Author: Kihingu Inc

FSD Africa continues to provide support for the development of gender bonds in the region

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Dar es Salaam, April 28, 2022 – NMB Bank Plc has today listed its maiden gender bond on the Dar es Salaam Stock Exchange.

The NMB Jasiri gender bond is the first gender bond to list on an exchange in Africa.  The bond was 297% over-subscribed which shows great appetite for gender bond issuances and sets a new benchmark for the continent in developing financial instruments specifically targeting gender empowerment. FSD Africa is pleased to partner with NMB Bank on this novel issuance, particularly in providing technical input to develop the Social Bond Framework and the technical assistance towards the framework’s second-party opinion. FSD Africa is funded by UK aid from the UK government. The funds raised will be used to fund women-owned or women-led MSMEs in Tanzania.

Access to capital by women has long impeded equitable and inclusive economic prosperity. We are proud to support NMB Bank on the first gender bond in Sub-Saharan Africa, a ground-breaking issuance that builds on our work supporting the first gender bond issuance in Morocco. Our support affirms our long-term commitment to ensuring gender equality and economic empowerment for women.
Mark Napier, CEO – FSD Africa

InfraCredit, FSD Africa Sign Technical Assistance Agreement to Unlock Climate-Aligned Local Currency Infrastructure Bonds in Nigeria

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 Lagos: 4th April 2022

We have signed a Technical Assistance Agreement with InfraCredit, a ‘AAA”(NG) rated specialised infrastructure credit guarantee institution in Nigeria, under which we will provide funding for technical assistance to support pre-feasibility studies as well as the pre-transaction and transaction costs, including the design of innovative financing solutions for eligible projects that can issue climate-aligned local currency infrastructure bonds.

The successful implementation of the project will enable up to ten climate aligned infrastructure projects reach financial close, support new job creation and enable more capital markets instruments to be issued to institutional investors.

FSD Africa is pleased to facilitate the design of innovative financial markets products that will support institutions like InfraCredit provide access to inclusive capital. Our technical assistance will support the design of a vital climate-focused infrastructure facility that will bridge short term greenfield capital with long-term capital markets funds. Our partnership with InfraCredit intends to spur increased access to long-term finance and build financial sector resilience and environmental sustainability through local credit enhancement facilities (Guarantees) provided by InfraCredit.
Mark Napier, CEO – FSD Africa

A quarter of Africa’s GDP is dependent on nature; it must be managed responsibly

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We are all asset managers,” writes Professor Partha Dasgupta in his seminal study on the economics of biodiversity. “Whether as farmers or fishers, foresters or miners, households or companies, governments or communities,” we all influence the store of value held in our most precious asset — the natural world around us.

We depend on nature for food and water, for our health, and also for our economic wellbeing. Every business at some level depends on resources drawn from nature, such as crops, fish, timber, fibre, or rare earth elements, or on the stability of ecosystems.

Often we only see this when those ecosystems are upset such as when over-extraction from natural water sources causes drought or unsustainable agricultural practices lead to soil degradation and ultimately to food shortages.

And while, rightly, our attention is focused on our warming planet, we must recognise that the climate crisis and nature-loss are inextricably linked. All paths to net zero require the large-scale removal of com the atmosphere and the only affordable and immediately available methods of doing this are in nature.

Nowhere is this interdependency more clear than in Africa, which is among the regions of the world most vulnerable to climate change and most dependent on nature. With almost a quarter of its GDP dependent on nature, every development pathway for the continent relies on its responsible management.

But, between 1970 and 2016, the stock of natural capital in African countries fell on average by 65%, driven largely by land-use change. Almost three million hectares of rainforests in Africa are lost each year, resulting in soil degradation and unstable weather patterns, while drought and soil erosion have degraded 65% of its rangelands.

Africa’s reliance on nature is a source of vulnerability, but potentially also of competitive advantage.

Consider, for instance, that every $1 invested in marine protected areas in Senegal and Tanzania generates more than $5 000 in economic value, wetland conservation in South Africa returns $200, while agricultural land remediation in Uganda delivers $230.

