Category: Blog

Ethiopia’s new securities exchange aims to unlock interbank liquidity

Posted on by Kihingu Inc
By Michael Habte is ESX’s chief operating officer and Victor Nkiiri is a senior specialist – capital markets at FSD Africa

Ethiopia, Africa’s second most populous country, is among the fastest-growing economies in the world, with GDP growth projected at 6.5 per cent in 2025. The country has adopted a bold vision to achieve lower-middle-income country status by 2030, underpinned by sweeping economic reforms to transition from a state-controlled to a market-driven economy. 

Among the new economic initiatives recently rolled out is a new securities exchange, the Ethiopian Securities Exchange, or ESX, planned for launch on January 10. For decades, Ethiopia’s financial an interbank trading platform. Simply put, banks could not effectively lend to one another, resulting in high interest rates to borrowers and significant inefficiencies in bank liquidity management. Such inefficiencies have constrained businesses, particularly the small and medium-sized enterprises which are the backbone of Ethiopia’s economy. 

The new exchange is already addressing this challenge. An interbank trading platform which is part of the exchange is optimising liquidity and improving credit flow in the banking system. Since its pilot in late October, the platform has facilitated trades exceeding 135bn birr($1.1bn), demonstrating robust uptake by the banking sector. 

Regulatory reforms

This milestone reflects the effectiveness of reforms such as the Interbank Money Market Directive issued by the National Bank of Ethiopia, which created the necessary regulatory framework. By enhancing price transparency and reducing transaction costs, the platform is already improving credit accessibility for businesses, enabling them to grow, innovate and drive economic activity.

The impact of the ESX extends far beyond the banking sector. A functional interbank market itself is the foundation for developing critical financial instruments such as treasury bills, corporate bonds and commercial papers. These instruments rely on liquid money markets for effective pricing and execution. With its state-of-the-art electronic trading platform that is integrated with the central securities depository, the ESX is well-positioned to facilitate the efficient issuance and trading of these instruments.

The exchange is also a critical enabler of economic diversification. By reducing borrowing costs and expanding access to finance, it empowers businesses to invest in new projects, expand operations and create jobs. These outcomes align with Ethiopia’s ambitions to achieve middle-income status and build a globally competitive economy. 

Establishing the new securities exchange has been a challenging yet rewarding endeavour. To succeed it needed support from a wide spectrum of actors. The public-private partnership model facilitated this, tapping the power of collaboration to drive financial innovation. Ethiopian Investment Holdings, in partnership with FSDAfrica and the Ministry of Finance, worked hand in hand to develop the exchange, in an approach that prioritised market development initiatives that addressed local challenges while adopting global best practices. This ensures that the ESX is not only tailored to Ethiopia’sunique needs but also equipped to compete on the global stage.

Blueprint for innovation
As Ethiopia integrates into global financial markets, the ESX has the potential to position the country as a regional hub for capital market activity. This integration will strengthen Ethiopia’s appeal to foreign investors, unlocking new opportunities for economic growth. Beyond its immediate economic impact, the ESX also serves as a powerful symbol of Ethiopia’s ambition and potential. It exemplifies the transformative role that well-structured capital markets can play in fostering inclusive growth and economic resilience.

The new bourse is also anticipated to inspire other African nations to pursue similar reforms, unlocking the continent’s immense economic potential. Institutions like FSD Africa, which has been instrumental in supporting the ESX, are poised to replicate these lessons in countries that lack functional capital markets. Such efforts are vital for modernising Africa’s financial systems and driving sustainable development.

The launch of the ESX is not just a win for Ethiopia but a blueprint for capital market innovation across the continent.

