Author: TIMOTHYRADIER

Giving credit to Africa’s financial markets and why we need to step up refo

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If you open the World Bank’s Global Financial Development Database and compare the data on private credit against total population, it is instructive to note the markedly different growth rates. In the developing economies of sub-Saharan Africa, credit extension has grown fairly impressively in the last 10 years albeit off a low base—from 10 percent to 18 percent. However, the total population of the region has grown by nearly a third, and now stands at 1 billion people. These disparate numbers suggest that credit is not growing fast enough to build the infrastructure and create the jobs needed to support this rapidly growing, young population.

THE IMPORTANCE OF CREDIT

For the majority who live on the continent, especially those living in cities contending with rising food and fuel prices, their ability to build or acquire assets is extremely constrained. For most people, access to credit is not about investing in buildings or businesses.  It’s about managing daily challenges.  In shor is a necessity, the means by which people can “stay in the game.”

For sure, easier access to credit—through, for example, credit and store cards as well as mobile-based loan product innovations like M-Shwari, Branch, and Tala—helps with consumption smoothing.  But in Africa today there is not much that credit markets can offer the economically active “near poor” to help them build capital in a meaningful sense.

In developed economies, housing finance has allowed countless millions over the decades to build household wealth.  Yet in Africa, mortgage markets are extremely thin. In Uganda, there are an estimated 5,000 mortgages for a population of 41 million while in Tanzania, there are only 3,500 mortgages in a country with a population of 55 million.  Market dysfunction like this means that people without land or buildings do not benefit from the asset-price inflation that creates unearned wealth for those who already have capital, and so we see societies becoming dangerously divided and unequal.

Credit extension in Africa lags behind other regions of tha dramatic extent.  While the ratio of credit to GDP is only 18 percent in sub-Saharan Africa, comparable figures in South Asia and Latin America are 37 percent and 47 percent, respectively.  Across sub-Saharan Africa, central bankers and policymakers now realise that much bigger and better-functioning credit markets should be a priority outcome for their financial market reform strategies.

In the financial inclusion world, credit raises concerns because of the risks of over-indebtedness. Indeed, this is a worry in contexts such as in Kenya, where there has been a proliferation of different apps for online credit, and evidence is emerging that online credit is being used for unproductive activities, like online gambling. But we should not let this get in the way of the reality that Africa needs a lot more credit if economic development is keep pace with population growth.

Despite the importance of credit markets, we have not yet, collectively, made them a serious enough object of inquiry—and the consequs of not doing so are profound.

CREDIT MARKET REFORM

Credit market reform poses a challenge because credit straddles the entire financial market—from microcredit at the one end, through to capital markets, including project and bond finance, at the other. Credit also involves banks as well as non-bank financial institutions, including now fintechs and even telcos—so whose job is it to regulate credit markets? Central banks only? Or market conduct authorities with mandates that go beyond consumer credit into areas such as investor protection? Or dedicated credit regulators, such as South Africa’s National Credit Regulator? It is not always clear who should be responsible and so reform processes often lack leadership.

We also see credit market reform being promulgated in a fragmentary way.  For example, strengthening credit market infrastructure tends to be the preserve of those interested in the development of small and medium enterprise finance, while consumer protection tend looked at through a responsible finance lens—when in fact the different elements interrelate.  Credit market reform strategies should be much more joined up than they are.

There is currently no single African “observatory” monitoring the evolution of credit markets in Africa and no single Africa-based resource dedicated to combating credit market dysfunction. The past decade has seen numerous policy mis-steps in relation to credit markets, well-intended initiatives that have not been grounded in good evidence.  Better information exchange might have prevented these mistakes.  In Africa we lack effective mechanisms for knowledge sharing and peer learning around credit, a marked contrast to the plentiful knowledge sharing around related areas such as bank supervision and digital financial services.

There is also a vital need for African credit markets to take advantage of the increasing availability of concessional capital as donor organisations shift their funding towards returnable capital and awaant finance. Blended finance capital structures, with their ability to de-risk and pump prime lending, should encourage banks and other lenders to explore new markets in a sustainable way, in which risks are appropriately shared.

In addition, there is a fundamental need for much better data on credit markets.  Without much more granular data by sector or by gender, it is going to be difficult for policymakers to implement effective strategies aimed at driving investment into essential industry sectors such as agriculture, housing, and infrastructure.

The Bank of Zambia, with support from FSD Africa, has been piloting an innovative scheme to improve data on credit markets. Under the scheme, all regulated financial institutions submit supplemental quarterly returns on their loan books to the central bank in return for which they get to see, in aggregate and by sector, trend data on the evolution of credit markets in Zambia.  In this way, they can benchmark their own performance against the performance of tentire industry. We think this will spur competition and innovation by private credit providers. The Zambian authorities, meanwhile, now have the information with which they can make informed choices about where to take credit markets in Zambia, and how to manage risks but also, crucially, how to foster innovation and where to target support.

Note: The Africa Growth Initiative at The Brookings Institute first posted this blog on 1 August 2018. This is a reproduction from the original with AGI’s permission. 