What causes an economy to choose between destruction and regeneration, risk and opportunity, is its capacity and willingness to properly value nature. This begins with the financial sector.

Between now and 2030, there are $10-trillion of business opportunities up for grabs by investing in nature worldwide.  But, to capture this potential, $2.7-trillion of finance needs to be redirected to nature-positive business opportunities. This may seem a huge ask, but financial institutions with $130-trillion in assets have already made similar climate change commitments through the Glasgow Financial Alliance for Net Zero.

There is simply no path to protecting and restoring nature without mobilising the huge reserves of private capital controlled by the financial sector. But these institutions need better quantitative data on their exposure to nature-related risks to make targeted decisions about their portfolios.

At a global level, the Taskforce for Nature-Related Financial Disclosures (TNFD) has recently been set up to respond to this challenge and create a harmonised framework for assessing and reporting these risks. If the TNFD is to work, it needs to avoid the pitfalls of standard-setting processes in the past, steer clear of an approach that only works for developed nations, and reflect the specific conditions of operating in regions like Africa.

Amid global efforts to retool finance in favour of nature, African nations have a unique opportunity to not only contribute, but to lead. COP27, later this year, is Africa’s COP where this link between prosperity and nature will at the heart of building resilience to climate change and to building sustainable livelihoods.

But, first, we need coordination across financial institutions to get the right data to unlock investments. That is why the United Nations Economic Commission for Africa (UNECA) and the financial sector development agency FSD Africa have joined together to launch the African Natural Capital Alliance (ANCA).

Led by some of Africa’s leading financial institutions and partnered with the TNFD, the ANCA will help financial institutions, finance ministries and regulators manage the risks and capture the opportunities tied to Africa’s natural capital.

Over the coming months, the alliance will work with financial institutions operating across the continent to help them better understand their exposure to nature-related risks and opportunities. This includes testing the TNFD’s draft framework among a group of pioneering members. These African financial institutions will share data and learnings from their pilots, acontribute to shaping this crucial standard.

The story of natural capital in Africa need not be one solely of risk and vulnerability. If protected and harnessed intelligently, Africa’s natural endowment can generate hundreds of thousands of new jobs and help reshape the economic system to suit the continent’s natural riches. The case is clearer than ever for Africa to seize its moment for global leadership.

This opinion editorial was originally published in the Mail & Guardian.

Break the bias: Empowering women in Africa for prosperity

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Worldwide, women’s access to finance is disproportionately low. Despite substantial overall progress—in 2017, the World Bank reported, 1.2 billion more people had bank accounts than in 2011—there is still a 9% gap between women’s and men’s access. In sub-Saharan Africa, only 37% of women have a bank account, compared with 48% of men, a gap that has only widened over the past several years.

Africa’s gender gap in access to finance can have a dramatic impact on social and economic progress. Women today dominate African agriculture, the continent’s most important sector. When women farmers lack access to financial services, their ability to invest in modern technologies to raise their productivity is limited. They cannot diversify their farms. They cannot grow high-value crops and invest in assets such as livestock. And they cannot invest in better nutrition for their children.

Sub-Saharan Africa is the only region in the world where more women than men become entrepreneurs. But when it comes to tal, the situation looks less rosy. There is an estimated USD 42 billion financing gap for women in Africa today[1]. As a result, many female-owned businesses do not actualize their potential; and many investors miss profitable investment opportunities.

On average, women in Africa own fewer assets than men, often due to discriminations encoded in property laws, and so they lack the collateral necessary to secure larger loans. And women are sometimes required to present more significant collateral for the same size loan, further inhibiting their access to capital.

Inclusive Finance

Each year, the world comes together for International Women’s Day to renew the push for gender equality. At FSD Africa, we’re working to make equality a reality in Africa by breaking the economic bias against women, through the power of inclusive finance.

Two strategies are spearheading our mission: gender bonds and gender-lens investing. Both have the potential to make a real impact, by helping to fund women-led businesses and elevating the role of women in the economies of Africa.

