Author: TIMOTHYRADIER

Kenya closes its first ever green bond

Posted on by TIMOTHYRADIER

Nairobi, 3 October 2019: Acorn, a Kenya-based real estate development company, has successfully issued the country’s first certified green bond, raising KSh 4.3 billion bond for the construction of environmentally-friendly student accommodation in Nairobi.

The five year bond will fund the construction of purpose-built accommodation for almost 5,000 university students across Nairobi. The construction will meet international green building standards for water, energy and construction materials, ensuring lower operation costs and a low-carbon impact over the long-term.

Today’s announcement is a landmark moment for the Green Bonds Programme Kenya, a partner initiative between Kenya Bankers Association, Nairobi Securities Exchange, Climate Bonds Initiative, FSD Africa (funded by the UK Aid from the UK Government) and the Dutch Development Bank FMO.

Launched in March 2017, the Green Bonds Programme Kenya encouraged the private sector, regulators and donors to work together to lay the foundations for a robust green bond market in Kenya; developing policy, conducting market research and providing critical technical training for issueinvestors and regulators.

A key focus for the programme has been to instil investor confidence by developing frameworks to ensure local green bonds meet international certification standards, while investing in projects which provide sustainable solutions for local challenges around food security, waste management and energy. The Acorn bond is certified under the Climate Bond Standard, which ensures it genuinely contributes to reducing carbon emissions. It is also the first Kenyan corporate bond rated by an international ratings agency and the first with a guarantee.

Research funded by the Green Bonds Kenya programme, which was released last year, revealed US$1 billion of green investment opportunities across Kenya’s agricultural, manufacturing and transport sectors alone, over a five to 10-year period.

Global appetite for green bonds continues to increase, with the market expected to grow by 20 per cent this year to reach US$200 billion in value, according to Moody’s. This is the third green bond to be launched on the continent this year; in April Nigerian-based Access Bank bond raised US$41 million to fund mitigation projects and in May Nedbank raised a green bond focusing on renewables.

In addition to tapping into growing international and domestic demand for green investments, the bond represents an important milestone in Kenya’s transition to a low-carbon economy and national vision of being a centre of financial excellence in the region.

Speaking at an event celebrating the bond closing, British High Commissioner to Kenya Jane Marriott said:

‘I am delo help mark the arrival of East Africa’s first ever green bond here in Kenya today, which has been delivered with support from the UK.

 This brings together two of the UK and Kenya’s partnership priorities: strengthening our economic partnership and working together to respond to climate change.

This bond will result in Ksh 4.3 billion supporting a Big 4 Agenda priority, investing in affordable, environmentally friendly housing for 5,000 students in Nairobi. This is great news for young Kenyans continuing their educations, and good news for the planet we share.’

UK Secretary of State for International Development Alok Sharma said:

“The UK is mobilising private sector investment to help African nations make the most of their enormous potential. We are leading the way in the listing of green bonds, with over 100 bonds listed on the London Stock Exchange.

“The growth of the green bond market in East Africa is supporting vital climateinfrastructure and helping provide 5,000 students in Kenya with environmentally-friendly, affordable housing. I look forward to building on this success at the UK-Africa Investment Summit next year.”

 CEO of Acorn Holdings Ltd Edward M. Kirathe said:

 “Acorn is delighted to have successfully pioneered the issuance of Green bonds in Kenya. We are truly grateful for the unprecedented support we have received from UK DFID supported entities – especially GuarantCo and FSD Africa without which it would not have been possible to bring this bond to Market.” 

Mark Napier, Director, FSD Africa said:

“FSD Africa congratulates Acorn and all those involved in the Green Bonds Programme Kenya on this achievement. We are proud to have played our role in creating the standards that will enable Kenya to contribute to the massive growth in sustainable investment that we have seen across the gl

FSD Africa finalised a £350k commitment to the People’s Pension Trust Gh

Posted on by TIMOTHYRADIER

The majority of people in Africa do not benefit from any public or employer supported pension scheme, while at the same time are living with diminishing traditional support from children. The book Saving the Next Billion from Old-age Poverty, estimates that there are 1.2 billion at risk of old-age poverty in Africa, Asia and Latin America.