Building Resilience: A path to food security in Sudan

Posted on by Kihingu Inc

Building Resilience: A path to food security in Sudan

As the conflict in Sudan drags on, life becomes more challenging by the day. Since April 2023, when violence erupted mainly between the Sudanese Armed Forces (SAF) and the paramilitary Rapid Support Forces (RSF), everyday life has been thrown into disarray. This ongoing conflict has placed severe strain on Sudan’s food systems, pushing millions into food insecurity and creating a devastating impact on Agricultural production. As of mid-2024, Sudan faces its worst food crisis yet: nearly 25.6 million people are experiencing acute food shortages, with hundreds of thousands on the brink of famine. For many, the 2024 harvest season looks grim, with even lower production than the previous year’s already sharp decline of 46% in national grain output. 

Sudan’s agriculture relies on two primary growing seasons: a summer rain-fed season from May to August, with harvests in November, and a winter season reliant on irrigation from October to December. Sudanese households depend on staple crops like sorghum, millet, and wheat but the ongoing instability and the shortage of basic resources have hindered planting and harvesting cycles. Now, a resilient solution is desperately needed.

A strategic response – the rapid assessment

FSD Africa, in collaboration with British Office Sudan (BOS, also known as FCDO Sudan), commissioned a Rapid Assessment of Food and Payment Systems in Sudan for a Coordinated Food Security Emergency Response in 2023. This initiative aimed to map out immediate actions to stabilise Sudan’s food systems and improve resilience amidst the volatile situation. The findings emphasised the challenges within Sudan’s financial and agricultural sectors and underscored the need for targeted private-sector interventions to lay the foundation for both immediate food security and longer-term economic recovery.

One of the core insights from the assessment was that traditional development programmes are not equipped to operate in Sudan’s ever-changing landscape. What Sudan needs now is a more adaptable, innovative approach – one that supports local food security initiatives and prepares them to scale post-conflict.

Introducing the innovation studio for resilience

Out of this need arose the concept of the “Innovation Studio for Resilience” ISR with a £1.56 million budget, this 12–15 month pilot programme aims to provide on-the-ground support to local food system innovations. The ISR will work directly with Sudanese partners to pilot new financing models and technical solutions that can help to address urgent challenges within the agrifood sector.

Through ISR, FSD Africa and BOS will fund, co-develop and test solutions focused on improving food security and resilience. The studio will prioritise innovations that offer tangible benefits for women and marginalised communities, and small and medium enterprises (SMEs) working in agriculture. The ultimate goal is to prepare the most promising solutions for broader implementation and support Sudan’s long-term food security.

 

Selecting and supporting innovations

 

The ISR will identify innovative projects that address the financing barriers in Sudan’s agrifood sector. By working with private-sector partners, ISR will help them pilot practical solutions that could provide immediate relief and lay the foundation for sustainable growth post-conflict. 

 

Potential projects will undergo a thorough vetting process, with each proposal evaluated based on feasibility, impact potential and the ability to withstand the complexities of the Sudanese conflict environment. Once approved, the selected innovations will receive technical assistance and grant support to help bring their ideas to life.

 

Central to the ISR’s approach is a commitment to action-based learning. In addition to piloting news solutions, ISR will continuously gather market intelligence and share insights with other organisations operating in Sudan. This shared knowledge will not only support the projects themselves but also deepen the understanding of how to finance and build resilience in Sudan’s agrifood sector.

 

 The ISR will operate under a Steering Committee that ensures accountability and strategic oversight. A project management team, led by an implementing partner, will handle daily operations, including liaising with innovation partners, tracking progress and adapting the projects as needed based on real-time insights.

 

Expected outcomes

 

Through the ISR, FSD Africa and BOS aim to foster resilience in Sudan’s agrifood sector.  The ISR’s success could mean:

  1. Enhanced resilience of Sudanese SMEs within the agri-food value chain
  2. Greater employment opportunities, particularly for low-income and marginalised communities and women
  3. Improved evidence on how to overcome market obstacles in Sudan’s conflict-impacted economy
  4. Scalable solutions that can extend beyond Sudan’s borders to benefit other crisis-affected regions

 

The ISR’s learnings will contribute to a deeper understanding of Sudan’s unique financing needs, providing a model for future interventions in fragile communities.