Note: This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative.<

FSD Africa invests £1.6 million in African housing finance

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NAIROBI, 22nd June 2018

Financial Sector Deepening Africa (FSD Africa) is pleased to announce that it is to acquire a 25% shareholding in Sofala Capital Pty Limited (Sofala), a housing finance catalyst based in Cape Town, South Africa. The £1.6 million investment will help Sofala scale up its provision of construction mortgages in both Zambia and South Africa.

The story of Kenya’s m-akiba: selling treasury bonds via mobi

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After many years, the involvement of many partners and many iterations, M-Akiba, a Kenyan government bond sold through the mobile phone, was launched in 2017. M-Akiba (M – mobile, Akiba – savings in Kiswahili) was a three-year bond sold in denominations as small as KShs 3,000 (about US$30) with a coupon rate of 10% paid semi-annually and a tax-free status in line with other infrastructure bonds.  Through their mobile phones, retail investors could open securities accounts, purchase, pay, receive periodic interest/coupon and principal amount invested and trade their securities in the secondary market.

The initial idea to sell Kenyan government investments over a mobile phone emerged in 2011 under the leadership of the National Treasury and the Central Bank of Kenya.  Through M-Akiba the government aimed to broaden its investor base and reduce its borrowing costs. Before M-Akiba, the minimum investment amount for a bond was KShs 50,000 (about US$500) and required a cumbersome process to open up an investment account. There were only 10,000 retail investors in government, accounting for only 2% of the outstanding holdings of bonds. M-Akiba had the potential to reach over 30 million registered mobile money account holders.M-akiba logo

Early on, the World Bank Group provided technical support to the government on how to design the system and process for selling mobile treasury investments.  FSD Kenya commissioned MicroSave to explore how the target market might react to the concept and recommend design principles that could be incorporated into the offering. Many of the principles for the retail investors were addressed such as the ease of opening an account and denominations in thousands of shillings rather than tens or hundreds of thousands. However, the partners found it harder to address many of the recommendations for the unbanked segment such as the preference for even smaller sizes down to hundreds of shillings and tenures in months, not years. FSD Kenya also provided in-kind support in the year prior to launch to ensure that the technologies and systems were sufficiently robust for the offering through multiple payment platforms and a systems audit assurance for the clearing and settlement system.

The complex journey to launching involved a constellation of both public and private partners who each played different roles.

  • The National Treasury issued the bond with the Central Bank of Kenya.
  • The Capital Markets Authority provided regulatory oversite.
  • The Central Depository and Settlement Corporation (CDSC) of Kenya manages the register of bond holders with delegated authority from the Central Bank of Kenya as well as the periodic coupon payments and redemption.
  • The Kenya Association of Stockbrokers and Investment Banks (KASIB) and its members facilitated the market in the background as accounts were assigned to brokers for purchases and sales.
  • Safaricom’s M-Pesa and Airtel Money integrated their USSD channels (*889#) and payments functionality to the M-Akiba platform to enable customers to open accounts, purchase bonds and receive the semi-annual payments. The per transaction limit was KShs 70,000 (about $700) with the daily limit twice that.
  • After the pilot, PesaLink, the interbank real-time push payment platform, was also integrated into M-Akiba which enabled retail customers to purchase amounts up to KShs 999,999 (about $10,000) per transaction.
  • The Nairobi Securities Exchange (NSE) facilitates the on-line trading of the bonds through its system and also provides customer service support through a helpline.
  • Through a competitive bid process, Commercial Bank of Africa was selected as a market maker to guarantee purchases sold on the secondary market.

Although there was a lot of excitement and interest when the bond was piloted and launched, the number of retail customers purchasing bonds proved to be low. The bond was first offered in a KShs 150 million pilot phase in March 2017 for a period of three weeks.  Although 102,632 people registered for on the M-Akiba platform, only 5,692 investors purchased M-Akiba before the pilot was sold out implying much higher average purchases than the minimum.  If the initial customers had only bought at the minimum rate, 50,000 customers could have purchased, almost ten times as many as did.

M-Akiba was officially launched on 30 June 2017 (the last day of the government’s fiscal year), to much fanfare and great hopes that the KShs 1 billion on offer would also sell out and even allowed for an initial KShs 3.8 billion to be sold. Over 300,000 people registered on the M-Akiba platform but onl88 purchased M-Akiba bonds during the official launch totaling KShs 247.75 million, only about a quarter of the KShs 1 billion on offer. This even included an extended time period to allow for some of the complications caused by the election period.

Most of those who invested in the bond had higher education (with 59% having gone to university), 61% were formally employed, most had regular income (71% received salary or other regular monthly income) and most were urban (51% were from the capital Nairobi). Women made up 36.8% of those who invested. However, women were much more likely to actually buy the bond after registration.

Given the potential of this concept paired with the low uptake, FSD Africa commissioned BFA to undertake a post-issuance survey to understand the reasons for the unexpectedly low uptake and draw lessons that would be used to improve the product and support the replication of the concept in other markets. For instance, FSD Uganda is currently supporting Bank of Uganda in the development of a concept for distributing government securities to the mass market leveraging on mobile technology.

Although investment did not meet expectations, the post issuance study found that the product was fairly successful in bringing a new broad-based retail investor group into the market for government paper: 85% of customers had never bought a bond before and buyers were distributed across virtually all of Kenya’s 47 counties.  Most of the investors (84%) really liked the product and were likely to recommend it to someone else and 80% of those who invested were likely to invest again, if the product was issued today.