This week, FSD Africa finalised a £350k commitment to the People’s Pension Trust Ghana, a subsidiary of the pension fund administrator Peoples Pension Trust, to help design and scale innovative tailor-made pension products for underserved and low-income people across Ghana.

Today, only 10% of people in Ghana have access to a pension scheme – when over 80% of the workforce is employed in the informal sector with no access to this vital safety net for later life. This initial investment will serve 500,000 Ghanaians with affordable pension services; if successful the products will be scaled to Rwanda and other countries in the region.

 As life expectancy is increasing speedily in a lot of African countries, the family size is decreasing, and urbanisation is taking place. This means that more workers in the informal economy are getting into old age poverty when they retire, because they are unable to work due either to sickness or ageing. We are therefore happy to have this support from FSD Africa to tackle head-on this issue of old-age poverty” class=”blockquote-source”>Bediako Waterberg, CEO, People’s Pension Trust Ghana

PPT aims to serve 500,000 micro-pension customers and serve 1 million customers within 10 years.  For now, the Rwanda operation will be a three-year pilot targeting 6,000 participants and 3,000 active users to test and learn in preparation for an investor fundraise and subsequent scaling.

The FSD Africa Investments will enable PPH to scale up its operations and provide innovative, technology-driven and customer-focused pension solutions to informal workers in other countries.

Through this investment FSD Africa also seeks to catalyse market system change by:

  1. Stimulating market-responsive, long-term savings through a pension fund vehicle that has the potential to reduce age-old poverty and fund assets (e.g. homes) while allowing customers to respond to short-term emergencies
  2. Introducing an innovative business model with potential for replication that leverages digital technology and a partner ecosystem to lower nsactional costs, reach highly dispersed markets, and drive consumer adoption;
  3. Expanding pension fund participation in long-term finance for developmentally important investments.

 ,

Using development capital to finance sustainable growth in Africa

Posted on by TIMOTHYRADIER

There is much talk lately about blended finance, the use of capital from public or philanthropic sources to increase private sector investment for sustainable development. I was on a panel earlier this year when one of the speakers described it as ‘the trampoline that can give you the bounce needed to launch.’

Smart deployment of blended finance not only provides early capital to sustainable solution but can guarantee long-term financing by attracting private and institutional investors.

FSD Africa Investment’s form of blended finance, development capital, is designed to invest in untested, breakthrough ideas that we believe can have a transformative impact on the continent’s sustainable growth. Our investment works to take early stage risk, allowing other sources of risk capital to invest in high-impact financial sector intermediaries and business, alongside us. Why is this important?

Africa needs investment capital with different risk/return profiles

Reaching the S require private and institutional capital to invest in structures that achieve development outcomes in a financially sustainable way.

We invest in high-potential businesses that are often deemed too risky for commercial investment.  The ‘trampoline effect’ makes it easier for commercial capital to flow to ventures that now match their risk/return profiles.  For example, our investment in <a”https://fsdafrica.org/programme/mfs-africa/”>MFS Africa, a remittance payments provider, enabled them to close their Series B round, and grow to raise capital in future funding rounds.

African SMEs need early stage risk capital

For investors seeking returns, Africa is a continent of opportunity, but also high risk.  Medium and SMEs account for 90%1 of Africa’s businesses and contribute to 40% of GDP, as well as creating 80% of the continent’s employment. The reality, however, is that the majority of African SMEs are in the early stages of their development, with investment needs between USD 50,000 and USD 500,000, but struggling to access capital to expand and grow into larger and more sustainable companies as they are deemed to high risk.

Our mandate is to change this perception, by testing new and alternative financing structures that can make investing in Africa’s SMEs more attractive to investors.

Africa needs investments in businesses that will increase access to basic services

The majority of people in Afrnot have access to affordable health services, opportunities to save for old age, safe water and clean energy or housing. With a projected population of 2.4 billion by 2050, the need has already surpassed the ability of governments and development finance institutions to address this crisis.