Gender bonds

Gender bonds are an asset class with a specific purpose: to support gender equity and the empowerment of women.

They do this by creating proceeds that are used exclusively to finance women-owned and women-led businesses.

Although 89% of women in sub-Saharan Africa are in the informal sector, their businesses historically struggle to access finance. These businesses were severely impacted by the Covid pandemic.

Gender bonds are a way of addressing this inequality, and with our projects at the forefront, they’re breaking new ground in Africa.

Our projects in Morocco and Tanzania

FSD Africa began by working with UN Women to analyse the global market for gender bonds and assess how corporate gender bonds in sub-Saharan Africa could help to empower women.

Following this research, we partnered with Morocco’s capital market regulator to publish guidelines on issuing gender bonds – the first development of its kind in North Africa.

Later that year, we supported the issuance of North Africa’s first gender bond: the Banque Centrale Populaire Gender Bond in Morocco.  Approximately USD 21 million was raised by way of private placement.

We also helped to develop the Jasiri Gender Bond Framework in Tanzania and provided support for the second party opinion.  This led, in February 2022, to the issuance of NMB Bank’s Jasiri Bond: the first gender bond in East Africa.  The offer closes on 21st March 2022 and NMB aims to raise approximately USD 17.2 Million.

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Gender-lens investing

Gender-lens investing is a term for investment strategies that are built around empowering women – while also aiming to generate return for investors.

Our investment arm, FSD Africa Investments, is focusing on gender-lens investing as a way of supporting our work towards equality.

They’re doing this in three ways: by applying a gender lens across their investments; by boosting gender diversity within FSD Africa Investments itself; and, by providing capital to existing investments that promote the role of women.

Bridging the financing gap

One route through which we aim to provide gender-lens capital is by directly investing in funds.

We will soon be announcing a partnership with a financing facility to support the growth of small, women-led businesses by providing funds and capacity-building to local capital providers. These providers, rooted in the local market, are best placed to serve the needs of small and growing businesses.

Creating real impact for women

We’re closely monitoring the impact of our gender bonds and gender-lens investing programmes as they progress. This will help us to grow and evolve our approach, to make sure we achieve real impact for women across Africa.

As we move forward, we’re more committed than ever to breaking the bias and making gender equality a reality.

To find out more about our work, get in touch: mary@fsdafrica.org

[1] AfDB

FSD Africa partners with PharmAccess to improve healthcare in Ghana

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We’re proud to announce that FSD Africa has teamed up with the PharmAccess Foundation on a project to improve public health insurance in Ghana.

Together, we’ll work on strengthening the data capabilities of Ghana’s National Health Insurance Authority, to improve healthcare services for Ghanaians. It’s a project fuelled by our belief that healthy populations translate into healthy economies.

The healthcare challenge in Ghana

Ghana’s National Health Insurance Authority (NHIA) provides coverage for around 50% of the country’s population. Its goal is to reach universal health coverage.

To achieve this, the NHIA needs to be financially sustainable over the long term. That means increasing funding, reducing unnecessary costs and improving operational efficiency.

Doing these things requires data, to see where improvements can be made. But right now, only a small portion of NHIA data is digitised and able to be analysed. For example, just 10% of hospitals that provide services to the Authorityr claims digitally.

With more data and better ways of analysing it, the NHIA will be able to expand its membership and be more efficient in servicing the population’s health needs. For instance by identifying the services that are most important for people’s health, particularly vulnerable groups for whom out-of-pocket expenditure to pay for health services often results in financial catastrophe.

Ultimately, this will lead to better quality and more cost-effective healthcare for all.

PharmAccess Foundation

The NHIA is aiming to fully digitalise its data and business processes over the next four years. It has already begun working with the PharmAccess Foundation, an international NGO that works to improve access to quality healthcare for people in sub-Saharan Africa through the use of innovative strategies such as mobile technology, sustainable finance models and data analytics.