However, the study discovered a range of problems that hindered uptake:

  1. Poor timing – in the two years between the soft launch and product launch, deposit regulations changed, forcing banks to increase interest rates paid on savings from 0% to 7%, thereby diminishing the advantages of the bond. Furthermore, the bond launch coincided with nl elections, so media advertising about the product was swamped by election coverage.
  2. Poor understanding of product – those who registered but did not ultimately purchase the bond were less likely to know the interest rate, tenor, closing date, or other details about the product. That said, understanding was also poor among those who eventually bought the product: less than 2% knew to call the Nairobi Securities Exchange if they needed their money.
  3. Confusing purchase process – while registration was simple, the second stage of the process was confusing and gave no clear, immediate instruction for how to complete the purchase. Moreover, screenshot displays were sometimes misleading and/or confusing so individuals may not have realised their purchase was not complete after registration.
  4. Lack of prompts/reminders- over 60% of individuals interviewed did not receive a single reminder message after registering; and 70% of those who registered but didn’t purchase did not know he investment round was closing.
  5. Agents focused on registration – when agents visited offices, markets, and groups, there was a marked uptake in registrations. However, the agents did not encourage people to actually invest after registering. In addition, it was difficult for customers to get help from agents when they had follow-up questions after registration.
  6. Weak customer care practices – the only helpline available to customers, many of whom did not fully understand the product, was a landline, which was difficult to access and confusing, given the mobile nature of the product. Furthermore, when fraudulent messages circulated about the product, there was no easily accessible customer service available to refute them.
  7. Concerns about minimum investment – some customers felt the KSh 3,000 minimum investment would be better allocated to savings groups or trading opportunities that could provide quick returns or access to credit.

Despite not living up to its oitions, M-Akiba still stands as the first mobile treasury instrument to be sold in Africa. Although the first pilot and launch did not achieve desired outcome, there are significant opportunities to enhance the product in Kenya and replicate elsewhere drawing on the lessons and recommendations made from the post-issuance study and the lessons learned by the implementers to make it more relevant to the daily reality of citizens aiming to invest in their futures.

On international women’s day, women save to succeed

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This month, we celebrate International Women’s Day united in the 2018 theme “Press for Progress.” While much of the discussion is around how global actors are pressing for progress on women’s equality at the macro level, I’d like to take a deeper look at how a low-income woman presses for progress in her own financial life.

Our program, Financial Sector Deepening Africa (FSD Africa), funded by UK aid from the UK government, is supporting Women’s World Banking’s partnership with Diamond Bank in Nigeria to improve access and usage of savings accounts among low-income clients, particularly women.

Three years into this partnership, we’re starting to understand just how transformational saving with a formal institution can be for women.

Women’s World Banking’s global research shows that women have specific and often complex savings needs. They are juggling scarce resources to cover day-to-day expenses with an eye toward the future. They save against emergencies and toward goals such as education and business growth.

However, low-income women often face barriers to accessing a safe place to save due to mobility and time constraints as well as low levels of financial literacy. They are forced to save in less reliable ways: at home in a drawer or under a mattress, by buying excess stock for their businesses or through a neighborhood savings club.

In Nigeria, Women’s World Banking’s research revealed a strong savings culture. Women running businesses in the bustling urban markets of Lagos put aside as much as 60 percent of their daily income in informal savings tools such as ajo, adako and other methods. What was most surprising though—these women’s businesses were located literally steps from bank branches. Why were they not opening savings accounts?

The answer—the distance is emotional, not physical. These market women are familiar with banks yet they do not see them as relevant or accessible. Even those who have accounts usually place most of their money in traditional, though more informal, financial tools. Diamond Bank set out to close this gap by offering an innovative and relevant savings product that crosses the barriers preventing low-income Nigerians from accessing formal financial services.

Planting a Seed: A transformational savings account

The BETA (meaning “good” in pidgin English) account targets self-employed market women and men who want to save frequently (daily or weekly). The account can be opened in less than five minutes and has no minimum balance and few fees.

Because these clients, especially women, value convenience, the product is built around serving women in the market where they work. Agents, known as BETA Friends, visit a client’s business to open accounts and handle transactions, including deposit and withdrawal, using a mobile phone application.

With support from FSD Africa, Women’s World Banking and Diamond Bank are expanding on the BETA proposition to offer women more financial tools and services, including BETA Target Savers, a long-term savings account to help clients work toward larger goals.

Today, Diamond Bank has more than 520,000 new savings account holders who are using these valuable tools, more than 197,000 of whom are women. That’s more than a half million low-income clients who did not previously have access to Diamond Bank, a bank often just steps away from their businesses.

One woman client, who has BETA Friend agents visiting her market stall regularly to collect deposits, put it quite simply:

I want them to be coming around often so that I can save my money, so I can use it to do better things for myself.

With Target Savings, we’re hearing a similar sentiment. A woman client said,

You keep your money to achieve what you want to do. You keep in the back of your mind to achieve your goal.