FSD Africa Investments development capital is critical to engaging the private sector, as well as institutional and impact investors, to fund businesses and products that can expand access to basic services for everyone. For example, we are already investing in an affordable housing finance company and a micro-pensions start-up.

Africa needs more private sector solutions for climate change

Millions of vulnerable people are falling into poverty as a direct consequence of climate change. Extreme climate conditions are affecting livelihoods – with loss of property, income, access to clean water and a safe environment. Trillions of dollars of investment are needed to combat climate change. We need to move quickly towards renewables, sustainable agriculture and energy efficiency.

We deploy development capital to mobilize financial resources into financial platforms and solutions to mitigate the causes of climate change and to adapt to its effects, reducing its impact.

Africa’s needs to harness its own sources of capital

Foreign Direct Investments to Africa have been on a downward trend over the last five years, falling from USD 74 billion in 2013 to 42 billion in 2017. Yet, Africa has large pools of its own capital through savings, insurance, pensions contributions but very little of thisoney finds its way back to the real sector or into alternative asset classes, such as private equity funds.  Finding investment platforms that use blended finance structures to manage the risk/return profiles would support a better allocation of this capital to the real economy.

Unlike many development finance institutions, we have a primary mandate to drive impact, which is secondary to the need to create return on our investments. We invest in order to drive impact and create solutions to the most pressing challenges facing Africa’s financial markets.

By stimulating and increasing the flow of commercial and institutional capital into financial firms and funds, we’re ensuring that Africa’s financial sector can serve its local communities and economies in the long-term, reducing the need for development funding in the future.

 

<cite”blockquote-source”>1The Challenges and Opportunities of SME financing in Africa, London Stock Exchange Group,

FSD Africa Investments welcomes a new £90m commitment from UK aid

Posted on by TIMOTHYRADIER

Commitment expected to unlock over £500m in additional private sector finance

Nairobi, Friday 27thSeptember 2019: FSD Africa today welcomes an additional commitment of £90m from UK aid to scale-up its development capital arm, FSD Africa Investments. The new commitment will enable FSD Africa Investments to invest in high-potential financial sector businesses across sub-Saharan Africa, unlocking over £500m in critical private sector finance for SMEs, businesses and entrepreneurs.

The new UK aid package, announced this evening by Secretary of State Alok Sharma at the UN General Assembly in New York, will channel much-needed patient capital into financial sector businesses operating in Africa – from financial technology firms to private funds in emerging asset classes and alternative finance companies.

With this new commitment, FSD Africa Investments aims to catalyse £500m of long-term finance for SMEs, entrepreneurs and businesses, and through co-investing, unlock Lf private sector investment and institutional capital into intermediaries investing in real economy sectors (including housing, health and education) and enabling improved access to financial services for 12.5 million people, 50% of whom will be women.

FSD Africa Investments invests in financial sector firms and funds that address some of the biggest challenges facing Africa’s financial markets. This week, FSD Africa finalised a £350,000 commitment to the People’s Pension Trust Ghana, a subsidiary of the pension fund administrator Peoples’ Pension Trust, to help design and scale innovative tailor-made pension products for underserved and low-income people across Ghana. Today, only 10% of people in Ghana have access to a pension scheme – when over 80% of the workforce is employed in the informal sector with no access to this vital safety net for later life. This initial investment will serve 500,000 Ghanaians with affordable pension services; if successful the products will be scaled to Rwanda and otries in the region.

FSD Africa Investments is designed to invest in high-potential financial sector firms that would otherwise be deemed too high-risk for commercial investment. Instead, FSD Africa Investments can take early stage risk and flexibly invest in financial sector businesses and funds. This investment provides innovative businesses with the capital they need to test and scale high-potential ideas. FSD Africa Investments uses a mix of tools to disburse capital – including loans, guarantees, and equity or quasi-equity.

FSD Africa Investments also helps unlock capital and finance from other players. An earlier £15.3m investment in the African Local Currency Bond Facility has unlocked £137m in finance from the private sector. This funding has helped local banks and financial institutions use local capital to fund small businesses on the continent.