 

Looking forward

 

The ISR is a hopeful step forward in the face of Sudan’s current crisis. By equipping local entrepreneurs with the resources and support they need to innovate, ISR is helping Sudan build a foundation for a more resilient, food-secure future. As these innovations take shape, we look forward to sharing its progress and insights, with the goal of transforming Sudan’s agricultural landscape even in the face of adversity. 

The Untold story of women and sovereign debt in Africa

Posted on by Kihingu Inc

In January 2024, Kenya found itself in the grip of an economic crisis. The government’s high debt levels, coupled with a heightened risk of default, triggered an economic downturn. The ripple effects were felt across the economy: the Kenyan shilling depreciated at an unprecedented rate, fuel prices soared and the cost of living skyrocketed, leaving many struggling to make ends meet. This situation was not unique to Kenya. Similar debt crises in Ghana and Zambia had already plunged those nations into economic distress, illustrating how unsustainable sovereign debt can devastate economies and, by extension, the lives of ordinary citizens. But there’s a side to this story that is often overlooked: the disproportionate impact of these economic downturns on women. While sovereign debt crises affect entire populations, women often bear the brunt of the consequences due to their unique socio-economic vulnerabilities.

The hidden burden on women

Women in Africa, especially in rural areas, already face significant challenges. They are more likely to be employed in low-paying jobs, have fewer savings and possess less wealth compared to men. Many women and girls work in the informal sector, where job security is negligible, and incomes are unstable. Additionally, women are often responsible for unpaid care and domestic work, which limits their time and opportunities to engage in income-generating activities.
A study by Action Aid revealed that rural women in Africa typically work up to 16 hours a day, balancing multiple tasks often simultaneously. Women typically work 12 hours more per week than men. In countries like Ghana and Rwanda, rural women spend at least six hours daily on unpaid care work alone. This heavy burden leaves them with little time for paid work, further constraining their financial independence. When a country faces a debt crisis, the government is often forced to implement austerity measures, such as cutting public spending and increasing taxes. Women are affected most by cuts in public spending particularly in sectors like education, health and agriculture where women are disproportionately represented. For example, when subsidies for fertilisers and agricultural extension services are slashed, it is often women who must find an alternative means to support their families, further diminishing their economic prospects.

The intersection of debt, gender and climate change

Climate change and related challenges add another layer of complexity to the issue of gender and sovereign debt. Women, particularly those in agriculture, are already vulnerable to the effects of climate change. Unsustainable debt exacerbates these challenges by reducing government spending on essential services that could help women adapt to changing environmental conditions. For instance, cuts in agricultural support services make it harder for women to sustain their livelihoods, perpetuating the cycle of poverty and gender inequality.

A gender-sensitive approach to sovereign debt management

Given the significant impact of sovereign debt on women, it is crucial for African countries to adopt a gender-sensitive approach to debt management. This approach should include gender-responsive budgeting (GRB), which ensures that the needs and priorities of all segments of the population, particularly women, are considered in the budget-making process. There is also an opportunity for countries to leverage innovative financial instruments like gender bonds to mobilise and channel funds to close the gender finance gap. FSD Africa has been a forerunner in supporting the issuance of gender bonds in Tanzania and Morrocco and we have also supported the development of a toolkit for Africa-focused gender bonds. Such initiatives can stimulate economic growth by empowering women financially, boosting domestic resource mobilisation, and ultimately leading to more sustainable debt management strategies in the region.

Empowering women through strategic resource management

By embedding gender-inclusive strategies in initiatives like the African Continental Free Trade Area (AfCFTA), countries can create more opportunities for women to participate in the formal economy. AfCFTA, the world’s largest free trade area by population, holds significant potential to address the gender dynamics of sovereign debt. By promoting intra-African trade, AfCFTA can stimulate economic growth and diversification, creating employment opportunities for women, many of whom are engaged in informal and small- scale trading. Gender inclusive strategies under AfCFTA can enable women entrepreneurs to expand their businesses and access new markets, contributing to national revenue and reducing deficits that necessitate significant borrowing . Africa has a rich natural resource base, strategic and inclusive management of these resources can help address the gender dynamics of sovereign debt in the region. By ensuring that women have economically meaningful participation in sectors like manufacturing and agriculture especially in value addition, African countries can generate additional revenue streams while promoting gender equity. Policies that support women’s access to trade capital, training and technology can further strengthen their economic resilience, and increase their contribution to national resources. This will enhance domestic resource mobilisation and reduce the need for external borrowing.