When we look at how women are able to “press for progress” in their own lives, we know that true financial inclusion is not just about opening accounts, but meaningful usage of these accounts to achieve financial goals and build a better future. Women’s World Banking’s partnership with Diamond Bank is at an exciting phase of the project where we can start to understand just how transformational these savings accounts will be.

While we’re in the very early stages of analyzing the data, Women’s World Banking is looking at exactly how clients are doing this. After conducting a baseline survey in 2015 as well as a follow up survey in late 2017 to measure how clients are using the savings accounts to improve their lives, we are seeing promising early results, specifically in using savings to grow businesses and achieve goals.

Clients are reporting using their savings to fund business expansion. This is a critical point as financial services for low-income women are often associated with micro loans, and while credit is an important tool, savings is essential for women to grow their businesses.

Additionally, time and time again, when Women’s World Banking asks women about their primary savings goals, education for their children is at the top of the list. Initial survey results are showing that BETA clients are saving for their children’s education and are more likely to have all of their school-aged children in school.

On International Women’s Day, we’re happy to celebrate these promising signs of progress for women in Nigeria. We look forward to continuing to learn more about how savings tools can help women to press for progress.

This blog was published by Women’s World Banking http://www.womensworldbanking.org/news/blog/international-womens-day-women-save-succeed/

Unmasking executive education in sub-Saharan Africa

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Cathy pauses by the window of her fifth-floor office to look at the rain clouds gathering and the traffic beginning to build.  It is four o’clock in the afternoon and her boss has just walked in to ask for a ‘short’ team meeting. She is anxious; an important customer has just called to query some figures in his bank statement and wants it addressed by the end of the day.

A mother of two, Cathy has recently enrolled for an executive MBA programme at a local university. Her classes start at 5:30 p.m. and she knows only too well that she has to leave the office by 4:45 to beat the traffic. A few months earlier, during her performance review, her boss told her that she needed to improve her qualifications to advance further into management. But a colleague of hers, who got a promotion after completing an MBA, recently had a bad review. She wonders if taking the executive programme will be worth all the effort.

Will Cathy’s investment in executive education improve her career prospects? Will it lead to rease? And will her newly acquired skills improve her day-to-day job performance? In 2016, FSD Africa commissioned research to assess the impact of executive education in financial services firms and to help answer these questions.

On the subject of pay, it found that many employees with ExEd qualifications do not feel their salary is commensurate with their education, especially as many have had to pay fees to advance their studies. ExEd graduates do report, though, that they are more mobile in terms of career prospects than their peers. Importantly, managers respect the work of employees with ExEd qualifications, reporting that they perform well and are innovative – particularly in terms of applying the skills they acquired to problem solving.

Qualitative data from the report indicates that ExEd employees in financial services firms improve the image of their organisation and play a key role in shaping customer perceptions of it. What’s more, both employee and manager groups reported that ExEd is particularly effective in improving customer service skills – and therefore increasing customer satisfaction.

The research recommendss in the delivery, scope and content of executive education, in order to address the needs of the financial sector. The most important of these is that ExEd should be more practical in nature, instead of focusing so heavily on theory. In addition, longitudinal research is necessary to measure the impact of executive education programmes on students and organisations. And lastly, improvement is needed in performance measurement within financial services firms, in order to better demonstrate the link between ExEd and performance, pay and mobility.

Click here to download the full report: ‘The Impact of Executive Education in sub-Saharan Africa’.

 

Written by Dr. Moses Ochieng, Consultant-Professional Skills Development, FSD Africa<

Notes from the frontier: FSD Africa’s fragile states approach – a learning journey

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In September 2017 we set out for Kinshasa, the capital city of the Democratic Republic of Congo, to conduct FSD Africa’s first scoping mission in the country. Having had a new fragile states strategy approved by the board earlier in the year, we were excited to get to know the country finally, a little bit of its people and explore the potential areas where FSD Africa could bring in its combination of resources, expertise and research to address financial market failures and deliver a lasting impact.

We spent almost two weeks meeting various stakeholders in the financial sector, understanding first-hand the constraints faced by different actors and charting paths of engagement with various institutions to improve the Congolese financial sector.

A few things stood out for me as we went about the scoping mission:

Collaboration with other development partners and private sector actors is critical in the quest to deliver sustainable financial sector development in the region.

FSD Africa is sed in Nairobi and therefore operating on a fly-in, fly-out model would be quite cumbersome and expensive. Striking the right partnerships with other development partners operating in DRC helps FSDA have critical boots on the ground, with the right expertise and local knowledge to inform its intended portfolio of work in DRC. During our scoping mission, we had the chance to meet and be part of the GPTF (Groupe des Partenaires Techniques et Financiers), a group of technical and financial partners who are all working to enhance financial sector development in DRC. Increasing donor collaboration and harmonization goes a long way in reducing duplication of efforts and wastage of valuable resources.

We will be partnering on various projects with ELAN RDC, a market development programme funded by UKAid and working to promote sustainable and inclusive economic development by empowering businesses and entrepreneurs in the Democratic Republic of the Congo.

The IDP and refugee crisis in DRC is worse than ever.

