NIMAI AFRICA FUND

NEWSLETTER – MAY’20

KEY HIGHLIGHTS NIMAI NEWSLETTER

COVID has emerged as one of the biggest Nimai Capital believes the short-term impact of challenges globally & investment manager COVID & downgrade of by Moody’s will be expects situation to stabilize & improve in severe on Financial Services Companies in East FYH20 Africa, higher NPLs & lower liquidity but higher demand for credit

Nimai Africa Fund is progressing well with its Nimai Capital sees an opportunity to invest in Fund raise & has raised $25 Mn in hard & soft healthy Banks, NBFIs & Fintechs as they come out commitments from investors globally to raise capital to shore up their Balance Sheets & capture market vacated by weaker players

Nimai Africa Fund is targeting First Close at Manish Parmar, Director Business Development, $35-40 Mn from Investors in Africa, Middle Victoria & Sam Wanjohi, CEO & East & India between September – Founder, Popote Pay have also shared their views December’20 on the current situation of FS space in East Africa

East Africa has been active from Fund raising for Nimai Capital sees faster adoption of digital Funds & New deal activities between Sept’19 & modes for Financial services globally & expects May’20. 5 Funds raised capital from international significant opportunities & demand for Fintech LPs & 9 Companies raised capital from several Companies local & global Funds. Fintechs raised $125 Mn across 6 deals

Nimai’s Investment Team represented the Listed Kenyan Banks, Insurance & Financial Fund on speaking sessions held in Kenya, Saudi Services Companies performed better than global Arabia & Sri Lanka on Fund raising in times on peers, average 20% correction see in Banking Covid & Private Equity simplified stocks compared to 30-35% corrections across other emerging markets

We are pleased to share with you that we have initiated a knowledge series where we will invite industry participants to share their views on various aspect of Private Equity & Venture Capital Industry. Our first event for “Nimai Knowledge Conclave” is being scheduled for 13th June’20 at 2.30 pm GST & our topic for discussion will be “How will Private Equity evolve in a post COVID scenario & Potential Investment themes for Investors”

Dear Investors & Friends,

As we all know, over the past 90 days, there has been a significant global disruption due to the outbreak of Coronavirus across countries. The COVID 2019 pandemic has emerged as one of the biggest global challenges in recent times. Government Agencies, Markets, Corporations, Individuals are globally working on a war footing to contain the spread of this virus through various measures of containment such as completely restricting inbound & outbound travel, closing offices and schools & encouraging work from home & social distancing, cancelling visas for all non-citizens & non-residents as well as setting up hospitals, quarantine facilities, airport check-ups, testing centers & ensuring sufficient supply of medicines, kits and facilities for everyone.

Even though some of the governments globally have taken necessary steps to gradually open the economies since beginning of May, we believe the path to recovery & completely normalcy will be slow & can take upto Q4 CY 20.

These are un-precedent times for all of us. We wish you & your family & your employees to be safe & healthy during these testing times & hope we all are contributing towards the containment of this virus. We stand by all our investors & friends & are available to them in every way to overcome this challenge.

As we had informed earlier, Nimai Fund had made some good progress on the fund raising side in the last 6 months & had garnered hard & soft commitments of roughly around $25 Mn from potential investors including , its relationships & Nimai Capital relationships from Africa, UAE & India & that the fund was targeting a first close by May/June of this year at $35-40 Mn. However, given the recent globally pandemic situation & travel restrictions, the conversations with investors have slowed down and now we expect to have the first close of the Fund between Sept – Dec quarter. In the meanwhile, we have increased our outreach to more investors to reach our target first close.

We have started actively reaching out to Banks in 35+ countries, who have an Overseas presence but not in Africa yet or do not have a presence in East Africa, to become a strategic investor in the Fund & become an exclusive Bi-Lateral partner for our Portfolio Banks & Financial Institutions from their respective country. We have also similarly started reaching out to Wealth Management platforms in India to be a strategic investor in the Fund & become an exclusive partner of our Portfolio Banks & Financial Institutions to offer plug & play wealth management services in Africa given that there is a huge presence of Indian Diaspora in Africa (generally with higher per capita income).

