RFI 72011421RFI00001 USAID Georgia Financial Innovation Program.pdf

29, Georgian-American Friendship Avenue

Tbilisi 0131, Georgia

Tel: (995 32) 254 4000

Fax: (995 32) 254 4145 georgia.usaid.gov

SUBJECT: Request for Information: USAID/Georgia Financial Innovation Program

ISSUANCE DATE: April 20, 2021

CLOSING DATE: May 17, 2021

CLOSING TIME: 10 a.m. Tbilisi Time

DOCUMENT NUMBER: 72011421RFI00001 – USAID Georgia Financial Innovation Program

TO: General Public

The purpose of this Request for Information (RFI) is to conduct market research, determine the interest of capable organizations to provide USAID/Georgia with technical and advisory services and request comments and recommendations from stakeholders to identify ways we can work together to address Georgia’s competitiveness challenges related to the private sector financing gaps over the next 5 years.

This is an RFI, not a Solicitation or Request for Proposals. It is not to be construed as a commitment by the U.S.

Government to issue any solicitation or ultimately award a contract on the basis of this RFI, not to pay for any information submitted as a result of this request, nor does it commit the Government to pay for costs incurred in the preparation and submission of any comments.

Any funding proposals submitted in response to this request will not be considered. Responses to this notice must be received no later than the due date and time stated above in this notice. All materials submitted will become the property of the U.S. Agency for International Development (USAID) and will not be returned.

USAID reserves the right to use information provided by respondents for USAID’s own purposes. While it is not the intention to make public any response to this RFI, proprietary and sensitive information must not be sent.

Please note that any resulting Request for Proposal (RFP) from this RFI may be solicited through the anticipated

Financing Self-Reliance & Management Development Blanket (FSRMD) Blank Purchase Agreement (BPA).

The USAID/Georgia Business Forecast will be updated when a determination has been made on if and how this program will be procured.

It should be noted that responding to this RFI will not give any advantage to any organization in any subsequent procurement. Only responses in English will be accepted.

//s//

Robert Claussen

Regional Contracting Officer, USAID/Caucasus

Request for Information #72011421RFI00001 – USAID Georgia Financial Innovation Program

Draft Documents for Informational Purposes Only This is not a solicitation or Request for Proposals

Response Considerations

Responses should include the following:

1. Cover page not to exceed one (1) page including:

a. Organization name and address;

b. Point of contact name, telephone number and e-mail address;

c. Organization Business Status – Small, Large, etc.

2. Additional Notes/ Instructions

Submit responses to this RFI to:

yadelberg@usaid.gov and RCOcaucasus@usaid.gov , no later than May 17, 2021.

about:blank about:blank

This is not a solicitation or Request for Proposals

Description

The purpose of this Request for Information (RFI) is to (a) provide a basic overview of the intended

USAID/Georgia Financial Innovation Program, (b) determine the interest of capable organizations to provide

USAID/Georgia with technical and advisory services, and (c) request comments and recommendations from stakeholders to identify ways we can work together to address Georgia’s competitiveness challenges related to the private sector financing gaps. The Financial Innovation Program is to support USAID/Georgia’s strategy to increase higher value employment through increased access to investment resources for the establishment of new businesses and growth of existing businesses.

Preliminary Problem Statement

Access to finance continues to be a constraint to economic growth. Georgian enterprises are unable to access the capital needed to start or expand a business. The International Finance Corporation (IFC) estimates the

Georgian MSME financing gap at $2.5 billion, twice the current loan portfolio to SMEs. As Georgia is a small market, it does not provide sufficient investment diversification and risk mitigation opportunities for potential financial investors. As a result, Georgia's private sector struggles to access credit and equity to start and expand business operations. This limited access to finance handicaps firms that want to invest in business expansions, improve business processes, and enter new markets. Georgia's firms require access to a broader, more flexible set of financing sources in order to provide new employment opportunities.

Start-ups and relatively high-risk-profile enterprises remain unserved by the traditional banking sector. Yet, the availability of alternative sources of seed and early-stage financing for them is severely limited. There are only a handful of foreign funds, the state-owned Partnership Fund, and internationally funded equity programs, and these funds generally service only well-established businesses seeking equity investors. Customized financial products, especially those tailored to SMEs, are very underdeveloped in Georgia. Financing tools like value-chain financing, trade and assets-based financing (including leasing and factoring), pre-export and export financing, and risk insurance are all uncommon.

In the absence of alternative sources of finance, enterprises with access to traditional banking finance have become critically leveraged to the level that they can no longer take on new debt. About 84% of corporate borrowing is foreign currency denominated. Due to exchange rate fluctuations and economic shocks, Georgian enterprises find it increasingly challenging to repay existing debt. Public and private equity markets and access to other types of risk capital (mezzanine, quasi-equity) remain underdeveloped, hence options to rebalance growing corporate leverage or obtain risk funding for developmental/innovative projects are limited. Access to alternative public or private GEL denominated equity and debt capital is constrained. As a result, the private sector is exposed to large economic and foreign exchange risks.

Possible Approaches and Components

Possible approaches that could be taken include (but are not limited to): (a) support for the development of financial market infrastructure and intermediary institutions; (b) support for the development of diversified financial products and services; (c) support to stimulate the local market for private equity, quasi-equity, and blended finance instruments; (d) support to improve the capacity of businesses to access fit-for-purpose financing;

and (e) incorporation of innovative financial technology (FinTech) into the local financial markets ecosystem.

These approaches will enable financing which will contribute to high-value employment opportunities with an emphasis on high-value jobs that show strong potential to significantly increase incomes and advance economic competitiveness. The anticipated program will likely use a combination of programmatic tools including (but not limited to): technical assistance, grants, and pay-for-performance tools.