Last year, UNHCR received less than US$1 per person in donor contributions for its programmes for the internally displaced in the DRC. For 2018, UNHCR is appealing for US$368.7 million for the Congolese situation. A total of US$80 million is required to support the internally displaced populations inside the DRC.[1] This goes to show that a more sustainable approach for the economic livelihood of refugees is needed and refugee agencies such as UNHCR are now shifting emphasis from humanitarian aid to socio-economic inclusion and support for market-based livelihood strategies. There needs to be a paradigm shift towards private sector-led delivery of solutions in which financial sector providers have a big role to play.

Building on the success of its approach in Rwanda, FSD Africa will undertake a joint piece of research with ELAN RDC to assess the size and the scope of the demands of goods and services from IDPs and refugees in the DRC. The research will also provide evidence on the size and the dynamics of the demand and supply of financial and non-financial services amongst refugees and IDPs. We hope that the research will also shed some light on the constraints faced by private sector stakeholders that prevent them from serving the target population of IDPs and refugees in DRC and later communicate evidence fom the study to help change the perception of some actors that IDPs and refugees do not represent a viable client segment.

There exists a huge need for the development of capital markets in DRC.

Capital markets play a critical role in achieving developmental goals of ending extreme poverty, strengthening resilience as well as tackling global challenges such as climate change and urbanization. Capital markets facilitate the long-term financing of essential sectors such as infrastructure (ports, roads, power and water), and housing. They provide capital to growing businesses that generate income and jobs to households. They also widen the range of opportunities available to domestic investors, such as pension funds and insurance companies.  Furthermore, domestic bond markets help reduce foreign currency risk which arises when local investments are financed with foreign currency denominated loans.

The Democratic Republic of Congo is like many countries in Sub-Saharan Africa whose capital marets are at different stages of development with varying activity, liquidity, regulatory frameworks, market infrastructure and market structures.  Most markets lack depth, instruments and sophistication. Capital markets development seeks practical approaches that foster sustainability and FSD Africa is naturally poised to deploy its tried and tested approach from markets like Kenya and Nigeria to DRC and bring its experience from projects with a footprint in 15 countries (including the regional programmes in East Africa and West Africa).

Infrastructure remains challenging and development finance can play a huge role in addressing these challenges.

Energy, transport, water and communications infrastructure are all critical to private sector investment, competitiveness and job creation: yet across Africa and South Asia, 1.2 billion people lack access to electricity,[2] 1.3 billion lack access to an all-weather road, and 1.6 billion people lack improved sanitation.

The DRC remains one of the most infrastructurally challenged countries in the world. Road and rail transport is severely underdeveloped with only 2,250km of Congo’s roads being paved.

The country’s vast geography, low population density, extensive forests, and criss-crossing rivers further complicate the development of infrastructure networks. Public-Private Partnerships (PPPs) are a very useful means of harnessing private sector participation in the provision of high-priority infrastructure. Among the many benefits that PPPs can bring, PPPs can build local capacity and expertise (resulting in more cost efficiencies), encourage increased competition, and create opportunities for broader economic growth.[3]

Projects geared towards addressing infrastructure challenges have the potential to generate economic opportunity and employment through the creation of both direct and indirect jobs, and increase access to basic goods and services, especially in remote areas or fragile states.

Funded by CDC Group plc, the UK’s development finance institution, Virunga Energy, is a hydroelectric power company in the Eastern DRC, which provides electricity to a conflict-prone region where only three per cent of the population has access. The Virunga Foundation aims to provide clean electricity to communities living in and around Virunga National Park in North Kivu, Eastern Congo. CDC’s investment will support the development of the existing electricity grid and the construction of two new plants resulting in almost 50MW of total generation.

The investment, made through the Department for International Development’s (DfID) Impact Acceleration Facility, will establish power infrastructure in a region of four million people that faces a chronic lack of electricity supply. In many target areas of the Virunga grid there is currently no access to electricity; in the wider Kivu area there is only 3% electrification and around 15% in the DRC in general.[4]

Political stability remains a huge influencer but it should not deter us from doing work in DRC.

We cannot gloss over the conflict and political uncertainty in DRC. However, we also cannot close our eyes to the fact that despite the conflict and tension, DRC remains a country with enormous potential for growth. There is a lot of work to be done in a country where less than 11 percent of adults in the DRC have an account with a formal financial institution, and only 2 percent have access to formal and regulated credit services.[5] This level of financial exclusion can be a huge impediment to individual and overall economic development. FSD Africa remains committed to its mandate to create jobs and provide services for more people, particularly from economically excluded groups such as women, the poor, and those who live in fragile and conflict-affected states, and will endeavor to make inroads in the development of the financial sector in DRC.

[1] http://www.unhcr.org/news/briefing/2018/2/5a8be92c4/unhcr-alarmed-reported-atrocities-dr-congos-tanganyika-province.html

[2] World Energy Outlook 2015.

[3] http://ppp.worldbank.org/public-private-partnership/small-and-medium-enterprises-and-ppps

[4] http://www.cdcgroup.com/Media/News/News-CDC-investment-brings-electricity-to-Eastern-Congo/

[5] http://www.worldbank.org/en/programs/globalfindex

FSD Africa completes its investment in African local currency bond fund

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FSD Africa (“FSDA”) announces the completion of its £15.3 million ($20.3 million) investment in the African Local Currency Bond Fund (“ALCBF”).

