Harare, May 10th 2019
Local start-up Harare Receivables Exchange was one of seven companies to meet the UK’s Secretary of State, Rory Stewart, on the side lines of the Africa Financial Services Investment Conference (AFSIC) underway in London.
Author: TIMOTHYRADIER
Opinion article originally published on Devex.
One of climate change’s great injustices is that the worst affected countries are the ones that have contributed least to the problem.
In 2015, the world coalesced behind the Paris Agreement on climate change in an effort to transition to a low carbon future. And while much attention has been on the United States’ decision to withdraw from the agreement, many African governments have been stepping up.
Following the African Union’s lead, Ghana, Ethiopia, and Kenya, among others, have all factored climate change into their national development plans. And it is easy to see why these African nations are approaching climate change with earnest given the danger climate change presents to the continent. Cyclone Idai, for example, left incalculable destruction across three countries last month, an unfortunate reminder of the devastation climate change could have on the continent.
Trillions of dollars of investment are needed to combat climate change. And while the Paris Agreement does have funding mechanisms to support developing countries, these funds can only go so far.
Moreover, unlike the world’s primary greenhouse gas emitters, developing countries in sub-Saharan Africa need to encourage growth without fueling emissions.
Take electricity: Sustainable Development Goal 7 states that everyone should have access to affordable and reliable electricity by 2030. Yet, in a region where more than half the population still does not have access, governments need to improve access and reliability without turning to high-emitting power sources such as coal.
The role of green bonds
A solution to the crisis may lie in green bonds, which allow issuers to raise money specifically for environmentally friendly projects, such as renewable energy or clean transport.
This year, analysts predict the green bonds market will grow to $200 billion, a 20% increase from last year and a significant jump from 2016, which saw $87 billion raised. But while the global market continues to grow, there are fewer bonds available across Africa.
Most of Africa’s green bonds have been issued by the African Development Bank, which has raised over $1.5 billion since 2013. While Nigeria issued a $29.7 million bond to fund solar energy and forestry projects in December 2017, no other countries have followed suit.
African governments have historically relied on development finance institutions to fund green projects such as irrigation initiatives and solar energy. However, this is unsustainable and ignores potential capital that could be raised from pension funds, the diaspora, and the middle class. For example, Kenya’s pension sector is valued at about 1.2 trillion Kenyan shilling, or $11.9 billion.
If national governments want to unlock more capital, structures are needed to give investors the confidence to invest.
Kenya, Nigeria, and South Africa are leading the charge in sub-Saharan Africa. Since 2017, these countries have been working with a range of partners, including FSD Africa, to develop a robust framework for the issuance and listing of green bonds. Now, Nigeria and Kenya have joined India, China, and Indonesia in turning their frameworks into official guidelines — and the market is responding.
Last month, the Nigerian-based Access Bank issued Africa’s first certified corporate green bond, unlocking $41 million to protect Eko Atlantic City, near Lagos, from rising sea levels. This bond will also support a solar energy project. Notably, the bond was fully subscribed, highlighting the fact that if the frameworks are built, investors will come.
While development finance will always play a critical role in supporting development on the continent, countries are recognizing they need to unlock funding from other areas. Kenya and Nigeria have heard this call and global markets have responded. This should give other countries confidence to follow suit.
Given the nascent nature of capital markets in Africa, we have the unique opportunity to build them from the ground up and respond to pressing priorities including climate finance. This is particularly critical as governments start to pursue infrastructure development at a larger scale.
Green bonds may still be a small piece of the global bond market, but they are showing real potential for helping developing countries move to greener, more equal economies.
Kigali, 25th April 2019
The Capital Market Authority, Rwanda (CMA Rwanda) announced that it has formed a partnership with the Financial Sector Deepening Africa (FSD Africa) and Chartered Institute for Securities & Investment (CISI) to launch a qualifications-led licensing programme in the Rwandan capital market industry, to enhance and promote professional standards in the securities and investment industry in Rwanda. CMA Rwanda partnered also with the UKAID funded Financial SectorDeepening Africa (FSD Africa) to strengthen Rwanda’s Capital Markets through the Africa Regulator Support Programme; a continent-wide initiative designed to strengthen the continent’s capital marketregulators to reach international standards.
Kinshasa, March 20 2019
Farmers, youth, women and small businesses in the Democratic Republic of the Congo will gain better access to financial services following the launch of a new project between FSD Africa and Equity Bank Congo.