International Development Secretary, Alok Sharma, said: “I am committed to mobilising the private sector to help African nations ma most of their enormous potential. This new UK aid package will reduce poverty by mobilising private sector investment in infrastructure, creating jobs and boosting access to finance. I have recently announced an Infrastructure Commission whose aim will be to boost investment in green, sustainable infrastructure.”

Mark Napier, Chief Executive Officer, FSD Africa, said:“Innovation in financial services is vital for the next generation of African entrepreneurs to get the capital they need to grow their businesses and for people to get access to the basic services we take for granted, like housing and healthcare. But innovation requires investment that is flexible and patient. This commitment to FSD Africa Investments is both generous and smart.  It directly addresses the unmet demand that financial innovators have for capital. But it also allows them to use that capital to unlock much larger amounts of long-term finance from their local markets.”

Anne-Marie Chidzero, Chief Investment Officer, FSD Africa Investments, said: “FSD Africa Investments builds on FSD Africa’s on-the-ground network and insights to invest in a way that directly addresses the most pressing challenges facing Africa’s financial markets. We have a unique investment mandate to take the early stage risk g in African financial intermediaries that could yield high economic and social impact but require patient capital to demonstrate commercial returns.”

FSD Africa Investments received an initial capital allocation of £30m from UK aid in 2017. To date, it has completed five transactions valued at £21.25m, with the last investment heading to financial close. Over £10m in transactions are at the advanced stages of due diligence.

 

–––––––––––

Crowdfunding on the move: approaching P2P market regulation in East Africa

Posted on by TIMOTHYRADIER

In June 2016, the crowdfunding industry in East Africa met for the first time in Nairobi, Kenya. The indaba hosted over 60 leading platforms, regulators, donors, researchers and business service providers from Kenya, Rwanda, Tanzania and Uganda. The event highlighted crowdfunding as a potential source of alternative finance in the region (summary here).

To maintain momentum, FSD Africa has partnered with the Cambridge Centre for Alternative Finance and Anjarwalla and Khanna to examine the existing regulatory and policy landscape that governs debt, equity, rewards and donation-based crowdfunding activity in Kenya, Rwanda, Tanzania and Uganda.

According to Joe Huxley of FSD Africa: “Effective regulation and policy frameworks are critical. They provide the necessary rules and incentive structures to ensure the growth of crowdfunding markets in East Africa is carefully managed.”

The objectives of this work are to:

  1. Map out the existing regulatory and policy landscape for all crowdfunding models in Kenya, Rwanda, Tanzania and Uganda.
  2. Determine a list of priority areas for regulatory and policy development to support crowdfunding market development in East Africa.
  3. Identify key lessons from the regulation and policymaking of leading crowdfunding markets.

To provide relevant insights for East Africathe  regulation and policy frameworks for crowdfunding markets in South Africa, the UK, New Zealand, the USA, Malaysia and India will also be examined. In addition, the research team will also interview and seek insights from selected crowdfunding platforms, practitioners and experts internationally.

According to Kieran Garvey of the Cambridge Centre for Alternative Finance: “Throughout the project, we intended to work closely with regulators and industry practitioners in East Africa to foster common understanding of key crowdfunding risks and opportunities, and how to manage them appropriately.”

The research will be finalised and launched in September 2016.

—-

Further information:

To express your interest in this research or to participate, please email Kieran Garvey from the Cambridge Centre for Alternative Finance “mailto:kjg44@cam.ac.uk”>kjg44@cam.ac.uk

For further information on the crowdfunding industry, please the Cambridge Centre for Alternative Finance reports here: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/

Furthermore, the Africa and Middle East alternative finance benchmarking survey is currently underway. Please see further details here:

http://www.crowdfundinsider.com/2016/06/87301-cambridge-centre-alternative-finance-launches-first-industry-study-middle-east-africa/

Crowdfunding platforms in Africa & the Middle East can access the survey here: https://www.surveymonkey.co.uk/r/AltFin_MiddleEast_Africa

How personal relationships can bank the unbanked in Africa

Posted on by TIMOTHYRADIER

Opinion article originally published on Business Day Nigeria.

Over the past decade, financial institutions have altered their view of unbanked rural populations from an impossible challenge to a fragment of society with real untapped potential.

