Regional: Mekong Enterprise Fund
sector: Finance | country: | region: Regional
This validation agrees with the issues and lessons presented in the extended annual review report (XARR) but also finds other issues and lessons. Firstly, the manager selection process was not documented in either the report and recommendation of the president (RRP) or the XARR. Although several qualified firms had been interviewed beginning at the time of the concept clearance paper, the winning manager (Mekong Capital Limited or MCL) was created during the year between concept clearance and RRP approval by a departing employee from one of the major firms interviewed, in a process contrary to representations in the concept clearance paper (CCP) – which stipulated that the fund manager selection must be transparent – and was not described in the RRP, XARR, or other documents available to this validation.
Secondly, the fund deviated from its main objective of investing in private sector small and medium-sized enterprises (SMEs) as stated in the RRP and the investment management agreement. SMEs were not defined in the RRP and the investment management agreement but at least 4 of the 10 investee companies of Mekong Enterprise Fund (MEF) were not SMEs as defined by the Government of Viet Nam. ADB was on the Board of MEF and the fund manager has been providing regular reports to ADB so ADB should have been able to detect this.
Thirdly, the project did not fully utilize its relationship with the Mekong Private Sector Development Facility (MPDF), which was supposed to provide valuable support particularly in identifying potential investee companies for the fund. The completion report of the technical assistance (TA) project that is supporting SME growth in the Mekong region stated that the MPDF assisted 129 SMEs in preparing bankable business plans – 9 in Cambodia, 16 in the Lao PDR, and 104 in Viet Nam. The total project costs amounted to $109.0 million of which external financing raised was $60.4 million.
Finally, the fund and the resulting management fees were too small. MCL management fees were so small that it could only afford one office, in Viet Nam, and the fund never invested in Cambodia or the Lao PDR. More thought should have been given to the management of firm operations and economics.