Getinge, the Stockholm listed medical technology provider, is the latest medical equipment manufacturer to partner with International Finance Corporation’s (IFC) Africa Medical Equipment Facility (AMEF), an initiative to help healthcare providers in East and West Africa get better access to life-saving equipment.
Getinge joins fellow leading health technology companies Philips and GE Healthcare and endoscope manufacturer KARL STORZ alongside local lending banks Co-operative Bank of Kenya and NSIA Banque Côte d’Ivoire in a scheme that helps provide small and medium-sized healthcare providers secure local-currency loans to purchase or lease needed medical equipment.
‘We are very happy that Getinge is partnering with IFC in this programme,’ said Sebastien Blanche, global head of Getinge Financial Service. ‘It ties in very well with our ambition as a company to contribute to society. We want to make a positive impact in Africa.’
Bridging the gap
Bringing life-saving medical equipment into Africa can be challenging. The AMEF aims to improve private sector healthcare delivery by enabling hospitals, clinics, pathology labs and diagnostic imaging centres to acquire the advanced equipment that can improve the quality and reliability of care provided.
It is designed to bridge the gap between healthcare businesses seeking medical equipment, financial institutions and equipment manufacturers.
‘Covid-19 reinforced the importance of supporting partners to build resilient health systems,’ said Thomas Pellerin, hub leader for manufacturing, agribusiness, and services for Western Europe at IFC, part of the World Bank Group. ‘In Africa, smaller private healthcare facilities are a significant part of healthcare delivery, and they need support to meet patient demand.
‘Access to finance is very limited for these small or medium-sized healthcare companies and we saw that there was clearly a need, and an opportunity for IFC, to make an impact by helping close the gap between healthcare operators and lenders.’
Risk-sharing facilities, developed through the partner banks in the programme, provide healthcare businesses with the financing required to acquire equipment from the original equipment manufacturers (OEM) taking part in the facility. For manufacturers, the risk sharing facility offers the opportunity to improve client access to financing for equipment sales in what is a fragmented market.
‘It’s a risk-sharing programme between the local bank, IFC and the OEM,’ said Blanche. ‘IFC and the OEMs secure 50% of the risk that the local partner bank takes by granting the loan or lease to healthcare SMEs in financing the acquisition of medical equipment. The OEMs take on 10% of the total loss. It’s a tripartite partnership where IFC enters into risk-sharing agreements with selected partner banks in the programme countries and IFC enters into reimbursement agreements with OEMs.’
Getinge is one of those OEMs in the programme that will sell or lease equipment to the clinic or hospital which has taken commercial loans or leases ranging from US$5,000 to US$2m from partner banks. Loans are provided in tenors ranging from three to seven years including a grace period of six months to two years.
‘The fact that IFC is covering part of the risk and that OEMs, like Getinge, also take on part of the risk gives additional levels of confidence to the local bank when granting a loan to these small and medium sized companies,’ said Blanche.
The local banks will be in sole charge of performing the credit risk assessment before extending any lending.
‘We help them with the risk-sharing, but it’s at the discretion of the local banks whether to grant the loans,’ said Blanche.
Capital scheme
Financial institutions that partner with AMEF share the lending risk with IFC, a triple-A rated entity. This gives partners the flexibility to increase lending and offer longer tenors to borrowers. The final decision on interest rates lies with the lender.
‘The pricing decision is entirely with the partner bank,’ said Pellerin. ‘We structured AMEF as a risk-sharing facility so that banks have an incentive to increase their lending, but the loan conditions and pricing are based on commercial terms. The loans are denominated in local currency, which has the advantage of removing the foreign exchange risk compared to loans in US Dollars or Euros.’
Making those lending decisions requires a thorough understanding of the SMEs and the healthcare sector and the facility includes an advisory services programme to help small healthcare businesses improve their medical equipment procurement processes, fiscal management and business planning. It will also help participating financial institutions to strengthen credit underwriting skills for the healthcare sector, strengthening the relationship equipment manufacturers will have with their customers.