We believe the above two route will not only bring capital to the Fund but will also add significant value to our Portfolio Banks & Financial Institutions by bringing in new clients & also generating substantial revenue/fee income by offering multiple products & services in partnerships with other Financial Institutions thus making our “Value Oriented” approach towards investing even more stronger.

We continue to believe that the pandemic situation globally should stabilize by June/July & that the businesses should be able to look for a better period post September quarter. We are mindful of the fact that the new business norms globally won’t be same for sure & physical meetings will be less & less required. It will be interesting to see how the PE industry evolves in the midst of this which has historically relied on meeting in person both on the fund-raising side as well as deal making side.

OPPORTUNITY TY We at Nimai Capital believe that COVID will be a watershed moment for the tech & non-tech Financial Services business. As people resort to online to conduct their day to day business, the demand for completing their financial services transactions will also move online. We are seeing an increasing trend towards online for spending, saving, insuring, transacting, investing, incurring expenses, making payments & borrowing online with limited human interaction expected during the process. People prefer paper less, presence less & cash less mode for accessing their financial services requirements. This will pave the way for Digital Financial Services Companies in a big way in the coming decades. Banks & Financial Institutions will also have to adopt a proper digital strategy to compete with new age business. They will have to increase budgets & set-up a dedicated business unit focussing on transition to digital way of acquiring & serving consumers. Insurance space especially will witness the biggest & the fastest growth globally over the next decade as people increasingly realise the need to have a proper cover for themselves & for their families. Traditional Banks & NBFCs will also have to roll up their sleeves to sail through the COVID situation. Balance sheets will be affected in the short to medium term & liquidity will be tight, however, well capitalised institutions will sail through the crisis well & the industry will witness widespread consolidation or collapse of smaller in-efficient players.

Lastly, Empirical studies prove that every crisis presents an excellent opportunity for private equity fund managers to buy assets at even attractive valuations. As per studies conducted by private equity consulting groups such as Cambridge Associates & Preqin, first time private equity funds established during the global financial crisis have generally outperformed the established private equity funds by 400-500 bps. Moreover, first time private equity funds in general have outperformed traditional established private equity Funds by 300-400 bps.

TeamTEAM Update: UPDATE

The Investment Manager has identified six investment professionals to be on boarded on the Fund platform with prior experience in private equity investments in East Africa. The investment team has prior experience of working with top DFIs, Big 4 Audit firms, established private equity firms & investment banks in East Africa. Together with both the Managing Partners, the Investment Team now has 63 years of cumulative experience between them of investments, operations, asset management & fund raising.

THOUGHT LEADERSHIP

The Investment Manager & the Sponsor have participated in various thought leadership events globally as speakers, panelists & moderators.

Forum Agenda Participants from NIMAI Key Industry Participants ICAI East African Effects on Covid 19 on CA Adinarayana Balcha, Chairman, Pankaj Mundra Chapters Business Elements Chapter

CA Atul Gupta, President, ICAI, India CA Aman Vohra, Chief Controller, Bakhresa Group, CA R. Sathyamoorthy, Chairman, , Chapter CA Rajesh Chaplot, Pravasi Bhartiya Awardee, CA Manoj Mehta, Head of IT at Ramco, Kenya CA Sumit Shekhar, EXIM Bank, Tanzania Pankaj Mundra IMAI & ICAI Saudi Fund Raising & Private CA Vijay Soni, President IMA, Saudi Sagar Agarvwal Arabia Chapters Equity Simplified Arabia James Mudie Finance in Times of Crisis Acclivity, Sri Pankaj Mundra & Private Equity Saminda Weerasinghe, CFA, Director Lanka Nisarg Dugad Simplified

PIPELINE

The Investment Manager has started actively building its pipeline for the Fund. Please see below some key transactions that the Investment Manager is currently evaluating:

