The Lesotho National Development Corporation’s (LNDC) strategic plan for 2018 to 2023 institutes the creation of the development finance (DF) strategic business unit with the mandate to ‘develop a portfolio of financing solutions to support private-sector-led industrial development and economic diversification. These include the equity finance, debt finance, project-preparation facility, Treasury/resource mobilisation and equity-portfolio management’.

The unit was established in 2018 following approval of the new strategic plan, prompting the subsequent design of three instruments, namely an equity fund; quasi equity; and a project-preparation facility.

The work proceeded with a market survey to assess the nature of financing needs faced by large enterprises and SMEs in order to validate the need for the instruments and to inform their design. The resulting feasibility study recommended that LNDC should start by restructuring the existing Partial Credit Guarantee (PCG), and setting up the quasi-equity and project-preparation instruments, and introduce the equity fund only in the second phase of the project. Other financing instruments include a trade finance instrument and an instrument that targets small and medium-sized enterprises, the set-up of which will also be included in the second phase of the project.

The role of DF is extracted from the LNDC Act No 20 of 1967 as per specific clauses. Under Section 5.1 (d) is to raise, lend or borrow money; to make advances to any company, form or person; to lend and advance money to companies, firms or persons owning or engaging in any business similar to or related to that of the corporation; to guarantee payment of cash or performance of contracts by any such company, firm or person on any terms as maybe agreed upon; and to issue debentures, bills of exchange and other negotiable or transferable instruments.

Under Section 5.1 (e) is the direct expenditure on or towards the implementation of the project or undertaking or any of the objectives of the project or undertaking; making loans or grants for the purposes of the project or undertaking; investing any monies belonging to the corporation in any project, undertaking or enterprise; providing technical, advisory or managerial assistance and services; and providing plant or machinery for the purposes of any project, undertaking or enterprise.

The PCG scheme, initially launched in 2011 and modified in April 2020 to respond to the COVID-19 pandemic, can now cover up to 75% of the loan amount. The Lesotho government, through the Ministry of Finance and the LNDC, signed an underwriting agreement of LSL350 million for the COVID-19 PCG support. The scheme has expanded eligibility criteria to all locally registered businesses irrespective of nationality and covers all sectors of the economy due to this agreement, and it further suspended the PCG administrative fees.

The PCG scheme has made the most significant traction and, from June 2021, it gained exponential momentum through streamlining of processes by the new management and the board of the LNDC to improve turnaround time on approval of applications from banks. The scheme was able to approve loans worth ZAR123 037 996.50 between August 2020 and June 2022 as opposed to the ZAR31 269 138.00 approved since inception (2011) of the scheme to March 2020. This shows the level of commitment from the LNDC’s new management and board to drive a private-sector-led economy through this scheme.

Since then, the LNDC held the annual PCG scheme forum earlier this year to provide a platform to interact with beneficiaries of the scheme and partnering commercial banks. The PCG scheme has supported a total of 112 enterprises, which vary in size, 29% being micro, 42% small and 29% medium-sized. Furthermore, it has 131 loans at a total value of LSL135 891 691.

As part of the PCG forum, beneficiaries were recognised for their efforts in consistently and efficiently servicing their obligations, and participating commercial banks were also recognised for their contribution in making the PCG a success.

There were two awards for banks namely, Most Promising Bank, which was awarded to Standard Lesotho Bank, and Best Performing Bank, which was awarded to First National Bank of Lesotho. A third award was presented for the first time for Banker of the Year.

Quasi equity
The quasi-equity instrument will provide innovative finance to fast-growing local companies that promise high-development effects. The product will be offered as a standardised profit-sharing arrangement as this set-up came highly favoured over other options such as junior debt, convertibility or extended maturity for higher premium during the market survey. A broad range of feasibility studies and other activities will be supported, with financial viability undertaken by the LNDC and more specialised work outsourced.

Project-preparation facility
The project-preparation facility is designed following a trust-fund model where government/LNDC will contribute funding together with external partners, and the LNDC – as the administrator – will charge a fee for managing funds contributed by partners. Unless otherwise agreed with funding partners, the funds will be disbursed as a pure grant to eligible projects with expected high-development effects, subject to project size, preparation needs and fund capitalisation. The aims are to fund development of feasibility studies, business plans, and technical assistance.

Equity finance
The LNDC also has an equity finance product currently only available to support strategic, NSDP II-aligned projects initiated or promoted by the corporation. The product will be made available to the private sector in due course, depending on resource availability. However, private-sector entities are free to approach the corporation with project proposals aligned to the LNDC strategy.

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