of collateral.
"We hope the venture fund provides a new dimension to enterprise development in the country," Ajay Shrestha, CEO of Bank of Kathmandu, told a press conference organized in Kathmandu on Tuesday.
Under the concept, BO2 will make capital injection of up to $500,000 (Rs 42.5 million) in an SME for a period of up to five years. To qualify for equity investment, a firm´s annual sales and assets should not exceed $3 million each, while employee base should be less than 50.
"If they meet the criteria and if the business looks promising, we will conduct a due diligence audit of the company prior to making investment," Suman Rayamajhi, CEO-designate of BO2 and co-founder of beed, said, adding, start-up companies and those engaged in production of alcohol, tobacco, arms and ammunitions will not qualify for BO2 equity investment. "Our focus will be on companies that are deprived of bank loans due to lack of collateral," Rayamajhi informed.
Once BO2 makes investment, it will start working as a business partner with the SME. "This entails providing advisory service and helping the company formulate marketing strategies, among others," Rayamajhi said. "Our main focus will be on building the capacity of the firm so that they can reach next level…. and be able to return the investment that we made."
BO2 currently has plans to make investment in 7,200 SMEs in next four years. Of these, 50 percent will be located outside Kathmandu Valley. "Our projection is to get over 17 percent return on investment per year," Rayamajhi said.
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