Company Description Deal Size Country Source One of the leading commercial vehicle financing Company NBFC A in Kenya with more than $60 Mn in Asset Book & 5000+ $5-7 Mn Kenya Proprietary SME customers in Kenya One of the leading digital lenders offering business & Fintech A personal loans in Kenya to more than 0.5 Mn unbanked & $2-3 Mn Kenya Banker under banked customers Microfinance Bank One of the leading Microfinance Banks in Kenya with more $3-4 Mn Kenya Banker A than 20 years of Track Record & 1.4 Bn KS of Loan Book One of the leading Pension Manager in Ghana managing Asset Manager pension contribution of 62,000 members with more than $5-6 Mn Ghana Big 4 $100 Mn assets under management One of leading fintech company with a SAAS platform for Fintech B $2-3 Mn Kenya Proprietary managing expenses & accounting management for MSMEs One of the leading API infrastructure Company allowing Fintech C start-ups & businesses to tap into its API network & create $5-7 Mn Nigeria Proprietary customized payment solutions One of the leading B2B platform connecting Merchants Fintech D with Suppliers directly & facilitating orders, payments & $5-7 Mn Kenya Proprietary logistics One of the leading Neo Banks offering mobile payment & wallets to unbanked & underbanked. Providing financial Fintech E $5-7 Mn Ghana Big 4 services for >5 yrs by connecting banks & wallets through bilateral arrangements globally One of the leading NBFCs offerings savings & lending $10-15 NBFC B products to MSMEs, using tech to lend for hire purchase Ghana Big 4 Mn requirements, been in operations for about 20 yrs One of the leading B2B Fintech players offering full stack Fintech F offline to online services for small mom-pop retailers $5-7 Mn Kenya Proprietary across Kenya

EFFECT OF COVID-19 ON AFRICA & FINANCIAL SERVICE SPACE

East African countries are home to more than 400 million people & account for more than 50% of the Africa’s GDP. Like majority of the countries globally, East Africa has also been impacted by the current global COVID situation. Majority of the impact is expected in the agriculture & informal segments of the economy which typically constitutes of more than 44 Mn businesses & employs more than 80% of the workforce in East Africa. Furthermore, the direct impact of COVID will be felt across Hospitality, Travel & Tourism industry, Automotive sales, Restaurant industry, Oil & Gas Industry & Consumer space. Some of these industries will take much longer to recover than others.

In Kenya, projected GDP growth in 2020 now stands at 1% from 5.7% due to the gravity of the pandemic with the economy seeing a decline in tourism activity, agriculture export revenues & disruptions in the supply chain. In , the country is expected to grapple with high unemployment & its GDP growth has been revised to 3.2% from 6.2% in 2020. Similarly, the outlooks in Tanzania & Uganda show a similar trend with GDP growth being revised to 2% & 3.5% respectively (decline of 3.3% & 1.8%). Tanzania is showing waning demand for mineral exports considering global supply chain interruptions. The economy in Uganda has also faced disruptions of its supply chains & weakened global demand for its goods.

Credit rating agencies have also downgraded the outlook for many African countries including East African countries given the large gross borrowing requirements, which include amortization of external bilateral debt & the need to refinance a large stock of short-term domestic debt have seen rating agency Moody change Kenya’s sovereign credit outlook to “negative” from a previous outlook of “stable”.

However, not all is lost in COVID. Governments in East Africa have announced several fiscal, monetary & institutional policies to cushion the impact of virus on the economies such as reduction of direct & indirect taxes, reduction in interest rates, loan moratorium, flexible provisioning requirements & cash transfer to vulnerable members of the society. We believe this will provide strong support to MSME businesses, daily wage workers & SMEs/Corporates as well. IMF estimates a V shaped recovery for East African economies for 2021 & expect it to grow by 5-6% as similar to 2019 levels.

We have also analyzed the impact of the COVID on the Individual sub-segments of financial services space in Africa:

BANKS & FINANCIAL INSTITUTIONS

Banks & Financial Institutions (NBFCs & MFIs) across East Africa market will likely see a significant impact on the assets & the liability side of the Balance sheet. Given that majority of the exposure of Banks & FIs is to agricultural trade, travel & tourism industry, real estate & MSMEs, we believe that most of the Banks & FIs will see a significant spike in non- performing loans on the Balance sheet. Majority of their customers have opted for restructuring of existing facilities leading to delayed repayment cycle for Banks & FIs. However, the overall write offs on the books is expected to be much lesser than initially anticipated given that most customers have opted for restructuring.

On the Liability side, the Banks & financial institutions will find it difficult to raise capital from International Banks & Multilateral organizations given the downgrade of their own economies. There could be some respite on the deposit side for the Banks & FIs as Businesses & Consumers focus on saving money than investing or spending.