PharmAccess is providing technical assistance (e.g., capacity building, advice, and data analytics) to make the NHIA ta-driven insurer and to create value out of its own data.

FSD Africa will provide a grant of just under $200,000 to PharmAccess, as well as technical assistance and communications and advocacy support, to boost its work with the NHIA through the creation of a new, dedicated project. PharmAccess will also be working with the Christian Health Association of Ghana (CHAG) which is the largest private not-for-profit healthcare provider in Ghana with around 344 health clinics.

FSD Africa and healthcare

Healthcare financing in Sub-Saharan Africa is highly fragmented and resources are often not allocated to where they are most needed or will have the most impact. This results in poor facilities, lack of affordable health care options and poor quality care meaning that people are less willing to pre-pay for healthcare through health insurance and end up paying higher out-of-pocket expenses for treatment on demand.

This creates a vicious cycle in which private healthcare providers are unable to predict revenues limiting their ability to invest in more and better services while public insurers face challenges to their financial sustainability.

We believe we can help break that cycle by using data to get a better understanding of a population’s healthcare needs. This will lead to a more efficient allocation of resources, better health outcomes and more trust in the healthcare system which ultimately should lead to more predictable public funding.

Our involvement reflects our aim to promote health inclusion in sub-Saharan Africa through better healthcare financing. And a healthy population ultimately translates into a healthy economy, able to create sustainable growth for future generations.

How the project will work

Over the next 18 months, we will be working with PharmAccess to improve the NHIA’s analytics capabilities, use data to see where efficiency gains can be realised, identify innovations that will improve the relationship between the NHIA and healthcare providers and help identify other fus for the work.

We hope our project in Ghana will demonstrate the power of data to improve healthcare services and will provide a basis for similar projects across sub-Saharan Africa in the future.

Infoset and SIX are the winners of the DRC – Innovation & Financial Services Challenge

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DRC, 27th January 2022: In partnership with the Central Bank of Congo, we are pleased to announce the winners of the DRC – Innovation & Financial Services Challenge, a competition designed to promote value-creating financial innovation in DR Congo.

Infoset’s “FlexPay POS” was declared the winner in the “Financial Innovation for Economic and Social Development” category, while SIX’s “UFIS” (Unified Financial Identifier System) won in the “Financial Innovation for Solidarity” category, which recognises financial solutions that address the needs of displaced populations, refugees, and host communities in the country.

The winning companies were selected from nearly 100 entries and six finalists, three in each of the two categories. The six finalists each received a grant of US$13,000 for the development of their solution from FSD Africa, a specialist development agency supported by UK aid that works to strengthen financial systems in sub-Saharan Africa. The finalists also had access to support from the Central Bank of Congo to address regulatory issues, in addition to technical assistance from 19 contributors, business associations, consultancies, lawyers and experts.

Innovation is essential to ensure democratic access to financial services. That is why we congratulate the winners and wish them every success. We were particularly honoured to be part of this unique initiative and would like to thank all the candidates for their participation, all the contributors whose time, resources and expertise enabled the finalists to work in the best possible conditions, as well as all the members of the juries for their availability and their indispensable contribution.
Henri Plessers, DRC Country Representative

Long-term debt financing in Africa is a problem…and an opportunity

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Long-term debt in Africa

Financial sector assets in Africa are heavily concentrated in banking, according to the latest research by the Africa Long-term Finance Initiative (LTF). Taken together, insurance company and pension fund assets represented less than 40% of GDP on average in 2019 across the continent, against an average of almost 100% of GDP for commercial banks. No surprises, then, that the largest providers of long-term debt in Africa are banks.

Why the lack of diversity in domestic sources of long-term debt? In part, it comes down to the risk aversion of fund trustees: most institutional investors in Africa prefer to invest in government securities and real estate rather than taking on project risks with which they are unfamiliar.

Instead of investing long-term saving commitments in long-term investments, institutional investors hold a significant portion of their assets as term and savings deposits with banks. This upends the maturity transformation role often viewed as the core purpose of financial intermediation – that is, meeting the needs of lenders and borrowers by taking short-term sources of finance and turning them into long-term borrowings.