The path forward

As African nations navigate the complexities of sovereign debt, it is imperative that they adopt policies that recognise and address the unique challenges faced by women. Governments should integrate gender-sensitive approaches into their debt management strategies and leverage broader synergies to empower women through strategic resource management. This will enable them to not only mitigate the adverse effects of debt on women but also harness their potential as key drivers of economic growth. In doing so, Africa can move towards a more equitable and sustainable future, where the burden of debt is shared more fairly and where women have the opportunity to thrive and actively contribute to economic growth.

How capital markets can enable gendered socio-economic progress

Posted on by Kihingu Inc

Imagine a world where millions of ingenious women in Africa have the resources to turn their ideas into thriving businesses. That is the future FSD Africa is working towards, and capital markets are the key. This isn’t boring financial jargon. We are talking about unlocking the potential of entire communities.

Before the Covid-19 pandemic, women-owned businesses in sub-Saharan Africa faced a staggering funding gap of $42 billion while the total financing needs for 128 developing countries was a staggering $5.2 trillion[1]. Though these numbers might have shifted slightly in the past four years, the challenges posed by post-pandemic economic recovery likely have not made things easier. Women are disproportionately affected by issues like lack of clean water and access to clean cooking solutions. Hours spent fetching water or gathering fuel are hours lost for education, work and family. Women make up nearly 70% of the workforce in agriculture yet receive only 7% of investments.

But here’s the good news: things are changing. On the 19th of February 2024, FSD Africa launched a game-changer – the Africa Gender Bonds toolkit – which is not just a resource, but a cheat sheet for unlocking the power of capital markets to support women in Africa. This is just one way that FSD Africa is playing its part in strengthening sustainable financial markets as a key tool to reduce barriers facing women in Africa, particularly women in business.

We have seen many efforts in trying to solve for gender inclusion, particularly inclusion of women in the finance sector. While much is being done as to how to tailor financial products to attract women more as a customer segment; there is less effort when it comes to thinking about investor incentives. How do we unlock more financing from investors to flow to women businesses? Which incentives need to be in place to mobilise and catalyse more gender responsive financing from capital markets in Africa? This is a key piece of the puzzle that we are committed to helping solve. We believe that leveraging capital markets in capital mobilisation for gender offers us a blank slate where creativity and innovation can flourish in integrating gender metrics and considerations into the design of capital mobilisation vehicles.

Real stories, real impact

In the past half a decade, like-minded institutions, have significantly increased their efforts to anchor investments in gender-intentional capital mobilisation vehicles such as gender bond issuances that tap into investor incentives. These partnerships have sparked remarkable catalytic and demonstrative change. Take, for instance, our support to NMB Bank Plc in issuing the Jasiri Bond, Sub-Saharan Africa’s first publicly listed gender bond. According to the first Jasiri Bond impact report, the response was overwhelming—it was oversubscribed by a staggering 197%, drawing in 1,630 investors, 99% of whom were individuals. Here’s the best part: 97% of the loans went to women! That’s thousands of women empowered to chase their dreams and build a brighter future for themselves and their families. Such partnerships exemplify the power of collaboration in driving tangible impact and advancing gender equality in finance.

