Creation Capital has launched a new private credit fund that aims to increase financing for South Africa’s micro, small and medium enterprises (MSMEs), a move expected to help address one of the country’s biggest barriers to business growth.
The Creation Yield Fund, listed in Cape Town, is designed to bridge an estimated R350 billion (US$21 billion) funding gap facing South African small businesses. The fund, which has a target size of R3 billion and an initial issuance of R300 million, is among the country’s first regulated exchange-listed note structures to include privately originated debt investments. A large local pension fund has anchored the initial issuance.
The proceeds will be directed to micro, small and medium enterprises, as well as mid-market corporate businesses, through non-bank financial lenders. The initiative is expected to improve access to finance for businesses that have traditionally struggled to secure funding from commercial banks.
Supporting Business Growth Through Alternative Finance
Small and medium enterprises remain a critical part of South Africa’s economy. They account for about 91% of formal businesses, employ around 60% of the country’s workforce and contribute as much as 40% of gross domestic product. Despite their economic importance, many continue to face difficulties accessing affordable finance.
Creation Capital Chief Executive Officer Kasief Isaacs said the country’s banking sector continues to favour larger corporate borrowers, leaving many smaller businesses underserved.
“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,” Isaacs said.
He added that the new fund has been established to help close that financing gap in a structured way while creating opportunities for investors.
“This fund is squarely aimed at starting to address that gap in a more structured and meaningful way,” he said, noting that market gaps can also provide investors with opportunities to achieve stronger returns.
Data from Trade and Industrial Policy Strategies shows that corporate businesses receive 51% of available bank credit, while small and medium enterprises receive only 13%, highlighting the imbalance in lending across the economy.
Attracting Long-Term Investment into the SME Sector
Creation Capital hopes the fund will attract more institutional investment into South Africa’s private credit market. With a minimum investment of R50 million, it is targeting pension funds, insurers, family offices and high-net-worth individuals seeking long-term returns while supporting business development.
The listed note offers a 10-year investment period with semi-annual coupon payments. Investors will receive their capital and returns when the investment matures. Coupon payments are expected to be set at 1.5 percentage points below the current prime lending rate of 10.5%, while the company expects the investment to generate minimum returns of about prime plus 0.5 percentage point.
The launch comes as South Africa continues to strengthen support for smaller businesses. Earlier this year, President Cyril Ramaphosa committed to reducing regulatory barriers, improving access to lower-cost credit and expanding financial support and government guarantees, particularly for women- and youth-led enterprises.
Although recent corporate defaults in international credit markets raised concerns among investors, senior industry leaders continue to express confidence in emerging markets. They argue that limited capital availability has encouraged stronger lending discipline, helping maintain higher-quality credit standards. Against this backdrop, Creation Capital believes its new fund can play an important role in expanding finance for South African businesses while giving institutional investors access to an alternative asset class with attractive long-term returns.
Source: Bloomberg