Where institutional investors have been willing to take on project risk, their investment has been limited to brownfield infrastructure – projects that are already constructed with regular income streams from delivery of services, where the risks are much lower than in the greenfield construction phase. Even here, institutional investors typically lean on Development Finance Institutions (DFI)s to provide first loss-guarantees.

Turning to the role of commercial banks, a disproportionate share of bank lending is allocated to the public sector. The deepest segment of most capital markets in Africa is the market for government securities (mostly short-term): the volume of outstanding government bonds represents, on average, some 20% of GDP across the continent. By contrast, most African countries do not have a market for corporate bonds. Wher exists, the market represents less than 5% of GDP in most cases. This imbalance between deep sovereign debt markets and shallow corporate debt markets is exacerbated by the high concentration of liquidity in just a few capital centres south of the Sahara: Lagos, Nairobi, and Johannesburg.

Government securities are attractive to banks as they represent ‘risk-free’ assets and do not encumber banks in terms of capital adequacy. Conservative culture or ‘career risk’ also plays a role: as one bank executive in our network observed, “nobody worries about losing their job for buying yet more T-bills”. In some cases, as government spending ballooned in response to COVID-19, and credit risk associated with lending to the private sector increased, top-tier domestic banks have seen the purchase of government securities as a welcome “safe-haven”..

From the perspective of users of debt finance, although traditional banking products are available to most formal enterprises, they often come at a high costernative formal sources of finance only play a marginal role on the continent, access to long term finance is often constrained. Likewise, lending to the housing sector is very modest – the average percentage of adults with loans for home purchase across the continent was around 5% in 2017.

Not only are domestic markets for private debt constrained – we could say “crowded out” – by the borrowing needs of the public sector, foreign borrowing is also limited, and entails foreign exchange risk that increases its cost. This underscores the pressing need to deepen domestic debt markets for the private sector (both enterprises and households) across the continent.

The importance of long-term debt

Long-term debt is essential to sustainable development, in particular because it allows investments to be financed over their active lifetime, thus matching the liquidity needs of the investment project. Debt is also generally less costly than other forms of finance, such as equity, dueniority, its payment structure (regular installments) and (re)financing flexibility.

Depth of the financial system (2016[1], % of GDP)

The depth of the financial systems depicted in the figure below for a selection of African countries is gauged by commercial banks’ assets, government bond market capitalisation, corporate bond market capitalisation, and stock market capitalisation. The figure shows, for each indicator, the average across the continent in 2016 and the percentage for each country in the same year, scaled by GDP.

Sources: World Bank (World Development Indicators) and BIS, supplemented by the LTF Survey

In developed economies, long-term debt finance is used by governments, enterprises, and households alike. For governments, debt is the only alternative to tax revenues when raising capital for investment. Enterprises find debt the most advantageous form of finance because it has a low cost of capital, often provides tax shields, plays a disciplinary role for managers and avoids diluting founders’ control. Households also find debt to be useful in alleviating liquidity constraints and thereby allowing them to smooth their income over the life cycle, opening up possibilities for purposes such as finance of housing, education and retirement.

Lack of data creates higher risk perception

In developed capital markets, the amount of long-term debt provided to the different sectors of the economy is well-balanced. Banks have a broad portfolio of loans that includes both public and privateending, and well-diversified institutional investors allocate their capital to both governments and corporates.

However, when data is not readily available to market participants, lenders tend to restrict their lending due to higher perceived risk. For example, solid and reliable credit history registries reduce these “information asymmetries”, allowing borrowers to have easier access to long-term finance.

Valid data on debt under the Long Term Finance (LTF) scoreboard

By improving market intelligence through data collection, the LTF initiative seeks to deepen markets for long-term finance in Africa by reducing information asymmetries. Governments can use this data not only to benchmark but also to improve their debt management practices, enabling productive financing that yields return better than the cost of debt itself. Likewise, private sector stakeholders stand to benefit from being able to better manage the risks associated with their investment in local African capital markets.