And it’s not just about businesses. Bonds issued in sectors with high female participation can also strengthen capital mobilisation for gender benefits. For example, UNICEF estimates that women and girls globally spend 200 million hours per day fetching water for household consumption. In Sub-Saharan Africa, a single trip to collect water takes an average of 33 minutes in rural areas and 25 minutes in urban areas. This takes time away from productive economic activities, education, and leisure, and increases exposure to gender-based violence. In the energy sector, the Clean Cooking Alliance estimates that women and girls spend up to 5 hours per day gathering fuel or spend a significant portion of household income to buy it. Imagine if we used capital markets to issue water bonds to improve water infrastructure, or clean cooking bonds to finance cleaner energy solutions. The impact of women’s lives would be transformative.

Building the bridge together

In this regard, we have continued to support our partners in bringing innovative financial tools to market to mobilise gender-responsive finance. For instance, in 2021, we supported Banque Central Populaire in Morocco issue the first gender bond in Morocco, raising about US$ 20.4 million to provide 17,080 microcredit loans to economically disadvantaged urban and rural women.  We also provided technical assistance for a US$ 10million green bond issuance by Burn Manufacturing to support clean cooking in Sub-Saharan Africa. Most recently in 2024, we supported the Tanga Urban Water Supply and Sanitation Authority in Tanzania in the first ever water green bond in Africa, aimed at improving sustainable water supply and environmental conservation within Tanga city and nearby townships. To support more of these issuances FSD Africa in collaboration with UN Women, BII, and FSD Network designed the gender bonds toolkit to equip both issuers and investors with the tools they need to make gender-responsive finance a reality.

As we champion for more incentives and instruments to mobilise gender-responsive finance through capital markets, we recognise that proper impact measurement and management are crucial for understanding the outcomes and impact of gender-responsive finance through capital markets, requiring accurate data collection and performance insights. Globally, we see that gender-disaggregated data is sparse and weak; thus, these issuances present an opportunity to strengthen the collection and management of gender-disaggregated data. As a guide, issuers and investors can look to the gender bonds toolkit outlines considerations and use-case examples to demystify the post-issuance reporting stage.

At FSD Africa, we are championing for capital markets as an enabler of gender-responsive finance. By sharing our experiences, insights and best practices with issuers and investors, we can significantly boost gender-focused capital for African businesses.

[1] https://www.ifc.org/content/dam/ifc/doc/mgrt/2020-12-call-for-insights-e-publication.pdf

[2] Gender refers to the socially constructed roles, behaviours, and expectations that societies assign to individuals based on their perceived sex.  Gender disaggregated data separates information based on these societal roles and expectations. It goes a step further to explore the ‘why’.

 

Empowering the next wave of climate entrepreneurs

Posted on by Kihingu Inc

Harnessing the immense power of Africa’s innovative young talent is critical for a successful green transition on the continent. Triggering Exponential Climate Action (TECA) hinges on directing this talent intentionally toward our generation’s most pressing challenges – climate change and biodiversity loss. Last year’s inaugural “TECA wave”, implemented by BFA Global and funded by FSD Africa, saw 30 Fellows supported to launch seven new ventures solving for challenges in the blue economy (used here to mean sustainable use of natural water resources for economic growth, improved livelihoods, and jobs while preserving the health of the environment).

This year, we and BFA Global have been joined by a powerhouse team of organisations resulting in the new Africa Blue Wave Coalition. IUCN, through a partnership with the Canadian Government, is co-financing the Africa Blue Wave alongside us, and Ocean Hub Africa (OHA) has come on board as blue economy venture building experts. Through this collaboration, TECA has recruited 44 new talented and energetic Fellows from 12 different African countries to take on the challenge of building climate solutions.

As has become the tradition, the new wave kicked off with the “huddle”, a 4-day in-person convening of TECA Fellows and venture builders, that took place in Watamu, Kenya, in March 2024. I had the pleasure of joining the Fellows for this unique opportunity to immerse ourselves into blue and green economy challenges as well as engage with and learn from one another at the very start of the TECA journey. Green economy, in this case, refers to the sustainable use of terrestrial landscapes for economic growth, improved livelihoods, and jobs while preserving the health of the environment and boosting biodiversity.