Since FSDA announced its intention to invest in the fund in May this year, ALCBF has continued making good progress.

It has invested a total of approximately $10 million in four more bonds – including in Nigeria and Lesotho, extending its geographic reach and its financial support for developmentally important sectors, such as agriculture and housing.  ALCBF entered Côte d’Ivoire with a $ 3.1 million bond investment in Alios, a regional leasing company. The bond proceeds will benefit the company’s operations in Burkina Faso and Mali, demonstrating that there are opportunities for bond financing even in fragile and conflict affected markets.

ALCBF has also received funding commitments from lenders totalling $40 million – including the International Finance Corporation ($20 million), Calvert Foundation ($10 million) and the Dutch development bank,
This additional funding has enabled the fund to establish a permanent presence in West Africa, where it has now opened an office in Lagos, Nigeria.

As such, with invested capital of $40 million and a total fund size of over $100 million, ALCBF is strongly positioned to fulfil its objective of developing capital markets across Africa, by helping companies issue bonds in local currencies and by building technical capacity in the markets where those bonds are being issued.

As an equity investor in the fund, FSDA will join the Board of ALCBF.  Completion is subject to satisfaction of certain conditions precedent, expected shortly

IDRC and FSD Africa enter into a partnership to deepen financial inclusion using big data analytics

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Nairobi, Monday 17th July 2017 – Financial Sector Deepening Africa (FSD Africa) and Canada’s International Development Research Centre (IDRC) have entered into a partnership to implement the ‘Deepening Financial Inclusion Using Evidence Based Decision Making’ project.

Digital finance services are increasingly becoming a critical asset for financial service providers (FSPs) within sub-Saharan Africa (SSA). Digital finance adoption is enabling these providers to improve their operating effectiveness and their service delivery to customers. Digital delivery channels are increasingly becoming a cost-effective method of enabling FSPs to reach a broader clientele. Further, there is a growing realisation within the financial sector that insights derived from analysis of FSPs internal data and big data leads to improved customer value propositions. Hence, it enables FSPs to provide relevant financial services to financially excluded market segments whi low-income women.

The project seeks to demonstrate to FSPs the benefits of using data to make evidence based decisions.  This will involve: i) building the capacity of FSP staff to use data to make evidence based decisions; ii) demonstrating the business case for FSPs to utilise internal data and big data to develop financial products that address the financial needs of different customer segments within their operating environments; iii) building the capacity of local research and data analytics communities to provide data handling support to FSPs; and iv) developing a toolkit that will provide guidance to FSPs seeking to use internal and external data to make evidence based decisions.

Paul Musoke, the Director Competitive Strategies at FSD Africa said: “We are pleased to be partnering with IDRC in this exciting journey. The most significant trend affecting the financial sector today is digital finance services, changing the way products are delivered at scale. With growing digital footprints driven bye mobile phone and internet, poor and excluded people are becoming less anonymous. Coupled with the exponential increase in data that provides deeper insights into how people manage their financial lives, data management and analytics capabilities are going to be imperative for the sustainability of FSPs going forward. The opportunities it offers to profitably reach excluded segments previously regarded as un-bankable, with relevant products at scale are truly exciting.’’

“This pioneering work with FSD Africa will make the business case for investing in data use and analysis, which will hopefully lead to the development of innovative financial products and services better suited for women. By helping service providers better understand women’s needs and the key barriers they are facing, we believe the gender gap in access to finance can be reduced. We know that when women have control over their finances, they are empowered to make better decisions for themselves and their families. We are confident s partnership will contribute to maximising the impact of financial inclusion in a way that fosters opportunities for women and the poor,’’ said Martha Melesse, Senior Program Specialist in charge of the project at IDRC.

The project will cover at least three (3) countries; Tanzania, Sierra Leone and Zambia and will run for a duration of 30 months.

It is our conviction that using data analytics to develop insights into customer preferences will be a powerful spur to game changing product innovation that will have a big impact on people’s lives within SSA.

Notes to Editors

About IDRC

As part of Canada’s foreign affairs and development effort, IDRC invests in knowledge, innovation, and solutions to improve lives and livelihoods in the developing world. Bringing together the right partners around opportunities for impact, IDRC builds leaders for today and tomorrow and helps drive large-scale positive change.

For more information about IDRC’s recent activite subscribe to IDRC’s bulletin and visit:

Twitter: @IDRC_CRDI

LinkedIn: International Development Research Centre (IDRC)

Youtube: https://www.youtube.com/user/IDRCCRDI

Website: www.idrc.ca

 

About FSD Africa

FSD Africa is a non-profit company which aims to increase prosperity, create jobs and reduce poverty by bringing about a transformation in financial markets in SSA and in the economies, they serve. It provides know-how and capital to champions of change whose ideas, influence and actions will make finance more useful to African businesses and households. It is funded by the UK aid from the UK Government

For more information about FSD Africa’s activities and current updates follow our social media platforms:

Twitter: @FSDAfrica

Linkedin:  Financial Sector Deepening Africa (FSD Africa)

Website: www.fsdafrica.org

Email: shakila@fsdafrica.org

10th consultative forum on “scaling up agricultural index insurance in Africa: building disaster resilience of smallholder farmer

Posted on by TIMOTHYRADIER

On 24 and 25 May 2017, insurance supervisory authorities, insurance practitioners, policymakers and development partners gathered in Kampala, Uganda, for the 10th Consultative Forum to discuss how to scale up agricultural index insurance for smallholder farmers. The event was co-organised by African Insurance Organisation, the International Association of Insurance Supervisors (IAIS), the Access to Insurance Initiative (A2ii) and the Microinsurance Network (MIN); and live streaming of the event was provided by FSD Africa in partnership with Cenfri under their risk, remittance and integrity (RRI) programme.