Coordinated efforts need to be made by a range of stakeholders – private investors, public investors, concessionary lenders, and expert providers of technical assistance – to increase the deployment and investment of domestic sources of long-term finance in productive assets, especially those resources available for long-term investment by pension funds and patient capital investors.  As we’ve outlined in this short blog post, the pis information asymmetry made worse by an inertia that comes from traditional over-reliance on government securities. For innovators, it is a status quo replete with opportunity.

Investment in productive assets like infrastructure will create a ripple effect on economic expansion over time. As economies expand, more capital for growth and scale-up is needed, which will attract larger foreign investment flows into Africa. This in turn will create job opportunities, higher disposable incomes and household savings, and – ultimately – inclusive economic growth.

[1] Data on government and corporate bonds are only available until 2016.

FSD Africa Investments injects £3m into Kenya’s first factoring fintech to boost supply of capital to small businesses

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Nairobi: December 20, 2021

IMFact’s technology-driven factoring solution provides MSMEs with an alternative to bank lending by providing upfront cash payments for their unpaid invoices.

FSD Africa Investments (FSDAi), the investing arm of FSD Africa, has today announced a £3m investment into IMFact, an expanding fintech company that uses supply chain financing to provide working capital to micro, small and medium enterprises (MSMEs).

As a “pooled receivables” factoring business, IMFact purchases bulk invoices from MSMEs for a mix of upfront cash and deferred payments. This gives the sellers access to cash without the need to follow up or wait for invoices to be paid, freeing up capital to buy new inventory, pay suppliers, and grow the business.

IMFact’s “pooled receivables” model differs from the pre-existing invoice discounting practice where the best receivables or invoices are cherry-picked by the financing company meaning the rest of the receivables pool cannot be used as collateral. It also provides faster access to working capital than the invoice discounting usually offered by banks because it does not require an upfront deposit or guarantees.

We are pleased to be working with IMFact to support the rapid financing of MSMEs in Kenya at a time when many are struggling to get access to working capital from traditional lending institutions.  We particularly look forward to seeing the impact the investment has on Kenya’s medical and pharmaceutical sector and hope to encourage further scaling of fintech solutions to solve the funding gap among smaller businesses.
Anne-Marie Chidzero, Chief Investment Officer, FSD Africa Investments

Many of the MSMEs expected to benefit are family-owned businesses including those that distribute medical equipment and pharmaceuticals to public and private organisations. However, IMFact will also be working with supply chain businesses in other industries.

Covid lockdowns just another crisis : the resilience of Nairobi s micro-entrepreneurs

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In March 2020 when the first wave of Covid-19 hit, countries around the world introduced stringent public health measures. Kenya was no exception. Schools were shut, government and office workers were encouraged to work at home, markets were closed, curfews were introduced and movement in and out of Nairobi was banned.

Although these measures reduced the spread of the virus, their economic impact was swift and damaging. Millions of people’s livelihoods disappeared overnight. For those working in the informal sector in Kenya, which accounts for up to 77% of all employment,[1] days without income quickly became days without food. As the lockdown continued, the World Bank and others predicted dire consequences for long-term economic growth and poverty reduction targets.

Today, although the Covid-19 and macro-economic outlooks remain unclear, recent research undertaken by FSD Africa in Mathare, one of Nairobi’s largest slums, indicates that Covid is only the tip of the iceberg. The pandemic is potentially diverting attention away from the underlying drivers that make or break the livelihoods of Mathare’s inhabitants.

The Youth Enterprise Grant project

Over the last two years, FSD Africa has been studying over 1,000 youth living in Mathare as part of the Youth Enterprise Grant project. Starting at the end of 2018, young people aged 18–35 were given a smartphone and an enterprise grant totalling $1,200. Half of the participants received the grant in three lump-sum payments at the beginning of the programme, while the other half received a monthly stif $50 over two years.

