Creation Capital is listing a private credit fund in Cape Town Wednesday to bridge a R350 billion ($21 billion) financing gap faced by South Africa’s micro, small and medium enterprises.
The Creation Yield Fund, among the country’s first to include privately originated debt investments in a regulated exchange-listed note structure, has a target size of R3 billion and initial issuance of R300 million that’s anchored by a large local pension fund.
It will channel proceeds to small and medium enterprises as well as to mid-market corporate firms through non-bank financial lenders.
“SMEs employ about 60% of the workforce in the country and contribute up to 40% to our gross domestic product but they’re struggling with a funding gap because banks still favour corporate lending quite heavily,” Creation Capital CEO Kasief Isaacs said in an interview.
“This fund is squarely aimed at starting to address that gap in a more structured and meaningful way, and it’s an opportunity for clients to generate higher returns because typically when you have a gap in the market, it’s easier to unlock alpha.”
Loans skewed toward corporates
While small- and medium-sized companies make up 91% of formal businesses in South Africa, a lack of funding, weak economic growth and high running and compliance costs threaten their survival.
Preliminary bank-lending data show loans are skewed toward corporates that collectively receive 51% of credit compared with 13% for small and medium business, according to Trade and Industrial Policy Strategies, a think tank.
In February, President Cyril Ramaphosa vowed to make it easier for them to operate by tackling red tape, amending rules to allow them to access credit at a lower cost and pledging financial support and government guarantees to women- and youth-led enterprises this year.
Creation’s fund, with a minimum investment amount of R50 million, aims to bring more institutional capital into the sector from pension funds and insurers as well as high-net-worth individuals and family offices, Isaacs said.
While the 2025 collapse of US car-parts supplier First Brands Group and auto lender Tricolor Holdings rattled credit markets, top executives – including Ninety One Plc CEO Hendrik Du Toit – say the quality of credit in emerging markets is typically better than developed economies because a relative lack of capital has lead to healthier lending standards.
Creation’s listed note will offer semi-annual coupon payments over its 10-year tenor, with investors able to redeem their capital and returns on maturity. Coupon payments are seen at 1.5 percentage points below prime, the main reference rate commercial banks use to price trillions of rand of loans that is currently 10.5%.
The note is expected to generate a minimum return of about prime plus 0.5 percentage point, according to the company.
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