Thembani International Guarantee Fund
Thembani International Guarantee Fund helps to build economically self-sufficient and healthy communities in South Africa through the guarantees it manages — supported by Shared Interest investors, who share its commitment to sustainable and equitable development.
Thembani places and monitors guarantees for South African bank loans to community development financial institutions (CDFIs), thereby encouraging the banks to extend credit to CDFIs serving South Africa’s previously unbanked majority population. These guarantees then enable entrepreneurial South Africans to launch small businesses, and to rebuild housing and social facilities in their communities using South Africa’s own abundant capital and minimizing the need for foreign borrowing that can lead developing nations to a devastating debt trap. By supporting income-generating activities that help South Africa’s most impoverished people make wise use of their natural resources, it further insures that the communities they rebuild will be both environmentally and economically sustainable.
Thembani was established by Shared Interest and the Swiss-based RAFAD (Recherches et Applications du Financement Alternatif au Développement) in 1996 to move South African banks to extend credit to the country's most impoverished communities. In Zulu, “Thembani” means “give hope and encouragement” — a mandate connected to the organization’s triple mission: to give hope and support to economically marginalized South Africans of color; to provide support for community lending institutions seeking to expand their services and enhance their self-sufficiency; and to encourage banks to lend to low-income communities and organizations they would otherwise consider “unbankable.”
Since 1996, guarantees placed and managed by Thembani have unlocked more than R100 million in credit for institutions serving the country’s lowest income communities. They have been catalysts for a wide variety of initiatives, including credit for institutions lending to small and micro-entrepreneurs, emerging contractors building community infrastructure projects or low-cost housing, and rural banking facilities.
For its guarantees, Thembani utilizes capital raised and provided as security by overseas partners — primarily Shared Interest in the U.S. Thembani plays a critical role in the placement, negotiation and monitoring of these guarantees. It identifies potential project partners, provides them with essential technical assistance in structuring their projects and loan applications, helps them identify appropriate lending banks and negotiate their loans with them, and works closely with the banks to enhance their capacity to understand the sector and issue the loans. Thembani also provides vital services to its overseas partners, reporting on potential and outstanding guarantees, and conducting quarterly risk ratings of the active guarantee portfolio. This enables overseas partners to set aside sufficient reserves to cover the estimated risk on the guarantees, and assess their capacity to issue new ones. Most of all, Thembani connects oversees and domestic financial organizations — creating a vital link between organizations developing new models and mechanisms for international development finance.
Thembani’s specific services are highly labor-intensive. Frequently staff spends days, or even weeks with a potential partner to prepare it to apply for a bank loan. The negotiations can also take considerable time, as Thembani works with both the partner organization and the bank to establish common ground and enhance terms – which frequently entails forging innovative ways to assess credit-worthiness for borrowing institutions working without a credit history in the informal sector.
Since development finance is an emerging area of expertise in South Africa virtually unknown prior to 1994, Thembani is setting new precedents with virtually every guarantee. The standards and structures it establishes for a loan to an organization serving emerging contractors building low-cost housing differ dramatically from the mechanisms and agreements for a micro-finance institution or a rural development project. In each case, Thembani staff must evaluate both the industry and the organization in question, determine where and how credit can provide an essential lever for development, and structure that assessment into a viable credit agreement — to be carefully monitored (with subsequent assistance provided as needed) over the life of the guarantee.