Indirect investment model
SIFEM invests its money in local, regional or global funds. These funds in turn select local small- and medium-sized and fast-growing companies, and encourage their growth with financial support and experienced advice. SIFEM makes use of this indirect investment model, as do most other development finance institutions. SME investments via local funds with specialized management teams have proved their merit for the following reasons:
- When it comes to the identification of suitable SMEs and the support of such companies, it is critical to be able to rely on locally-based fund managers who are present on-site and who are fully conversant with the business, regulatory and cultural environment. Cooperation with fund managers also contributes to a strengthening of local financial intermediation.
- Funds enable public investors like SIFEM to obtain private co-investors for developmental business financing in countries that would otherwise be generally considered as too risky by private investors.
- Fund investments allow SIFEM to maintain a broad and diversified portfolio. SIFEM currently has investments in almost 400 companies in Africa, Asia, Latin America and Eastern Europe.
- The Bern-based SIFEM manager, together with a relatively small team, is in this way able to oversee an investment portfolio of mainly fund investments (as opposed to a multitude of direct investments) with relative ease. A direct local presence by SIFEM would, in contrast, entail significant additional costs for the federal government.
SIFEM will occasionally make direct investments in financial institutions.