The project was implemented by cash transfer specialists GiveDirectly, with funding from the MasterCard Foundation, FSD Africa and the Google Impact Challenge Fund. Ongoing research over the period sought to ascertain how the youth used the money and the phone to improve their lives and livelihoods.

Covid-19 strikes

One year into the project, the research showed several promising findings, such as the proportion of youth describing themselves as ‘self-employed’ – running their own business – increasing from 34% to 67%. Data also showed that a third of all transfers were being spent on new or existing business investments, with a further 13% of transfers spent on education. There was practically no evidence that funds were being misused.

But during the second year of the project, the Covid-19 pandemic struck. Researchers feared its impact would undermine the business investments and other gains reported up to that point. It was felt that the lump sum recipients, whose grant payments had finished approximately one year before, would be particularly affected.

The results of the project were therefore awaited with some caution. This included the responses to post-payment telephone surveys with monthly recipients, a final telephone survey of all YEG recipients and several longitudinal case studies.

But these findings, shortly to be releasedAfrica in the project’s final report, provide a more nuanced picture than expected of the economic impact of Covid-19 on micro-business and survival in the Nairobi slums.

The mixed impact of Covid

There is no doubt that lockdown affected the livelihoods of the YEG youth. Teresia, age 29, explained:

“Before Covid, I was working several days a week cleaning in the house of a Chinese businessman. When lockdown came he told me to stay away as he didn’t want people coming into his house. I didn’t get paid when I didn’t work.”

Many others reported similar stories, and in the endline survey, carried out in January 2021, 90% of respondents said their income had decreased substantially during lockdown.

Nonetheless, the broader research findings indicate that the impact of Covid-19 as a whole was temporary, and limited largely to the initial lockdown period. Analysis of other questions posed in the endline survey shows that most respondents, including those that received lump-sum payments nearly a year before pandemic, emerged in a better financial situation than at the beginning of the project.

Micro-entrepreneurs were resilient

All youth reported sustained positive perceptions of their financial situation at the end of the project compared with the start, with a marked increase in those feeling they could meet all their daily needs on most days.

The shift to self-employmalso sustained, with the majority of youth (79%) describing themselves as self-employed and 68% describing self-employment as their main source of income. The figures show little difference between lump sum and monthly payment recipients, indicating that business investments made with transfers at the beginning of the project survived.

Interviews held after lockdown revealed that although most participants experienced reduced or suspended business activity and income, Covid-19 had not caused any participant’s business to fail outright. While five of the nine interviewees said their businesses were directly affected by Covid, they tended to describe them as being ‘on hold’ during lockdown, rather than ‘failed’.

All felt these business ventures were restarting as demand picked up. This was especially true of skills-based businesses, like hairdressing, construction and cleaning, which are relatively easy to restart once demand increases.

A couple of businesses even grew during the lockdown. One yout in a modem to sell wifi connections to households in his area, which increased in demand as more people (including school children) were forced to work at home.

Covid was one issue among many

All of this challenged researchers’ initial concern that the Covid-19 crisis would be such a significant shock it would wipe out any economic gains arising from the project. Instead, the YEG research found that although Covid-19 was a major shock, its impact in Mathare was no greater than that of many other issues affecting micro-business operators.

Four interviewees, for example, reported businesses that had failed for reasons unrelated to Covid. Only one of these was due to poor business skills. The other three reflected the highly precarious nature of operating a business in informal settlements: they were due to livestock disease, police raids and medical expenses.

The challenges of running a micro-business

These issues echo comments made in focus groups when participants were asked about the chlenges of running their businesses. Rather than emphasising lack of skills, they cited a litany of other obstacles in operating in a place like Mathare:

“So I bought hair braids with the money. After that, it’s like thieves realized we have been given the money and they came and stole from me. They took everything.”

“You know we don’t have title deeds here so we are just risking, anytime we can be kicked out and I lose my rentals. Also, because we hear about slum upgrading so we must feel insecure about our business.”

“Personally, I have a small kiosk, there are people who come to me pretending they are city askaris but they just want money, the chief, people just wanting to disturb you and your business.”

