With a first closing at $15m, the private equity fund is the first of its kind dedicated to the Palestinian economy. The initial commitments from the sponsors - PIF and Abraaj - will be supplemented by funds raised from investors in further closings planned later this year.
SMEs account for more than 95% of enterprises in Palestine, 84% of private-sector employment and 55% of gross domestic product.
Although SMEs are a critical backbone of the local economy, the sector is underserved in terms of access to capital and degree of institutionalization. The private equity fund will give access to much needed capital for growth and expansion, as well as leverage managerial, operational, strategic know-how and regional networks. It will also help strengthen corporate governance.
"This is a great vote of confidence for the Palestinian economy highlighting that Palestine is open for business and that the country offers excellent opportunities for investors,"
said Dr. Mohammad Mustafa, Chairman and Chief Executive Officer of PIF.
"Investments like these not only give investors - local and international - potentially excellent returns but are crucial in strengthening our economy, supporting innovation and entrepreneurship, building locally based regional platforms, transferring know-how and creating hundreds, if not thousands of new jobs," Dr. Mustafa said.
Fund ManagerAbraaj, through its dedicated SME investment-management platform - Riyada Enterprise Development - will manage the fund, which is expected to make 20 to 25 investments over the next four years.
"We are very proud to be a part of this initiative and to be able to contribute to the development of the Palestinian economy in a sustainable way," said Arif Naqvi, founder and CEO of Abraaj.
"Through this fund we are directly addressing the needs of Palestinian entrepreneurs who, as in other parts of the world, have the capacity to transform the lives of those around them by creating sustainable job-growth and raising living standards," Mr. Naqvi said. "Through it we also aim to provide top-tier returns to our investors."
Dr. Mustafa emphasized that the private equity fund reflects PIF's commitment to strengthening the Palestinian private sector, especially SMEs, and to building a strong Palestinian economy not dependent on foreign aid.
The fund complements PIF's Loan Guarantee Facility (LGF), which facilitates financing for SMEs by providing loan guarantees to the lending banks. LGF has facilitated more than $50m of financing to more than 200 SMEs in the last two years.
PIF is the largest and most dynamic investor in Palestine, with $800m in assets under management. It aims to build a strong economy by developing strategic projects in vital sectors, such as SMEs, real estate, energy, telecommunications and finance, while maximizing long-run returns for its ultimate shareholder - the people of Palestine. PIF has an unrivalled track-record in partnering with leading international, regional and local institutions, and attracting foreign direct investment to Palestine.
SME PlatformThe private equity fund with Abraaj is the first investment vehicle managed by Riyada Enterprise Development, Abraaj's recently launched investment platform dedicated to SMEs.
Abraaj has seeded the Riyada platform with $50m of its own capital. As Abraaj builds its SME platform out across the Middle East and North Africa, the size of the regional SME fund is expected to increase substantially to about $700m through Abraaj's established regional and international partners, and investors.
The Riyada platform marries the largest single source of long-term capital dedicated to entrepreneurs in the region with an investment strategy specifically tailored to the SME segment.
It also addresses the biggest issue facing regional SMEs today other than access to finance, namely institutional support, including back-office functionality, improved governance, and access to top-tier human talent and mature business networks.
Abraaj has permanently relocated several of its senior investment professionals into Riyada and will establish a presence in the Palestinian city of Ramallah to support the private equity fund. Together with selective additional hires, Riyada will - in due course - comprise 25 to 30 full-time investment professionals.
Corporate Social ResponsibilityIn parallel with the fund's investment activities the sponsors have made a commitment to a number of corporate social responsibility (CSR) initiatives in Palestine. The private equity fund intends to adhere to the United Nations Principles for Responsible Investment and develop environmentally friendly frameworks for its partner companies.
As part of a commitment to foster a supportive eco-system for entrepreneurs, the sponsors will establish a support programme called Bidaya (Arabic for 'start') which will provide mentorship for entrepreneurs through Abraaj's extensive network of partners, professionals and academics.
Abraaj is also seeking to provide additional funds for disadvantaged communities based on the concept of 'patient capital' and socially responsible investing.
PIF adheres to CSR objectives, which includes unparalleled support to local cultural, charitable, youth and educational organisations.