Watamu, a small coastal town in Kilifi County, Kenya, not only boasts a stunning coastline, but it is also home to Mida creek, one of the most productive mangrove ecosystems in the world, supporting livelihoods, marine-life and an impressive diversity of bird and animal species. This served as a perfect location for the TECA Fellows to gain a deeper understanding of the challenges faced by fisher folk, farmers, conservationists, and others whose livelihoods depend on this protected ecosystem.

Through the support of Kenya Marine & Fisheries Research Institute (KMFRI), we had the pleasure of visiting both green and blue economy players in the region. These included an aquaculture and conservation self-help group (Umoja) practicing sustainable marine fish farming and mangrove nursery establishment and rehabilitation; and beach management units (BMU) at landing sites in Takaungu as well as Kuruwitu, where we met with BMU officials and groups undertaking fishing, extraction of coconut oil, mangrove restoration, plastic recycling, and coral restoration, among other activities.

The decision to focus this second TECA wave on both green and blue economy solutions was validated by the clear complementarity in the spectrum of opportunities for innovation identified by the fellows. This was further highlighted when we had the opportunity to visit a Fellow from the first TECA wave. Fardosa Mustafa launched Registree in 2023 with a goal to empower mangrove conservation communities in the coastal region through digital tracking of mangroves and carbon accounting. So passionate about this work, Fardosa moved from her home in Nairobi to Watamu after her time in the TECA programme to focus on better understanding the needs of the communities she was supporting. In doing so, she has gained a deeper understanding of their needs and pivoted her business model to supporting sustainable agricultural practices in the coast; an exciting shift from blue to green within the same region.

Despite having completed the TECA process, the team at BFA keep a close eye on Registree and others who have launched their start-ups through the programme, providing input and support where needed. Dr. Mathew Egessa, another TECA graduate, joined the team in Watamu to speak with the current cohort of fellows about his journey building Vua Solutions. He also had to opportunity to check in with venture builders and gain input into challenges he faced in the business highlighting the importance of ongoing relationships and expertise that the TECA process provides.

Fardosa and Mathew’s stories exemplified for me the importance of the kind of high touch support provided by the TECA team. To adequately support these entrepreneurs requires time, patience, adaptability, and inevitably capital investment. It requires for all players within the climate space – educators, entrepreneurs, regulators, venture builders, experts, and investors – to think differently about how we support innovation.

The huddle left me with the feeling that, although there is still a lot of work to be done in building solutions that address the needs of communities in Africa at the same time as mitigating the impact of climate change, there is hope. The 44 TECA Fellows I met in Watamu were passionate about building these solutions and incredibly energised about the opportunity to work with experts who were ready to provide the support needed.

As FSD Africa, we are excited to be joined on this journey by IUCN and OHA, recognising the importance of partnership and collaboration towards Africa’s green transition.

Bridging the gap of financial inclusion in DRC

Posted on by Kihingu Inc

In the heart of sub-Saharan Africa lies the Democratic Republic of Congo (DRC) – the largest country in the continent, full of potential, but plagued with high poverty levels with an estimated 62% of the population living on less than $2 a day. This reality of financial exclusion where only about 30% of adults have access to formal financial services, not only perpetuates cycles of poverty but also hinders progress towards achieving several of the UN Sustainable Development Goals (SDGs), including eradicating poverty, promoting economic growth and ensuring inclusive societies.

Hindered by factors like underdeveloped infrastructure, lack of identification documentation and low levels of trust in the financial system, millions of Congolese struggle to access basic financial services essential for economic empowerment and social development. In 2019, FSD Africa joined forces with Equity BCDC, to roll out a programme that leverages an innovative agency banking model to reshape the financial landscape for improved access to financial services in rural and peri-urban communities and households across 18 out of DRC’s 26 provinces.