The programme covers SME healthcare companies in Côte d’Ivoire, Senegal, Cameroon, Nigeria, Ghana, Kenya, Tanzania, Uganda, Rwanda. Eligibility is broad, but the focus is on the private sector rather than the public sector: clinics, hospitals, medical imaging centres, laboratories and other SMEs in the space with sound financial and operational background.
IFC expects the facility to provide a total of US$300m in financing.
Emerging business
For Getinge, which is already active in the Emerging Markets, the facility is ‘a very good add on to an already quite wide range of financing options that we offer,’ according to Blanche.
It also makes use of Triple-A rated Swedish Export Credit agency’s export credit guarantee to secure financing solutions to its distributors and end-customers.
‘We can offer very interesting financing solutions for our distributors to finance their working capital,’ said Blanche. ‘These hard currency cross-border financing solutions work very well for us and our distributors.’
What is different in the AMEF programme is that loans extended by local banks are denominated in the local currency.
‘We have the capacity to structure different types of payment plans with existing solutions in hard currency, but if the customer prefers a local currency solution, then we have the AMEF programme,’ said Blanche. ‘It’s a good opportunity for us to have a portfolio of tailor-made solutions that satisfy the needs and challenges of the customer.’
African white elephants
Critics of the scheme point to the expense of purchasing hi-tech equipment from major international manufacturers and question whether the programme is facilitating the extension of sizeable loans to borrowers for equipment they don’t need.
Those arguments can be countered by the programme’s focus on the private sector and the size of the borrower. These companies are most likely to be looking to upgrade existing equipment or incrementally expanding their capacity.
‘The private players are focused on the bottom line and demand for health services for their patients, and that drives the long-term commercial viability of the business,’ said Pellerin. ‘The facility includes an advisory services programme to help small healthcare businesses assess what equipment they need and evaluate how the purchase of such equipment will affect their financial performance.’
And while there are concerns that the programme might create the circumstances to encourage the appearance of ‘white elephants’, Pellerin discounts those fears.
‘The AMEF programme is responding to the need for increased bank lending to the private healthcare market, enhancing the ability of healthcare operators to gain access to advanced medical equipment,’ said Pellerin. ‘This is critical in helping to close the large supply-demand gap in healthcare services in Africa.’
Equipment may be expensive, but it reflects the quality of the product, and OEMs often have a range of merchandise to suit different customers. As more partners join the scheme, the range of products increases, and the price point should become more competitive.
Long-term care
Sharing the financing risk is not the only aspect of the facility that is important to the partners. The OEMs want to ensure there is a proper level of maintenance service provided either directly by the manufacturer or through authorised distributors.
‘In this joint effort we will not only make the devices more affordable, but also help build sustainable service plans for their continued use,’ said Blanche.
‘It’s key to take a long-term view. It’s not a one-off sale and then we’re gone. We are committed as a manufacturer, so the risk sharing goes beyond the potential loss on the finance but, with our distributor, for the refurbishment of the equipment we sell,’ he said.
For IFC, as well, it is not just about sharing the risk. It’s about supporting the banks in better assessing credit risks within the healthcare sector itself, and small healthcare operators to improve financial management and equipment procurement.
‘We’re training banks to better understand the private healthcare business model: How is the healthcare sector structured? Who ultimately pays for these services? What are the risks of a medical equipment acquisition project? We are also training the healthcare SMEs so that they have a better chance to be granted funding. IFC is providing more than just financing, it’s also working to support capacity building,’ said Pellerin. ‘IFC has built a multi-dimensional facility that we think will make a long-term difference.’
For the time being, though, the focus of the programme is ‘testing and learning with SMEs in those countries – starting with projects in Cote d’Ivoire and Kenya where the two banks have been selected,’ said Blanche. ‘Let’s see how it works.’
There will be additional manufacturers joining the programme, more banks, and more choice for African healthcare, which can only help lower the barriers to accessing the financing needed to purchase or lease the broad range of medical equipment needed by SMEs to perform the operations that save lives.
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