Banks & FIs must increasingly focus on managing their Asset Liability mismatches & Liquidity situation will be very important for Banks as repayments get delayed. Banks & FIs will healthy balance sheets, strong deposit franchise & strong promoter backing will come out relatively unscathed & stronger from the current COVID storm. This bodes well for PE funds investing in Financial Services as more Banks & FIs will come out to raise capital to shore up their Balance Sheets & valuation at which these investments will be available will be more attractive & will produce superior returns for PE funds.

INSURANCE PLAYERS

Insurance industry will be one of the key beneficiaries from the fall out of COVID. We expect significantly lower claim losses for the current year across Life & Non-Life Insurance segments given the lack of economic activity & only gradual recovery of business during the year. New policy Sales & annual premium incomes generated will be affected given the dependence of distribution on physical sales channels. Some segments such as travel insurance & group insurance will be affected more than the others. However, we believe the COVID situation will fasten digitalization & disintermediation process for Insurance Companies & increasing number of Insurance players will focus on distributing, generating sales & acquiring customers through digital partnerships. Over the long term, we expect Life & Non-life Insurance players to also benefit from an increase in healthcare awareness & mandatory health check-ups post COVID. We will also see more sachetisation of the Insurance products, increasing use cased based insurance policies, AI/ML/IOT based sourcing, distributing, pricing & underwriting of insurance policies by underwriters.

FINTECH PLAYERS

Digital lenders will also face significant challenges during the year due to increasing number of consumers adopting for moratorium or restructuring of loans. Non-performing loans will increase in the short to medium term while the actual impact of write offs & provisions will only be clearer post resumption of normalcy in the economy. Funding lines will be squeezed more for Digital Lenders given the lack of regulation for Digital Lending in East Africa. Banks, Individuals & Financial Institutions will be wearier of lending to Digital Consumer Lenders. We believe well-funded digital lenders such as Tala & Branch that have recently raised capital will be better placed to tide the impact of the crisis as compared to thinly funded Fintech players. This will also lead to cleaning up of the Digital Lending space which has more than 100+ players today operating & competing for the same consumer class. On the demand side, we are seeing increasing demand for further borrowing amongst Consumers & Businesses which augurs well for well-funded Digital Lenders. The demand for mobile money transfer has also increased significantly during the COVID scenario. Central Banks across East Africa has acted as a catalyst to drive the mobile money market by lifting the ceiling for mobile money transfers & making mobile money transfer upto $10 charge free leading to further adoption of mobile money. We believe this will be a watershed moment for Digital Financial Services players as people spend more time on their Phones & access Banking & Financial Services products through their handsets. Players that will survive COVID will be able to capture the market better, reduce their costs of customer acquisitions due to limited competition, extend partnerships with Banks & Financial Institutions, improve their underwriting processes & expand across geographies.

INDUSTRY FEEDBACK ON AFRICAN FINANCIAL SERVICES

Manish Parmar – Director, Business Development, Victoria Commercial Bank, Kenya. Victoria Commercial Bank is a Commercial Bank based in Kenya providing Doorstep Banking, Corporate Banking & Private Banking to all its Corporate Customers & has an Annual Client Banking portfolio of $1.5 Bn

“As with the rest of the World, Kenya has not been spared with effects of the Global Pandemic – COVID -19. There has been a significant drop in revenue (~50% or more) for most sectors & the ones that are linked to essentials are the only ones sustaining operations at the same level. This in turn has had an impact on the informal sub-sectors in the supply chain that consist of 80% of Kenya’s employment. The Government has been quick in setting up measures to cushion the financial effects by providing payment holidays for borrowers & reduction in taxes. Some of the indirect effects that could change the dynamics of the finance sector is the downgrading of Government of Kenya’s rating from Stable to Negative by Moody’s. The opportunity for Nimai Africa is that they would be able to pick up equity in preferred financial institutions at much lower valuations & thus further upside in the fund in long term is inevitable.”