 How it started

Progress was slow in the beginning with consideration being made for which internal systems would best serve the needs of DRC’s unique infrastructure, as well as developing the right internal capacity necessary to onboard agents and clients alike. Equity BCDC developed a unique ‘Master Agency’ strategy, branded Equity BCDC Express, which allowed them to successfully address the KYC issues caused by lack of identification and supporting documentation. Through the establishment of a network of over 5,000 agents spread across the country, they were able to open over 650,000 new accounts in rural and peri-urban areas, enabling savings for these new clients.

By partnering with private sector players, Equity BCDC provided internet connectivity and renewable power sources to agents in the rural areas to facilitate account opening via their web-based internet solution. The bank also developed a micro-loan scoring tool and are piloting group lending for their clients to allow them to access crucial capital.

 

The journey

On a recent trip to DRC, we witnessed the tangible and transformative impact of this initiative firsthand. We interacted with the agents who were once struggling, found renewed hope as their livelihoods improved; and clients who were long excluded from formal financial systems, experience a overpowering shift in self-worth and social standing, as they embrace the opportunity to save and transact securely.

What began as a dream evolved into an evident reality—a reality where farmers in Nsele can send money to their children in Kinshasa with a simple USSD code effortlessly without enduring long commutes. Where garbage collectors in Masina can reinvest their earnings to build a better future and inspire their community. Where women in Bunkeya  foster empowerment and begin to see beyond traditional barriers, recognising the opportunities that access to finance affords.

Transactions to transformation

In collaboration with EBCDC, at the recent project closeout event held in April 2024, we brought together government officials, private sector leaders and stakeholders to celebrate milestones, share insights and mark a shared commitment to continue the drive for a more inclusive future.

It was demonstrable that for those once marginalised, a bank account is not just a means to save money; it’s a symbol of hope and belonging. With each success story, the case for financial inclusion in DRC grows stronger, igniting a ripple effect of change across the region. As the project comes to a close after 4 years, we reflect on the lessons learned that resonate deeply.

Such initiatives will help address the financial needs of 73% of the financially excluded population in DRC and are crucial in building resilience for themselves and their households, enabling them to tackle the challenges of survival with renewed tenacity. While challenges still exist, Equity BCDC’s experience shows that they are not insurmountable, and we will continue to support the bank’s journey in doing so.

Find out more about our work with Equity BCDC here.

 

Watch the feature story below.

Why African capital markets need an unshakeable foundation

Posted on by Kihingu Inc

Ever wondered what policemen, electoral commissions, regulatory bodies and parents have in common? You guessed it, they enforce norms in the spheres of their influence, a crucial role I deeply respect from my almost nine years as a staff member at a financial sector regulator.  I will explain why.

Regulation is an art, not a science

Enforcing norms and legal rules in any sector is about striking the perfect balance. Overregulation can stifle innovation, while insufficient regulation can encourage malpractice.  My previous experience at the Capital Markets Authority, Kenya involved gatekeeping roles similar to those of an immigration officer, ensuring only qualified participants entered the market. I was also involved in the development process for various pieces of capital market and broader financial sector legislation.  This practice highlighted the artful nature of regulation – balancing enforcement with facilitation to foster market integrity and trust.

Challenges in African markets

Unlike developed markets, capital market regulators in Africa have the dual mandate of regulation and development. Developing these markets requires specialised skills and significant resources in human, financial and IT capacities.  This is something that regulators understand very well – and it falls on all African governments and policymakers to appreciate this as well.  Reason being, capital markets are built on trust – market players must have confidence in the way the market is run, giving credence to how it operates.  Effective market regulation hinges on the ability to detect and respond swiftly to fraud and misconduct.  It requires strong regulatory frameworks and the right tools.  Specialised skills are also required.  These cost a lot but are necessary for market confidence and functionality.

The benefits of well-regulated markets

When markets are well run, everyone benefits, from issuers seeking capital to investors looking for returns. Where markets function optimally, they mobilise long-term capital in local currency to power the real economy.  For example, enabling a water company to raise USD 20m for water infrastructure maintenance and water conservation efforts in Tanzania or mobilising USD 95m to finance a green mobility project in Morocco. This showcases successful capital mobilisation for significant projects and the immense opportunity to replicate it.