The Program will work primarily, but not exclusively, with start-ups and SMEs with high potential for employment generation, business advisory service providers, and non-traditional financial intermediaries.

This is not a solicitation or Request for Proposals

The anticipated program will support USAID/Georgia’s Strategic Development Objective 3- Inclusive High-

Value Employment Opportunities Provided Through Increased Investment Resources (found at https://www.usaid.gov/georgia/cdcs). The project will build upon the previous U.S. Government, Government of

Georgia, and other donor-supported achievements in private sector development and economic growth in Georgia.

The intended project will support activities nationwide in Georgia, and the budget is anticipated to be up to $19 million over five years.

USAID anticipates three major components for the Financial Innovation Program:

Component 1: Institutions, regulations, systems, and infrastructure strengthened to support innovative, alternative financing products and services

Activities under this area could include capacity building of intermediaries (illustrative list: credit bureaus, rating agencies, registries, Georgian Stock Exchange, Service for Accounting, Reporting, Auditing Supervision, etc), engagement with the National Bank of Georgia, Ministry of Economy and Sustainable Development (MoESD) and others to improve market regulations and oversight and create an enabling environment for alternative sources of finance; partnerships with institutional investors incl. Pension Fund, private insurance companies, etc., and retail investors, including diaspora to enable their investments in the local markets; capacity building and partnerships with a wide range of digital ecosystem actors to introduce innovative technological systems and infrastructure (e.g., matchmaking and crowdfunding platforms, payment systems).

Component 2: Local financial market has resources to deliver innovative, alternative financial products/services to the private sector

The program could provide technical and financial assistance to further develop and increase access to tailored financial products. This technical assistance could promote collaboration with banks and non-bank financial intermediaries to develop diversified products and services for value-chain financing, trade and assets-based financing (including leasing and factoring), pre-export and export financing, risk insurance, and others.

The program could provide technical and financial assistance to stimulate the local market for private equity and blended finance instruments. Potential activities include the following: support private equity funds to mobilize catalytic capital from domestic and international financial institutions and develop an incentives package to attract new international or local equity investors. In addition, the program could work with the DFC to capitalize on promising equity or debt/equity blended impact investment funds.

The program could potentially support Georgian banks to develop new strategies for providing term loans to high-potential but highly-leveraged SMEs - potentially through new forms of risk mitigation and/or participation in the upside.

Component 3: Improved capacity of the private sector to access fit-for-purpose financing

The program could provide technical assistance and grants to promising businesses to further develop their capability to access finance. This support could include: engagement with Business Advisory Service Providers to improve the delivery of quality services to businesses in the areas of financial planning, environmental/social/corporate Governance, responsible investment, and investor protection standards; provide transaction-based support to access finance for investment projects; connecting individual businesses with potential investors and other finance providers.

Illustrative top-level objectives:

This is not a solicitation or Request for Proposals

1. (Contractual indicator) Value of local and foreign capital mobilized for Georgia’s private sector (LOP target -$300 mln) out of which:

● In equity capital (LOP target - $100 mln)

● In Georgian Lari (LOP target - $150 mln equivalent in GEL)

● Private sector capital (LOP target - $100 mln)

2. (Contractual indicator) Jobs created by USAID-supported businesses (LOP target - 2500)

3. (Contextual indicator) Share of net financial assets outside of the banking sector (LOP target - 20%)

Questions

USAID seeks your input, comments, and recommendations on any or all of the following questions below.

Other question and comments are also welcome. This is not a formal question period; therefore, USAID will not be providing responses. The USAID design team will review all comments and question and use them the inform the development of the SOO/SOW.

● Given the problem statement above, how do the proposed three components and activities within each respond to those problems? What other types of interventions would you propose to fill the financing gap faced by the private sector in Georgia?

● Of the many potential types of interventions suggested (and others as well), which do you feel would be most effective in mitigating the access to financing challenges addressed? Please provide examples, quantified if possible, where you have seen this successfully implemented.

● What other issues continue to impede the realization of a well-functioning financial market and the private sector access to affordable and diversified financial services?

● Which factors are most critical to effectively develop and implement fintech solutions. What are successful examples of fintech solutions adopted in development contexts similar to Georgia and explain why they worked?

● What types of financial or investment instruments need to be either scaled or developed to create an alternative to the banking sector?

● What are potential approaches to develop the capacity and reputation of first-time fund managers?

● How would you prioritize spending USAID resources in this program (on a scale of 100%) between (a) support for the development of financial market infrastructure and intermediary institutions; (b) support for the development of diversified financial products and services; (c) support to stimulate the local market for private equity and blended finance instruments; (d) support to improve the capacity of SMEs to access fit-for-purpose financing; and (e) incorporation of appropriate financial technology into the local capital market ecosystem?

● How can long-term financial sustainability be built into activities developed by the program?

● What questions or analyses would you recommend to guide the design of interventions that create a level-playing field for women entrepreneurs to access the financial market?

● Any other suggestions you may wish to offer that will improve program design and implementation are welcome.

● USAID is considering using the Statement of Work (SOW) model for this procurement, as opposed to the Statement of Objectives (SOO). However, USAID is willing to reconsider its approach based on the feedback received through this RFI. Would you recommend the use of the SOW or SOO, and why?

● Do you have any recommendations on the feasibility and/or effectiveness of the illustrative top-level objectives and targets provided in this RFI?

This is not a solicitation or Request for Proposals

● Are there additional objectives that are measurable and within the contractor's manageable interest to achieve that would make this program more effective in achieving its stated goal of mobilizing diversified investment resources for Georgia’s private sector to grow and create jobs?