Sam Wanjohi, CEO & Founder, Popote Pay, Kenya. Popote Pay is a leading tech platform out of Kenya that assists SME’s to aggregate their Mobile wallets & Bank accounts & make payments, manage expenditure, perform accounting, & access saving & loan products, all from a singular application

“Africa’s SMEs are vital to the economy, providing over 80% of jobs & 40% of GDP, but aren’t well supported with digital payment platforms, finance management tools & credit from existing providers. For this reason, Africa’s SMEs have not transitioned to digital payments & continue to contend with petty cash risks, cheque inefficiencies, improper accounting & other challenges which contribute to their high rate of failure or difficulty scaling. Shifting habits in the current pandemic economy are creating further pressures on SMEs: reduced close-contact has created an increased need for business tools that support remote financial management across distributed teams & a need to replace actual cash/cheques to manage petty cash & other payables with an integrated solution. Popote Pay, is one such solution that addresses this need. Popote Pay has been adopted by hundreds of businesses across sectors & the company has begun partnering with financial institutions to white label it for their customers. Since the pandemic set in, Popote Pay has experienced an upwards spike in new users attracted by its ability to enable teams manage their payments remotely. The company is raising funds to scale in Kenya & enter other African markets by leveraging partnerships with Microsoft, VISA & Finastra given the greater need for its service in the new, digital heavy, low touch economy”

Please reach out to Pankaj Mundra, CEO & MD at [email protected] & Sagar Agarvwal, CIO & MD [email protected] for more information on any deals or transactions or partnerships.

INVESTMENT ACTIVITY & KEY DEVELOPMENTS IN PRIVATE EQUITY & VENTURE CAPITAL IN AFRICA

INVESTMENT IN AFRICAN PRIVATE EQUITY FUNDS (Sept’19-May’20)

Fund Group Description Mediterrania Capital Partners, the Private Equity firm focused on growth investments for Mediterrania Capital SMEs & Mid-cap companies in North and Sub-Saharan Africa announced it had reached a Partners EUR 286 mn final closing for its third fund for Africa, Mediterrania Capital lll CDC Group has committed $15 mn to TLcom’s TIDE Africa Fund to support early-stage TIDE Africa Fund high-growth start-ups across sub-Saharan Africa (SSA) Razorite Healthcare Fund African Development Bank has approved a $10 mn equity investment in Razorite Healthcare Africa Fund 1 to help improve healthcare infrastructure delivery across Africa Métier Sustainable Proparco has committed $10 mn into Metier Sustainable Capital International Fund II for Capital International Fund creating renewable assets infrastructure across Africa II Lagos & Nairobi based Novostar Ventures, a sector agnostic tech focused venture fund, Novostar Ventures have announced that they have raised $108 Mn in new commitments for its Fund II

KEY INVESTMENTS INTO COMPANIES (Sep’19 – May’20)

Company Description Deal Size MayFair Commercial International Bank, Egypt, backed by FairFax Holdings, completed the 51% $35.0 Mn Bank, Kenya acquisition of , established in 2017 in Kenya with 0.17% market share Co-Operative Bank of Kenya, ranked as no 4 in market share out of 39 banks in Kenya, Jami Bora Undisclosed has applied to of Kenya to acquire majority interest in Jami Bora Bank, Bank Amount MFI Bank with 0.12% market share & 17 branches across Kenya Transnational Access Bank PLC, acquired a 100% stake in Transnational Bank PLC for an undisclosed Undisclosed Bank amount. Amount Flutterwave Pan Africa focused Fintech, Flutterwave raised its Series B round led by WorldPay FIS $35.0 Mn Apollo Agri Apollo Agriculture raised its Series A round led by Amethis, Accion & Flourish Ventures $6.0 Mn IFC & Partech invested an amount of $9.6mn in Pan Africa focused payments firm, TerraPay $9.6 Mn TerraPay Jumo, leading Digital lender across Africa has raised its Series B round led Goldman Jumo $55.0 Mn Sachs, Leapfrog Investments & Odey Asset management Kenya leading B2B Agtech Company Twiga Foods has raised its Series B round led by Twiga Foods $23.5 Mn Goldman Sachs Nigerian fintech platform Okra has secured pre-seed fund raise from TLcom Capital. Okra $1.0 Mn Okra is an API platform connecting Banks & other third-party apps

KEY COMPANY UPDATES (Sept’19 – May’20)

Company Update Visa & Safaricom, Kenya’s largest telecom Co & operator of M-Pesa has announced a M-Pesa & Visa partnership on payments & tech to share infrastructure & develop products that will support digital payments for M-Pesa customers.

