Republished_72016819RFI002_23Aug19.pdf

REQUEST FOR INFORMATION (RFI) FOR PARTNERING WITH USAID

BOSNIA AND HERZEGOVINA MISSION

Investment vehicle to facilitate access to finance

I. Overview

USAID Mission in Bosnia and Herzegovina (USAID BiH) would like to invite capabilities statements for a potential partnership from organizations or private sector partners for the creation of a pooled investment vehicle or a non-bank financial institution seeking innovative approaches to capital allocation. The goal of this initiative is to improve the flow of private capital and foster entrepreneurship to small and medium enterprises (SMEs), early stage enterprises (enterprises that are less than three years old), and start-ups operating in BiH. Based on the European Commission definition, an SME is defined as an enterprise that employs fewer than 250 people with an annual turnover of less than 50 million Euro. For the purposes of this RFI, a start-up is an enterprise that is less than six months old.

The capabilities statement must come from one or more legal entities with investment management experience. USAID is looking for organizations/partnerships who can address the lack of access to finance for startups and SMEs. USAID might commit up to $2 million for a period of up to 5 years (with a possible extension of not more than 5 additional years) towards an investment vehicle. The prospective partners would be expected to bring financial resources of their own into the possible award (cash equivalent for the leverage of no less than 1:1).

Please note: This is NOT a request for applications or proposals. Only simple expressions of interest should be submitted at this stage.

USAID may release a full request for applications (RFA) or proposals (RFP) at a later date, through the U.S. Government portal (www.FBO.gov or www.grants.gov). The technical requirements and the final level of funding will be determined before the actual RFA/RFP is released.

II. Objective

The purpose of this initiative is to deploy flexible and innovative debt, equity and quasi-equity instruments that would contribute to more efficient allocation of resources to enterprises that could generate growth and investment in BiH. In order to achieve this objective, USAID/BiH intends to facilitate the creation of an investment vehicle that would increase access to finance and potentially introduce new forms of financing to promote entrepreneurship and economic growth.

USAID/BiH is seeking capability statements from organizations, showcasing available or planned vehicles that USAID/BiH could support.

http://www.fedbizopps.gov/ http://www.grants.gov/

III. Development Challenge/Background

Large segments of the private sector in Bosnia and Herzegovina are currently underserved by the financial sector in the country. The small and medium enterprises (SMEs) sector is struggling to identify adequate financial instruments that match their developmental needs. This is partly due to the fact that the financial sector in BiH is undiversified and almost exclusively bank-centric.

The banking sector, though very liquid, is held back by financial regulations or by the lack of appetite for riskier investments. The introduction of an institutional investor able to design and deploy flexible and innovative debt, equity and quasi-equity instruments would have a highly beneficial effect and would greatly contribute to more efficient allocation of financial resources in the economy.

Non-bank financial institutions (NBFIs) offering specialized financial products and services are largely missing from the BiH market. The financial sector is dominated by commercial banks that offer standard banking products and typically lend to a relatively small group of clients, mainly larger, well-established businesses that have collateral to pledge. NBFIs that operate in BiH are mainly insurance companies and microcredit organizations, accounting for only 12% of total assets in the financial sector in 2016. Leasing and factoring companies, which could provide valuable products and services to private businesses, thus improving competition and supporting business expansion, are rapidly disappearing from the marketplace mostly as a result of more stringent regulation following some questionable business practices during the boom period (2003-2008).

Very few companies have used the capital market to raise funds through the issuance of bonds and there has been little interest in initial public offerings (IPOs). Businesses are still very bank-oriented and simply don’t see the capital market as an alternative source of financing.

Finally, equity investment vehicles are, for the most part, absent from the scene. The privatization investment funds resulting from the mass privatization program of the 1990s (11 in Federation BiH and 13 in Republika Srpska) are the exception, but these funds have not been very successful in restructuring enterprises or creating new investment opportunities.

On the demand side, the BiH private sector is dominated by micro and small enterprises with little connection to international markets. Out of approximately 30,000 active registered firms in the local market, around 99% are small and medium size enterprises. Those SMEs provide approximately 67% of private sector employment, and constitute roughly 70% of private sector revenue.

However, adequate growth financing is not widely available to smaller and medium firms. Many financially stable SMEs do not have the requisite capital or their appraisal value is uncertain and thus effectively excluded from the financial market. Family businesses with sound business models do not easily qualify for traditional loans from banks, and promising startups and early-stage firms lack the traditional collateral banks require in order to approve loans.

In addition, there is a lack of understanding regarding financial products that are more complex than the typical short- or long-term loans provided by banks. There is also a strong cultural emphasis on retaining control and an attendant aversion to accepting traditional equity investments.

On the supply side, BiH’s financial environment today is small and heavily dominated by bank lending, with a significant gap in unfulfilled demand for growth capital among smaller SMEs and early stage businesses that require the specialized investment that banks do not provide. In addition to capital, Bosnian managers and entrepreneurs need the technical assistance, skills transfer, good corporate governance and exposure to ethical business practices that a Western style investment fund could instill in a new generation of competitive enterprises.

Please discuss in a capability statement if you have a vehicle (or can create a vehicle) that can:

● Channel private capital to SMEs, start-ups, and/or early-stage enterprises not currently serviced by existing financial institution.

● Demonstrate how USAID resources could be used to leverage private capital.

USAID is open to partnering with a wide range of traditional and nontraditional lenders – private sector partners, angel investors, investment funds, financial institutions, insurance companies, foundations, non-profits, and others – to test and evaluate models to catalyze private investment.

U.S., international, and BiH organizations are all encouraged to submit an expression of interest.

Please submit the expressions of interest no later than September 23, 2019, to USAID/BiH by email to SarajevoOAA@usaid.gov by 14:00 local Sarajevo time.

mailto:SarajevoOAA@usaid.gov