But how do you deliver banking services to hard-to-reach communities? People who live where there is little infrastructure yet still need to buy goods, pay school fees and save for emergencies?

Recent technological developments have shown that banks can offer financial services without growing their branch network or installing more ATMs.

Financial institutions are now working with agents – local entrepreneurs who have established a business – for example a retail outlet, to provide basic banking services in the customer’s own neighbourhood.

This dynamic is known as agency banking. It enables banks to increase their reach with greater cost efficiency and it isn’t just the banks that benefit: jobs are created, local businesses grow and money flows through communities.

EquiCongo uses agency banking to reach customers in far-flung corners of the country who would otherwise be excluded from the banking ecosystem.

Reaching women

In Nigeria, Diamond Bank – recently acquired by Access Bank – developed an agent network with a focus on serving women. With 70% of women unable to access bank accounts or other basic financial services, Diamond Bank designed innovative savings schemes and rural credit that delivered financial services to women in their own communities.

The results have been impressive with 600,000 new accounts opened. This goes to show that women value the convenience and reassurance of agents who they trust, as they know them personally. This secret lies both in the power of personal relationships and word-of-mouth.

The power of digital

Digital technologies, such as the mobile phone, are central to successful agency banking models. According to the GSMA, a global organisation representing the interests of mobile operators, there has been an increase in both the number of active agents and the values they transact. In 2012, agents processed US$4.2bn in transactions. By 2017 this figure had jumped to US$17.2bn. Over the same period, the number of agents also increased significantly from 538,000 to nearly 2.9 million globally.

However, technology alone is not a quick fix. Across our work at FSD Africa – a UK-Aid funded organisation working to transform Africa’s financial markets – we see time and again that human relationships are key to unlocking financial services for unbanked populations. From a customer’s perspective, financial services become tangible and legitimate when delivered through trusted and well-known agents in their respective communities.

Roving agents 

Recognising the importance of human relationships, banks are also turning to roving agents. These agents, with their door-to-door customer service, have reinforced the relationship between the bank and its customers, resul more customer-centric design and provision of financial services.

Nigeria’s Diamond Bank has roving agents dubbed ‘Beta Friends’, who directly market and sell savings and loan products to unbanked market traders, growing the bank’s customer base. Beta Friends visit market traders at their places of trade and help them open bank accounts and make transactions. They also assess loan applications, make recommendations to the bank’s credit officers and collect repayments.

Roving agents allow customers to save time and costs associated with having to visit a branch or an ATM. Women, caregivers and others unable to travel to bank branches also benefit from this model.

More than banking

FSD Africa has supported banks in Nigeria, Ghana and the Democratic Republic of Congo to establish successful agency banking models, bringing services to over two million unserved and underserved customers.

To scale up the model, international development organisations should pitch in to providand technical support. Equally, financial and insurance institutions should invest in agency research and training.

Over the coming years, agency banking will play an important role in financial inclusion, which is critical to the long-term reduction of poverty and economic growth in Africa. It’s now down to the commitment of all stakeholders to enable access to the financial products necessary to support and grow this band of game-changing innovators

Africa’s long-term financing shortfall – The Banker

Posted on by TIMOTHYRADIER

Our Director Mark Napier recently featured in an article by James King on The Banker.

The core problem is that African banking systems are generally funded by short-term deposits and therefore a mismatch exists between this and the long-term funding required for infrastructure, housing and small business finance

Mark Napier, Director, FSD Africa

Read the full article here or download above.

,

Central bank digital currency: friend or foe of mobile money in sub-Saharan Africa?

Posted on by TIMOTHYRADIER

Many claim that Central Bank Digital Currency (CBDC), formally known as Digital Fiat Currency, can have many benefits for financial inclusion and has the potential to impact mobile money. But can CBDC overcome the challenges that current mobile money providers and consumers face?

First things first; what is “Central Bank Digital Currency”. Simply put, CBDC is a digital representation of physical cash. As its digital alternative, CBDC is interchangeable with physical cash on a one-to-one basis as valid legal tender, and adopts all three of cash’s key features: a unit of account; a store of value; and a universally accepted means of exchange between transacting parties. The distinction between CBDC and private cryptocurrencies are summarised below.