In several cases, medical costs and funeral expenses had wiped out participants’ savings or undermined their ability to keep businesses afloat. Other challenges related to the unreliability of basic services:

“Challenges are like: when we don’t havey; you find that no money will come in [to the bio-block] that day. Also, when there is no power our video business suffers.”

Issues around crime, theft and corruption are not easy to resolve. Indeed, some informal income-generating activities are based on illicit operations, such as selling water or electricity by tapping into mains supplies. YEG interviewees described efforts to obtain official meters, permits or licences – to legalise their operations – as being expensive, bureaucratic and ultimately futile. So instead, they continue operating in the knowledge they are running on borrowed time until they are shut down.

Structural problems must be addressed

These findings should challenge policymakers to think about what micro-entrepreneurs really need to run sustainable businesses in informal settlements like Mathare. The YEG project shows that youth were enthusiastic in their use of the capital (and the phones) provided by the programme to start and grow businesses, but long-term stability, and growth, are reliant on a range of wider factors – particularly investment in public goods.

Reliable, affordable basic services, universal healthcare, secure property rights and security are all essential for micro-entrepreneurs to succeed but are hardly ever included as elements of urban livelihood programmes. Instead, there is a fixation on loans and business training, which will have limited impact unless underlying structural factors are re-oriented to support the needs of lower-income households and businesses. Unsurprisingly, the project found YEG participants less concerned about the role of their business skills in their success than the research team were.

Mathare’s micro-entrepreneurs have proved their capacity for survival in the face of so many continuous challenges, and the pandemic was simply seen as one more to tackle. While a significant shock like Covid-19 was an unexpected element oe YEG project, it has helped magnify the underlying factors that make or break the livelihoods of youth living in informal settlements.

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[1] IEA, Informal Sector and Taxation in Kenya, 2012.

Smartphones and micro-entrepreneurs in Nairobi’s informal settlemen

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In the space of two decades, the smartphone has revolutionised communication and enabled millions to access the internet. This is particularly true in Africa, where it is estimated more households now own a mobile phone than have access to electricity or clean water.

Within Africa, Kenya is one of the most digitally connected countries, with more mobile phone registrations than people.[1] An estimated 96% of internet users gain access via a mobile device,[2] and Kenya also leads the world in the adoption of mobile money services, with over 79% of adults holding a mobile money account.

Nairobi is one of Africa’s most vibrant and connected cities. As the continent urbanises and more young people enter urban job markets, understanding how Nairobi’s micro-entrepreneurs operate in the digital age offers useful insights for cities across Africa.

Much has been written on the digital dividend that internet connectivity can bring in terms of accelerating growth, creating opportunities and delivering financial services. But it is difficult to know whether this dividend pays out to poorer households, who may be the last to own mobile phones and less able to afford access to the internet.

These were the issues explored by FSD Africa as part of the Youth Enterprise Grant, an innovative pilot project that provided smartphones and enterprise grants to 1,000 youth in Mathare, one of Nairobi’s largest slums.

The Youth Enterprise Grant

The YEG project ratwo years, starting at the end of 2018. All participants lived in Mathare, with most aged 18–35. The project provided each participant with a smartphone and an enterprise grant totalling $1,200. Some received the money in three lump-sum payments at the start of the programme, while others received a monthly stipend of $50 over two years.

The project was implemented by cash transfer specialists GiveDirectly, who helped FSD Africa assess if and how young people used the money and the phone to improve their livelihoods. The research sought to ascertain the value of digital technology in building business skills and knowledge, money management and financial literacy.

The smartphones were pre-loaded with several apps. These included Facebook and M-PESA, the mobile money service via which the grants were paid. The phones were also loaded with Touch Doh, a money management app that uses animated characters, speaking in Sheng (Swahili street slang), to help users with budgeting. On Facebook, participants were held to set up a profile (if they did not already have one) and become a member of the Hustle Fiti page, a business advice and chat group operated by Shujaaz Inc.

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[1] https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=KE

[2] https://datareportal.com/reports/digital-2021-kenya