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Nearly one in four households in Africa are headed by women, reaching 41% in Zimbabwe, 36% in Kenya and 35% in Liberia according to the World Bank. Female-headed households have been increasing across all countries, globally. So, as well as considering the broader challenges and opportunities affordable housing creates for everyone, we should also ask: what’s the significance of housing specifically for women?
The consequences of good housing are far-reaching: the quality of housing impacts on its residents’ health and safety, their ability to function as productive members of society, and their sense of well-being in their community. Good housing contributes to good health outcomes, provides protection from the elements and supports a family’s needs throughout its life cycle. These factors have a particular impact on women. In many low-income households across Africa, whether in rural areas or in the cities, the home is still the woman’s domain. The quality of the living environment impacts partn her day-to-day experiences and capacities to meet the needs of all who depend upon her. It is for this reason that we know that women are especially keen on home improvements and often the drivers of such initiatives within their households.
Increasingly, and especially in high-unemployment contexts, the income-earning potential of housing is also being recognised. Many women identify entrepreneurial opportunities through their housing, using their homes as their business premises, running a shop on site, or working remotely. Some are renting out one or two rooms, or a structure in the backyard (see our video interviews with two female clients of Sofala’s i-build home loans project) contributing to household income. Recent research finds that poverty falls faster, and living standards rise faster, in female-headed households.
A home and its surroundings also affect a woman’s identity and self-respect. This social dimension, while less tangible, is nevertheless hugely significant. A home offers long- and short-term security for women as household members, especially those that are unmarried. Secure housing provides safe shelter and protection from homelessness after divorce, widowhood, job loss or other challenging circumstances. A key development worth noting has been that all government subsidised homes in South Africa are now registered in the names of both spouses. In short, a secure home enables more choices and more individual freedom. Having “a place to call my own” makes it possible for a woman to run her own household, that is, to become the head of the household, providing a degree of security to ride out and rebound from life’s uncertainties, such as temporary unemployment or illness.
Another impspect of home ownership is access to collateral, which enables women to access financial services and accelerate their earning potential. A savings account in a woman’s name offers a form of security and independence: a safe place to store and protect earnings. Women make better borrowers because they know that their ability to improve the home in the future depends on the reputation they develop in managing a particular loan. Women are therefore a very important part of the housing solution, and should be understood as such, by policy makers, project implementers, and service providers. In cases where women do not have title deeds for their home, banks are revolutionising the way they lend for home construction. For example, in Kenya – a country with a population of 50 million, but less than 30,000 mortgages – the Kenya Women Microfinance Bank (KWFT) has created a new loan product called “Nyumba Smart” (“smart home”). Using flexible collateral, the loans provide female customers with up to $10,000, repayable over three years, for the construction of all or part of a house.
Despite this progress, over 300 million women live in African countries where cultural norms prevent equal property rights, even when there are formal, equitable property laws ouragingly, innovative technology-based tools are helping to overcome this barrier. For example, the social enterprise, Map Kibera is working on an open-source mapping platform for Nairobi’s largest slum. The objective is to give inhabitants an informal claim to their land, to lobby for services and to act as “evidence” in negotiations with municipal governments, which may otherwise bulldoze settlements with no legal title without warning.
At FSD Africa, we believe housing plays a crucial role in economic development and poverty reduction, not least for women. That is why we have partnered with the “http://housingfinanceafrica.org/”>Centre for Affordable Housing Finance in Africa (CAHF) to promote investment in affordable housing and housing finance across Africa; we have also invested in Sofala Capital, which includes Zambian Home Loans Limited and iBuild Home Loans Pty Limited as part of its group of companies. By strengthening Sofala’s balance sheet, we are enabling these companies to achieve scale with their innovative housing finance product offerin
The Green Bonds Listing Rules and Guidelines for Kenya were issued last week. These make it clear to issuers of Green Bonds in Kenya what the regulators expect of them by way of disclosure. Regulatory certainty is the bedrock of well-functioning financial markets and so the launch is an important milestone in the development of this fast-growing market.
The Kenya Green Bond Programme, co-funded by FSD Africa, has already identified KSh90bn of investment opportunity in Green Bonds in the manufacturing, transport and agriculture sectors in Kenya, a small but significant contribution to a global market that is already worth almost $400bn. The Kenyan government itself is planning to issue its first Green Sovereign Bond, perhaps in the next six months.