Index insurance is recognised by policymakers as an important tool to build resilience among smallholder farmers, who dominate the agricultural landscape in Africa, as it overcomes some of the traditional microinsurance insurance challenges to reaching lower-income, rural individuals.

The forum focused on the limitations of index insurance as a stand-alone solution to agricultural related risks and the move to using it as part of a broader portfolio of risk management interventions to mitigate agricultural risks and improve food security.

The potential of index-based insurance is derived from its innovative business model, which relies on parameters set by existing weather or yield data to trigger claim pay-outs, rather than indemnity payments. If effectively implemented, this can reduce moral hazard, limit adverse selection and reduce the cost of distribution, as no risk assessment is required. However, to date, index insurance has not lived up to this promise and is struggling to achieve scale. Where some scale has been achieved, government or donors have largely been involved – by subsidising premiums, providing grants to cover operational costs or forming risk-sharing agreements to cap losses.

Speakers and participants at the Consultative Forum noted several constraints to the development and implementation of index insurance, which have hindered its progress. For instance, Mr Protazio Sande from the Insurance Regulatory Authority of Uganda and Isaac Magina from Swiss Re noted the need for more available, reliable data that can be used to accurately predict risk.

The lack of appropriate data increases the likelihood that there will be a mismatch between the loss experienced by smallholder farmers from the event and the claim pay-out to the smallholder farmer triggered by the index (commonly known as “basis risk”).

If basis risk is too large, there is a lower likelihood that the smallholder farmers will receive a pay-out. Miguel Solana from the ILO’s Impact Insurance Facility has likened this to a lottery where farmers are betting on a risk they are worried they may experience. If basis risk is too large, then this creates more uncertainty and risk for farmers about whether they will be covered if an event occurs. This undermines their ability to manage the risk, in turn limiting the value of the insurance.

Further, these technical details are complicated and make an already difficult task of explaining insurance to farmers even more difficult. While these details are important for providers and regulators to understand, it is critical that we “don’t lose sight of the customer in technical details,” according to Joseph Owuor from the Insurance Regulatory Authority of Kenya, who also spoke at the event.

Index insurance also remains relatively expensive to provide, reaching as high as 12% to 20% of the insured value in some cases, averaging out at around 5% for most schemes. One of the main drivers of these costs is the upfront investment needed to:

  • Coordinate different stakeholders
  • Develop channels to effectively reach rural and low-income farmers
  • Build sufficient awareness and understanding among the target market to ensure take-up

At the same time, the lack of known market demand and the need to prove the value of the concept to farmers create uncertainty for claim pay-outs, leading to high claim ratios. These are critical obstacles to address.

Most schemes thus require donor or government support (in the form of upfront investment, subsidies or risk-sharing agreements) to get off the ground, but long-term government support and buy-in is often uncertain.

This requires many stakeholders from an array of fields to collaborate, with Peter Wrede from the World Bank likening it to an “orchestra” to make it work.

It also leaves some unanswered questions. For instance:

  • Does agricultural index insurance deliver value to clients? Under which circumstances does it do so?
  • Can certain segments of clients be more sustainably served through index insurance?

Whether these challenges are addressed, it is important to note that index insurance is only one of a range of tools that can support a broader agricultural risk management strategy. For instance, index insurance may only be viable for certain farming segments; and other segments will need other tools to help build their resilience. Further, such a strategy could also target other actors in the space with insurance, such as value chain providers like MFIs or agro-processors who extend credit to farmers.

Going forward, FSD Africa – in partnership with Cenfri – will conduct research to establish a knowledge base on how index insurance fits within a broader risk management strategy and convene the FSD network’s  Community of Practice to help market actors address challenges.

If you’re interested in learning more about the work under the FSD Africa and Cenfri partnership, please contact:

Mia Thom

Technical Director

Cenfri

miathom@cenfri.org

Twitter: @thommia

Website: cenfri.org

Juliet Munro

Director – Inclusive Finance

FSD Africa

juliet@fsdafrica.org

Twitter: @juliet_munro

Website: fsdafrica.org

FSD Africa invests £15.3 million in the African local currency bond fun

Posted on by TIMOTHYRADIER

PRESS RELEASE – FOR IMMEDIATE PUBLICATION

Nairobi, 9th May 2017 – Financial Sector Deepening Africa (FSD Africa) and KfW Development Bank announce that they have agreed terms under which FSD Africa will invest £15.3 million in the African Local Currency Bond Fund (ALCBF). When fully subscribed, this fresh injection of capital will take ALCBF’s total equity to £53m, substantially increasing the fund’s investment firepower and thus enabling it to step up its engagement with developmentally important industry sectors such as green energy and housing and take on investments in fragile and conflict affected states.