Visa has also teamed up pan African focused Fintech, Flutterwave to launch an E-commerce Flutterwave & Visa platform for Africa allowing African merchants to create digital shops & sell online Visa has entered into a partnership with Nigeria based startup Paga on payments & technology Paga & Visa whereby Paga users will be allowed to transact on Visa’s global network Jumo & Twiga Pan African Ecommerce player Jumo has partnered with B2B Agtech player Twiga Foods to Foods deliver produce across Kenya using Jumo online infrastructure Pan Africa focused payment startup PalmPay will waive transfer fees in Nigeria and offer direct Palm Pay payouts to customers who have contracted COVID-19 in the West African country

PERFORMANCE OF LISTED FINANCIAL SERVICES COMPANIES IN KENYA

Market 3 months 1 Yr Price CMP Current Current Company Cap (KS Price Change NIM ROE (KS) P/B P/E Mn) Change (%) (%) Banks Equity Holdings Group 138,870 36.7 -27% -1% 8.5% 1.24 6.18 20.18% KCB Group 110,990 37.6 -26% 3% 8.2% 0.89 4.60 19.40% Cooperative Bank of Kenya 76,270 13.0 -13% 18% 8.5% 0.98 5.35 18.40% Standard Chartered Bank 59,770 172.2 -15% -4% 7.6% 1.25 7.48 19.03% Absa Bank Kenya 56,760 10.5 -20% 1% 7.7% 1.29 7.98 16.46% I&M Bank Kenya 41,260 49.9 -7% -20% 6.0% 0.71 3.82 18.71% NIC Bank Plc 41,190 27.1 -24% -13% 6.0% 0.60 6.67 13.8% Stanbic Holdings 35,180 85.2 -20% -13% 5.1% 0.68 5.28 13.01% DTB Kenya 20,690 75.2 -33% -37% 6.0% 0.32 3.17 12.30% BK Group 17,160 18.6 -17% -40% 11.4% 0.64 3.95 16.81% HF Group 1,410 3.9 -23% -9% 4.0% 0.15 N/A N/A Mean -20% -10% 7.2% 0.79 4.84 15.21%

Insurance Jubilee Insurance 18,080 249.5 -29% -38% N/A 0.64 4.32 14.80% Britam Holdings Plc 16,660 6.4 -25% -22% N/A 0.60 9.63 6.48% Kenyan Re-insurance 6,860 2.4 -19% -84% N/A 0.20 1.69 12.18% Corporation CIC Insurance 6,170 2.2 -14% -38% N/A 0.77 18.65 4.09% Liberty Kenya Holdings 4,450 8.2 -20% -15% N/A 0.53 5.80 9.21% Sanlam Kenya 2,380 15.4 -17% -19% N/A 1.20 19.38 6.59% Mean -20% -36% N/A 0.65 9.91 8.81%

Other FSC Home Afrika ltd 18,080 0.4 -4% -31% N/A N/A N/A N/A Centum Investment 15,970 25.0 -8% -21% N/A 0.31 4.03 7.98% Stanlib Fahari 1,090 6.6 -25% -14% N/A 0.31 6.83 4.60% Kurwitu Ventures Limited 153 1500.0 0% 0% N/A 2.00 N/A N/A Mean -9% -16% N/A 0.40 5.43 6.29%

Note: For Kurwitu Ventures we are taking the audited figures of 2018 to calculate the values. For Home Afrika Ltd. we are using the unaudited results for the period 30th June 2019. For Britam Holdings we have taken the Unaudited Summary Consolidated Results for The 6 Month Period Ended 30 June 2019. The values for HF group are calculated using the audited financial statements of 2018.

DISCLAIMER

This Newsletter is prepared for information purposes only & does not constitute an offer. The market data in the presentation has been taken from sources we believe to be reliable; we do not guarantee its accuracy or completeness. Unless otherwise stated, all statements, figures, graphs & other information included in this presentation are as of the date & subject to change. The information contained herein shall not form the basis of any contract or invitation.

Recipient should not construe any of the contents herein as an advice relating to business, financial, legal, taxation or investment matters & are advised to consult their own business, financial, legal, taxation and other advisors.

THANK YOU NIMAI CAPITAL PANKAJ MUNDRA, CEO & MD, NIMAI CAPITAL ([email protected]) SAGAR AGARVWAL, CIO & MD, NIMAI CAPITAL ([email protected])