COSEF is the first locally domiciled impact investment company in Uganda and established by Masindi Community Foundation (MCF) that provides financing and technical assistance to SMEs with high growth potential and social impact in partnership with MCF and local angel investors as co-investors, business advisors and mentors.
UN report 2003 estimates that there are over 1.5 million SMEs in Uganda. However, 78% of these SMEs show business failure within the first 2 years due to 2 main problems i.e. lack of financing and business development services.
These small businesses with high growth prospect and good return on investments are too big to access financing and business development services from microfinance institutions and also cannot access such services from formal financial institutions because of their risky nature due to lack of formal collaterals, resulting into a ‘missing middle’.
COSEF taps into this great business opportunity by providing much needed financing, comprehensive Business Development Services (BDS) and Environmental, Social and Governance (ESG) improvements to enable the enterprises grow sustainably, create employment for the increasing number of unemployed youth and rural low income people in the country and also contribute generously to the country’s GDP, while providing superior financial returns to investors.
Due to lack formal collaterals to secure debt investments, SMEs in Uganda require mezzanine and equity financing.
Through these instruments, COSEF provides financing to high growth potential and social impact SMEs with promising Cashflow statements.
COSEF is managed by a local professional investing team consisting of Advisors and Board of Directors. The team has over 100 years combined experience and expertise in the areas of business development, impact and socially responsible investing and appropriate fund management practices, having managed combined assets of over $850m of various investment firms.
COSEF’s TECHNICAL ASSISTANCE AND INVESTMENT PROCESSES
COSEF invests in companies operating within 4 key sectors with high demand for products and services. The sectors are; Agro-processing, Small scale manufacturing, Energy and Financial technology. Other investment criteria are as below;
• Company should have existed for atleast 1 year and having annual turnover of atleast Shs 200,000,000
• Financing request should not exceed Shs 3,000,000,000, structured as either Equity or Mezzanine debt
• Create new and quality jobs for the youth, women and other low income people
• Clear growth potential and led by local experienced entrepreneurs
COSEF’s comprehensive investment process is as below;
• Deal sourcing by COSEF team, angel investors, incubators and accelerators and partner organizations.
• Screening-Assess whether the investment proposition is in line with COSEF’s criteria and identification of interested angel investors.
• Due diligence-COSEF then conducts financial, technical and social evaluation of the company, ESG-related matters and other capacity building needs based on field visit; An action plan for ESG and business improvements is then developed, basing on the outcome of the evaluations.
• Pre-investment support-COSEF’s non-profit arm, Masindi Community Foundation (MCF) then recruits local experienced expert business advisors with expertise in the sector of the selected company to provide on-site pre-investment support for 3 to 7 months to make the company investment ready as follows; (i) provide comprehensive business development services like providing training in the areas of marketing and financial planning, business planning, records keeping etc, where applicable; (ii) implement the ESG action plan like equipping the company’s team with the relevant management skills, ensuring effective corporate governance reforms for the benefit of the company etc, where applicable. All these services are provided to the company at no cost to either COSEF or the company.
• Contracts and disbursements-After the pre-investment training, a formal contract is then signed with the company and the fund is disbursed.
• Post-investment support-The local experienced expert business advisors and angel investors then continue providing post investment support/mentoring for the duration of investment like connecting the company to other quality markets, continuous development of the work force, conducting impact assessments etc, to strengthen the company and ensure growth.
• Exit- An exit strategy is carefully planned with the company prior to contract signing.
COSEF’s CORPORATE SOCIAL RESPONSIBILITY (CSR) POLICIES
COSEF’s CSR policies are as below. SMEs are required to strictly comply with these guidelines.
• SMEs should follow legal procedures when acquiring land for investment purposes and should avoid forcing people off their land. When acquiring land both parties should mutual agreement i.e. the “seller is willing to sell and the buyer willing to buy”.
• SMEs should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.
• SMEs should protect the rights of the local people and should be properly compensated if they are involved into business activities.
• SMEs desist from working with children of school going age i.e. below 18 years and should they be employed as part time workers especially during school holidays, SMEs should ensure they have access to all fundamental child rights. Child labour should be discouraged as much as possible.
• COSEF requires that employees should work a maximum of 48 hours, and a maximum of 8 hours per day, with a maximum of 12 hours of overtime per week. However SMEs can set their working schedules outside the standard one if it’s in the interest of the employees.
• SMEs shall respect the right to employees to decent salaries sufficient to meet key needs of an employee and to provide additional income. All local employees whether on permanent or temporary basis shall have contracts in which the rights and responsibilities of both parties are clearly stipulated.
• Employees should be allowed to voluntarily join workers unions or organizations and to participate freely without being intimidated. SMEs should establish and respect policies regarding recruitment, promotion, dismissal or transfer of employees.
• SMEs should provide equal employment opportunities and discourage discrimination as much as possible.
• SMEs’ activities should take into consideration health and environment effects on the employees, plants, animals and communities. SMEs should work towards mitigating such risks/effects.
• SMEs should respect, preserve and protect cultural heritage in their areas of operation from negative effects of project activities.
• SMEs should ensure that the goods and services they deliver comply with all agreed upon norms regarding health and safety of customers.
• SMEs should pay taxes promptly. Evading taxes is high unacceptable.
• SMEs should desist from all corruption tendencies eg. receiving a bribe; (i) to promote an employee; (ii) award an employment contract etc.
• SMEs activities should conform to required national laws and regulations that cover issues concerning agreements between companies that aim to limit competition eg respecting fixed prices.
COSEF’s EXCLUSION LIST
COSEF shall not invest in any SME or activity involving:
• Cross-border trade in waste and waste products.
• Destruction of conservation areas i.e. fauna and flora.
• Any product or activity deemed illegal under national laws or regulations or international conventions and agreements such as: Hazardous pesticides/herbicides or chemicals; Wildlife or products regulated under the Convention on International Trade in Endangered Species; Unsustainable fishing methods.
• Radioactive materials. This however does not apply to the purchase of medical equipment, quality control (measurement) equipment or any other equipment where the radioactive source is understood to be trivial and/or adequately shielded.
• Pornography or prostitution.
• Racist and anti-democratic media.
• Weapons and munitions, tobacco, gambling and casinos.