ALCBF was established by KfW on behalf of the German Ministry for Economic Cooperation and Development (BMZ) in 2012 to support the development of African bond markets and improve private sector access to long-term and local currency financing.

Alongside this investment in the equity of the fund, FSD Africa has also agreed to contribute £500,000 towards ALCBF’s Technical Assistance Facility. FSD Africa’s investment is part of a comprehensive and continuing strategy by ALCBF to increase significantly its capital base through equity and debt, and diversify its funding sources.

Mark Napier, Director of FSD Africa, said: “We are proud to become the African Local Currency Bond Fund’s second shareholder. The lack of long term, local currency funding is one of the most serious problems in Africa’s financial markets.  It means that good projects don’t get funded and much-needed jobs don’t get created.  We were attracted by the African Local Currency Bond Fund because of its pan-African reach, its ability to generate solid financial returns from good quality investments, and because of its energetic commitment to supporting the development of capital markets by providing technical assistance alongside investment capital.”

Capital markets are an important medium for channelling savings into investment in local economies, but in most African countries they are not yet playing a significant role. Where domestic capital markets do not work and long-term local currency finance is not available, companies are forced to rely on hard currency loans. Foreign currency loans expose borrowers and sometimes an entire financial system to exchange rate risk: when local currencies weaken, foreign currency loans can quickly become very expensive to repay and when the borrower is a financial institution, that can create risks for the financial system as a whole. Low income households and small businesses are often among those most affected by systemic financial crises.

Bond issuance not only means that companies gain access to investment capital. It also means that local investors – typically, pension funds and insurance companies – get the opportunity to invest for the long term in their own currency, thus ensuring that their long-term liabilities, such as pension pay-outs, can be matched.

ALCBF has been investing in Africa for four years, during which it has played a key role in bringing 19 issuances to market for 13 companies in 7 countries, investing a total of £33m. The current outstanding portfolio is £24m.  All investments to date have been in the financial sector, including micro-lenders, Micro, Small and Medium Enterprises (MSME) lenders, leasing companies and lenders into the health, education and housing finance sectors.

ALCBF is managed by Lion’s Head Global Partners (LHGP) Asset Management LLP (LHGP AM), an investment and advisory firm regulated by the UK Financial Conduct Authority with offices in London and Nairobi.  LHGP AM was appointed as Fund Manager to ALCBF in May 2015.  Bim Hundal, Chairman of LHGP AM, says: “We are pleased and excited to work with KfW and FSD Africa on this ground-breaking initiative. Providing local currency financing to African companies and institutions puts ALCBF at the forefront of capital markets innovation.”

FSD Africa’s investment is expected to increase the number and size of bond issuances in SSA and reduce the cost of capital for borrowers. Because the fund never buys more than 50% of a bond, the investment should mobilise (or crowd in) significant amounts of domestic capital from local institutions: in 2016, for every £1 invested by the fund in local currency bonds, £10.6 was invested by third parties.

FSD Africa’s investment will also help ALCBF to continue its work of strengthening technical capacity in the market, supporting local issuers with advice and building the skill set, standards and practices of market intermediaries such as placement agents and investment banks.

This marks FSD Africa’s largest deployment of investment capital to date and is consistent with its objective of driving financial market transformation through capital investment as well as through grant funding.

Johannes Feist, Head of Division – Financial Systems Development, Southern Africa and Regional Funds for KfW, said: “We are delighted to welcome FSD Africa’s participation in the African Local Currency Bond Fund.  FSD Africa’s equity investment, alongside KfW’s, can be leveraged with senior debt which means the fund can deliver capital market development impact more quickly and in more markets across Africa.”

Ends.

Note to editors

About KfW

KfW Development Bank has been helping the German Federal Government to achieve its goals in development policy and international development cooperation for more than 50 years. In this regard, KfW Development Bank is both an experienced bank and a development institution with financing expertise, an expert knowledge of development policy and many years of national and international experience. On behalf of the German Federal Government, and primarily the Federal Ministry for Economic Cooperation and Development (BMZ), KfW Development Bank finance and support programmes and projects that mainly involve public sector players in developing countries and emerging economies – from their conception and execution to monitoring their success.

Contact: Johannes Feist, KfW, +49-69-7431-3519 or Johannes.Feist@kfw.de.

For more information about KfW Development Bank’s activities and current updates follow:

Twitter: @KfW

Website: www.kfw-entwicklungsbank.de.

About FSD Africa

FSD Africa is a non-profit company which aims to increase prosperity, create jobs and reduce poverty by bringing about a transformation in financial markets in SSA and in the economies, they serve. It provides know-how and capital to champions of change whose ideas, influence and actions will make finance more useful to African businesses and households. It is funded by the UK aid from the UK Government.

Contact: Mark Napier, FSD Africa, +245 701 773 028 or mark@fsdafrica.org.

For more information about FSD Africa’s activities and current updates follow our social media platforms:

Twitter: @FSDAfrica

Linkedin: Financial Sector Deepening Africa (FSD Africa)

Website: www.fsdafrica.org