Development Finance

Development finance is a portfolio of financing solutions to support private sector led industrial development and economic diversification.

The role of DF 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 transferrable instruments
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 moneys belonging to the Corporation in any project, undertaking or enterprise;
Providing technical, advisory or managerial assistance and services;
Providing plant or machinery for the purposes of any project, undertaking or enterprise.
There are currently 3 finance instruments offered

Development Financing

Equity financing
Project Preparation Fund

Debt Financing

Quasi equity
Supply Chain Finance

Debt Enhancing

COVID-19 Response PCG

Equity Financing

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 where they deem fit

Project Preparation Fund

The PPF is designed following a trust fund model where Government/LNDC will contribute funding together with external partners, and the LNDC will act as the administrator. Unless otherwise agreed with funding partners, the PPF 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

Description

PPF offered as a grant to finance feasibility assessment/ financial due diligence.

Grant amount per customer

Subject to LNDC during the approval phase, availability of funding andagreements with partners. Standard projects will involve investments with an average size of M 150,000, while large projects will have an average size of M 1,000,000.

Pricing

2.5% application fee to promoters on requested funding within 3 days of application submission. 5% admin fee to partners on funding contributions; charged on declining basis.

Eligibility

Contribute 20% project costs; LNDC/ NSDP II priority sectors; 3-year track record; no payment default in 3 years; not engaged in negative activities; etc.

Supported activities

Pre-feasibility and feasibility studies; Financial, technical, environmental feasibility assessments; Advisory services etc.

Performance management

At least 2 transactions a year. Plus resource mobilisation targets from year 3.

Quasi Equity

Quasi Equity instrument will provide innovative finance to fast growing local companies which 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 like junior debt, convertibility or extended maturity for higher premium during the market survey.

Quasi Equity Instrument

Description

Standardized profit-sharing product, financed through a Fund; and applications approved by an Independent Investment Committee

Loan amount

At or above M15m Fund Capitalization, 15% single borrower limit i.e. M2.25m maximum per entity.

Maturity

3 to 7 years

Pricing

Fixed period interest payments (prime minus 2%) and fixed % of firm’s future profit (20% royalty on annual profits post 2-year grace period) – more expensive than bank loan due to higher risk and zero collateral. 2.5% application fee on requested funding.

Repayment modalities

Total Exposure

80% maximum exposure to 3 priority sectors (50% agriculture; 30% manufacturing; 20% construction/transport); 20% other (NSDP) sectors

Collateral value and type

Standard practices in the banking business shall apply

Application approval

By an Independent Investment Committee of 5 members, 2 from LNDC and 3 independents; at least one with investment experience.

Eligibility

Basotho/ permanent residents owned; fast growing; medium to large firms with 3 years of profit and 10% growth in annual turnover in last 3 years, with financial statements; active in LNDC priority sectors; Contribute 20% project costs; 2 personal guarantors.

Performance management

At least 2 transactions a year

Supply Chain Finance

The purpose of the Supply Chain Finance is to foster business lending by leveraging: access to audit corporate procurement market, government procurement market and export market through creating links between large corporate buyers, government market and local suppliers, allowing these suppliers to use their receivables and service level contracts from buyers to unlock working capital financing from LNDC.

Description

The goal of the LNDC Supply Chain Finance is to stimulate enterprise development and job creating economic growth with a view to provide just in time access to working capital finance, broaden participation of Basotho owned businesses in the supply chain of goods and services, stimulate export based businesses, and stimulate sustainable employment generation.

Grant Amount per Customer

The Supply Chain Finance facility shall have a minimum exposure of M30,000.00 maximum of M5 million per applicant.

Pricing

The Supply Chain Finance facility shall change prime rate linked interest rates and applicable fees as shall be determined management of the LNDC.

Eligibility

The Supply Chain Finance shall support made of goods and services in all sectors, with a special emphasis on Construction, Engineering, Energy, Services, Agro processing, Manufacturing, Commerce, Mining and Quarrying. Transport and Logistics, Tourism, and Information Technology.

The Supply Chain Finance shall apply to suppliers pre-approved and listed in the LNDC Business Registry Database.

Supplier of goods and services shall be a local enterprise with at least 75% shareholding of Basotho. A Mosotho citizen is a citizen by birth or by naturalisation. A naturalised citizen is a third generation of the family.

Supported Activities

The goal of the LNDC Supply Chain Finance is to simulate enterprise development and job creating economic growth with a view to provide just in time access to working capital finance, broaden participation of Basotho owned businesses in the supply chain of goods and services, stimulate export based businesses, and stimulate sustainable employment generation.

COVID-19 Response PCG (C-PCG)

The Partial Credit Guarantee (PCG) Scheme within LNDC started operations in 2011 and has leveraged M34 million worth of lending to SMEs since its inception. The Board of Directors approved the restructuring PCG’s in April 2020 to response to the effects of Covid-19 on the economy and to improve its impact and reach. The newly approved scheme which will run from 2020 to July 2025 can be summarized by the Table below. It expands guarantee cover from the previous 50% to 75% of the loan; waived all fees; covers all sectors and business activities irrespective of ownership whether local or foreign, except normal negative list activities; and increase maximum guarantee amount from M5 million to M8 million and the lower limit of M200,000 removed and be determined by the bank’s lending criteria.

Type of Loan Facilities Supported

Term loans (short, medium and long term); Working Capital; Leasing finance, vehicle asset financing,bank overdrafts.

Description

Up to 75% cover.

Guarantee Amount

8million maximum; lower limit determined by the bank’s lending criteria.

Loan Maturity

60 months

Repayment frequency

As per bank’s agreement with the applicant.

Pricing

Application Fee: WAIVED.
Guarantee Fees: WAIVED.

Collateral type

The Lender is free to accept any collateral including assets to be purchased with the loan proceeds

Collateral value

Promoters must provide at least 7.5% collateral (or as may be required by the bank).

Application Procedure

Loan applications needing the guarantee submitted directly to commercial banks. LNDC partner banks are FNB,Lesotho Post Bank Nedbank and Standard Lesotho Bank. Applicants should not submit to the LNDC by applicants.

Eligible Projects

All locally registered enterprises registered for a minimum of 12 months operating in all sectors of the economy l. Excluded activities include illegal activities and speculative transactions such as real estate transactions.