The Patron of the Kenya Green Bond Programme, Central Bank Governor Patrick Njoroge, a passionate environmentalist, spoke eloquently at the launch about the societal value of investing through Green Bonds.
The elephant in the room was the interest rate cap in nya. While caps remain in place, the pricing for Green Bonds, as for other non-sovereign bonds, will almost certainly be prohibitively expensive compared to long-term bank finance. We run the risk that the momentum that now exists in Kenya for Green Bonds will stall because of this almost existential problem. The Governor urged us to take a long view – implying the caps will one day be lifted. We live in hope but it is a pity that priority sectors for Kenya’s economic development, such as affordable housing and manufacturing, cannot at the moment easily benefit from investor interest in this asset class.
Already Nigeria, which issued a Green Sovereign in December 2017, is pulling ahead of Kenya and the Nigerian corporate sector seems to be gripping the Green Bond opportunity more vigorously than Kenya with several issues at an advanced stage, including in the commercial banking sector. FSD Africa has an active Green Bond programme in Nigeria too.
Another problem is easy access to competitively-t from Development Finance Institutions. On the one hand, DFIs push environmental priorities through ESG frameworks. On the other, they offer credit lines to potential issuers on significantly more attractive terms than bond pricing. Does that matter – if green projects get funded anyway? Well, yes it does, if it means we keep not seeing demonstration transactions for Green Bonds. The potential supply of finance for Green Bonds from local pension funds and other institutions is so much greater than what DFIs will ever be able to make available – we should take what opportunities there are to get local institutional capital into this market and DFIs should step back.
A big part of the attraction with Green Bonds is the extra corporate disclosure that is required. Companies are required to lay out their environmental strategy for the Green Bond they want to issue and what systems they will put in place to make sure the bonds proceeds are allocated for the stated environmental purpose. This createunity for a different kind of conversation between investors and issuers, forging a connection that is values-based as well as purely economic.
In the same way, according to Suzanne Buchta of Bank of America, a big issuer of Green Bonds, Green Bonds create opportunities for new kinds of “corporate conversation” within companies – how green is this initiative, how green are we as a company? Buchta suggests that the ESG disclosures from Green Bonds lead to such positive outcomes that they could become the norm for all bonds.
Interestingly, the Economist this week is also calling for companies to be obliged to assess and disclose their climate vulnerabilities by making mandatory the https://www.fsb.org/2017/06/recommendations-of-the-task-force-on-climate-related-financial-disclosures-2/ voluntary guidelines issued in 2017 by the private sector Task Force on Climate-related Financial Disclosures set up by the Financial Stability Board.
This trend towards transparency is good for market-building. It’s good for investors, companies and for employees of those companies. And Green Bonds are playing an important catalytic role in this.
Kinshasa, 20 February 2019
Today, Financial Sector Deepening Africa (FSD Africa), the Banque Centrale du Congo and Elan RDC launch DRC – Innovation for Financial Services 2019. This is a competition for local businesses and entrepreneurs that aims to encourage the development of innovative, relevant and value- adding financial services and payment solutions in the Democratic Republic of the Congo (DRC).
Remittances are a pivotal, though often unseen, driver of economic growth across Africa, in particular having a positive pro-poor effect on health, education and human capital development. The continent’s remittance economy has grown quietly and organically, taking up an essential role not just as a safety net, but also as a catalyst for entrepreneurship. Why is this so important? Because it changes how we should think about remittances: these flows are international development finance by another name, with the potential to be highly targeted, efficient and effective.
Remittances are an efficient, impactful and resilient form of development capital. FSD Africa has supported research by Cenfri which shows that the value of remittances in sub-Saharan Africa (SSA) is almost equal to that of “traditional” foreign capital flows such as overseas development assistance (ODA) and foreign direct investment (FDI). And their impact is potentially greater – especially in areas like health and education. In 2015, the region received USD39 billion in FDI and USD37.1 billion in ODA, compared to USD34.6 billion in remittances. However, between 2012 and 2015, formal flows of remittances grew at a higher growth rate than both FDI and ODA. If we isolate the UK as a source of capital, between 2015 and 2016 remittance flows actually overtook the value of ODA and FDI combined. Cenfri’s most recent case study, Remittances in Uganda, tells us that remittances from the UK to Uganda amounted to USD275 million annually – more than double the amount of foreign aid from the UK.