Figure 1. Digital Fiat Currency compared to Private Cryptocurrencies

Source: Cenfri, 2018

So, what’s the relevance of CBDC to financial inclusion?

CBDC has the potential to digitise the entire payments value chain, from the first to the last mile in a more cost-effective and efficient way. Cenfri’s 2018 report “The benefits and potential risks of digital fiat currencies” finds that CBDC, unlike cryptocurrencies, can promote adoption through network effects because of the key features that is shares with cash. CBDC’s speed, efficiency and safety (being backed by the Central Bank) introduces much needed trust in digital payment mechanism, something that is lacking in private cryptocurrencies and mobile money. And trust is critical where money is involved. Trust means that CBDC could eventually be adopted along the entire value chain (like cash) and hence could promote financial inclusion at all levels of society.

But what about mobile money specifically?

Mobile money may be a leader in “banking the unbanked” but the phenomenon still faces obstacles that undermine its uptake and use, as shown in the figure below.

Figure 2. Key supply and demand cost drivers of mobile money in SSA

Source: Cenfri 2019, based on data from various literature sources

The application of retail CBDC to mobile money can foster greaterinteroperability, improve payment efficiency, facilitate cost-saving gains and reduce key payment risks typically associated with mobile money. CBDC can also enable trust in mobile financial services due to its safety and the way in which its speed eases liquidity constraints of mobile-money agents. CBDC also eliminates the need for unnecessary third-party intermediaries and so streamlines payment clearance at the same time as enabling true interoperability.

How about the downsides of CBDC?

If CBDC is not implemented appropriately it could exacerbate contextual inequalities along the lines of digital, financial and economic disparities between population segments and also intensify the complexity of mobile money. For example, if not everyone has a mobile phone then only those that do can access CBDC; and if only certain areas have network coverage then only those in those areas can access CBDC; and so on. CBDC could threaten the intermediation role of traditional deposit-taking. CBDC could also exacerbate poor uptake of mobile money (e.g. due to illiteracy) simply because of CBDC’s (perceived) complexity. If everywhere you can only pay in CBDC then it may make the gap between illiterate and literate users even wider. The more vulnerable segments of the population, as primary unstructured supplementary service data (USSD) customers, could also be at greatest risk of identity fraud.

So what can be done to avoid these risks?

CBDC can bring maximum benefits to mobile money and financial inclusion if it meets certain pre-conditions. The basic principles to avoid these risks lie with governments and the enabling financial environment they create in their respective countries. Governments need to ensure appropriate and effective legislation and anti-money laundering and combatting the financing of terrorism regulation, as well as the implementation of robust consumer protection laws and national cyber-security defences. We know that that some developing economies lack these key laws – or lack the ability to uphold the legislation, even if it does exist. Through our Risk, Remittances and Integrity Programme, FSD Africa is partnering with Cenfri to combat these challenges by helping countries implement appropriate regulation that enables low-cost, efficient, domestic and cross-border payments to enable inclusive financial systems to operate at scale, and positively impact broader economic development.

It’s clear mobile money presents a significant use case for CBDC in the drive towards financial inclusion, but not without risks. If governments, supported by development partners, address these concerns, the impact of CBDC on mobile money could not only be positive, but could also contribute to significantly greater financial inclusion and better economic integration altogether.

You can delve deeper into the role of CBDC in delivering financial services to the unbanked and CBDC’s applicability to mobile money by downloading Cenfri’s latest report “Central Bank Digital Currency and its use cases for financial inclusion; a case for mobile money”. 

Ghana’s people’s pension trust part of high-level meeting during leading Africa investor event

Posted on by TIMOTHYRADIER

Accra, May 10th 2019

The People’s Pension Trust Ghana, a company that aims to provide 500,000 Ghanaians with a tailor-made pension product by 2023, was one of seven companies which met the UK’s Secretary of State, Rory Stewart, on the sidelines of the Africa Financial Services Investment Conference (AFSIC) underway in London.