Yet the cost to send money home remains high. The average cost of remittances to SSA is over 9% of the value of the transaction, compared to a global average of 7% (we dig deeper into this in our infographic on the cost of remitting money from the UK). We want to bring these costs down. Signatories to the UN’s Sustainable Development Goals have pledged to reduce the average transaction costs of remittances to less than 3% of the amount transferred by 2030, with no remittance corridor costing more than 5%.
Our new research, Moving Money and Mindsets, shows an exciting new trend towards transferring money online. In 2016, 90% of remittances from the UK were being paid in cash at an agent. Fast forward two years, and we found that roughly half of focus group members now use online services – a significant and rapid switch in behaviour. Online remittances providers – like WorldRemit, Wave and TransferWise – not only provide transparency, security and convenience but are also significantly cheaper. It costs almost £16 to send £120 from the UK to Ethiopia in cash using an agent. The same amount costs only £6 to send online. Switching online clearly makes economic sense, so why stick to cash?
Some remittance markets are simply “stickier” than others. In countries with underdeveloped payment systems – like Zimbabwe, Sierra Leone and the DRC – cash is still king. For example, in the DRC, less than 10% of people have a bank account, and mobile money is virtually non-existent. Other barriers to switching to online services include the registration process, perceived security issues and technological barriers for older people. The solutions range from relatively easy quick fixes like simplifying the registration process and marketing online services to customers to longer-term interventions designed to develop digital payment infrastructures in Africa. Our Risk, Remittances and Integrity (RRI) Programme is working at the individual, regional and global levels to remove these barriers to switching to online, and to bring the transfer costs down. Cash may still be king in some countries in Africa, but cash is costly and with digital alternatives on the rise, its reign may be nearing its end.
Read FSD Africa’s new research, “Moving Money and Mindsets” here.
Today at the Africa Investment Forum, FSD Africa and the African Development Bank launched the Long-Term Finance Scoreboard, a first-of-its-kind tool designed to provide investors, policy-makers and donors with a centralised, comprehensive source of market-intelligence on the continent’s long-term finance markets.
At FSD Africa we believe that long-term finance – capital provided for over one year – is vital to driving Africa’s economic growth and development. Africa currently faces significant long-term finance gaps and we estimate that the funding gap for SMEs, infrastructure, housing and agri-business is over US $300bn per year.
The scoreboard, developed by the Africa Long-Term Finance Initiative, centralises continent-wide data on the strength of Africa’s capital markets for the first time. By bringing together a range of previously disparate sources of data, on one accessible and easy to use platform, it aims to close historic information gaps and provide investors, policy-makers and donors with the ights required to develop and deepen domestic long-term finance markets.
FSD Africa is proud to announce a 2 year programme of support to the African Crowdfunding Association (ACfA) through a £230,000 grant. This programme is a market-building project that allows FSD Africa to give industry-wide support to the development of alternative lending and capital raising platforms that help connect diverse sources of capital, both debt and equity, to early stage and growth companies.
Mark Napier, Director of FSD Africa, said: “We are excited at the level of ambition that ACfA has shown in wanting to give a serious boost to the development of the crowdfunding industry in Africa. We need innovative approaches to SME finance in Africa. Crowdfunding has the scope to become a much bigger part of the funding landscape in Africa, linking pools of domestic and international capital to job-creating investment opportunities. ”
Kevin Allen, Chairperson at ACfA, said: “The team at ACfA is excited to start work on what is set to be a game-changer for the crowdfunding industry in Africa, and a welcome boost for early-finance in general. Thanks to support from FSD Africa, ACfA will be strengthened as a private sector-led institution committed to innovation in African capital markets. We will engage African regulators in the design of a label which will be granted by ACfA to securities-based crowdfunding platforms that fulfil requirements on investor protection, risk awareness, issuer disclosure and other criteria. This label will build trust and transparency between investors, platforms and SMEs, while creating a critical feedback loop between the industry and regulators.”
This project continues FSD Africa’s work to encourage innovation in Africa’s financial markets, especially through the use of technology-led models of distribution. FSD Africa has actively encouraged regulators across the region to support innovation through the use of regulatory sandboxes to establish systematic communications channels between innovative service providers and regulators in the lead up to formal regulation as markets evolve. FSD believes that a strong industry association can play a critical role in helping this emerging industry gather momentum, building investor confidence by putting in place industry-led standards and encouraging innovation and competition through knowledge-sharing activities.
For more information relating to this project, contact Fundi Ngundi via fundi@fsdafrica.org or Elizabeth Howard via elizabeth@africancrowd.org.