The broader context

While regulation is important, it is not the sole factor. A stable political environment and conducive macroeconomic conditions contribute to a thriving capital market.  I believe that African governments’ appreciation for not only the macro-level issues but also the opportunities for supporting capital market growth is always needed.  By aligning government policies and incentives, like tax neutrality for specific securities and exemptions for green bonds enables more efficient capital-raising efforts by the private sector and encourages innovative financing solutions.

I believe African governments realise that reliance on public financing through external debt borrowing in hard currency is not an infinite pot.  As of 2022, external debt in sub-Saharan Africa stood at USD 833 billion and this rises and falls depending on currency volatility.  This type of financing is not sustainable, and it will not meet all the continent’s development needs. Alternative financing options include using capital markets or a mix of different types of capital and risk mitigation instruments like guarantees, insurance, and currency hedging mechanisms.   This is the time to deploy this creative mix of financing solutions to fund sustainable development.

The role of FSD Africa

But back to my main point – capital market regulation and development are not a walk in the park.  At FSD Africa, we have implemented several regulatory support initiatives – helping regulators strengthen their institutional capacity and build robust regulatory frameworks and long-term capital market development plans.

In March 2024, our efforts in supporting development of the capital market intermediaries licensing and monitoring legislation assisted the Ethiopian Capital Markets Authority in granting a license to its first investment advisor.  This is a foundational step in the establishment of the capital market and mobilisation of capital.  In addition, our work with various regulators and exchanges to design rules for sustainable bond issuances has promoted capital raising of approximately USD 1.2 billion across the continent.  Such initiatives demonstrate the potential of regulated markets to mobilise sustainable finance and support Africa’s development.

An all-hands-on-deck approach is needed from the government and other market facilitators to support regulators in fulfilling their mandates.  And these dual mandates were made for this time in history – for this time in the continent’s sustainable growth trajectory.  I am sure as we support the implementation of regulators’ statutory mandates which the drafters of capital market legislation envisioned, our economies will be better for it.

Democratising Access to Voluntary Carbon Markets: The CAVEX Story

Posted on by TIMOTHYRADIER

The Carbon Value Exchange (Cavex) is an innovative initiative that has recently secured seed funding from FSD Africa Investments (FSDAi) and E3, investors committed to driving change in the climate and broader sustainability sector. This investment is a follow-up to grants received from FSD Africa and the Shell Foundation, supported by the UK government (FCDO). This blog aims to shed light to why Cavex exists and the challenges it seeks to address.

The Context

Multinational intergovernmental agreements, most notably the Kyoto Protocol and Paris Agreement, established through the Conference of Parties (COP) process, have recognised Voluntary Carbon Markets (VCMs) as one of the key contributors to curb global warming. Unlike compliance markets, which are government-regulated, VCMs seek to mobilise funding from organisations and individuals who are eager to offset their carbon emissions. Although not mandated or fully defined by regulatory frameworks, projects in VCMs that reduce or remove GreenHouse Gas (GHG) emissions are generally guided by principles originally defined by the Clean Development Mechanism (CDM)[1].

Due to their voluntary nature, VCMs largely operate without regulation, depending heavily on the trust of those seeking to offset their carbon footprints. To foster trust, various organisations have developed “standards” that assure buyers on the legitimacy of the carbon reductions or removals represented by their purchased carbon credits. However, these standards come with their costs and involve processes that must be met by participating projects:

  • Certification fees,
  • Third-party audit costs (Validation and Verification Bodies)
  • Broker commissions
  • Internal monitoring, reporting and verification (MRV) expenses

Furthermore, VCMs face challenges relating to the accuracy and transparency (and therefore trustworthiness) of carbon offset projects and carbon credit pricing. The absence of unified regulation or standards in VCMs leads to fragmented MRV methods, potential inaccuracies, and the risk of mis-selling. For instance:

  • Manual MRV processes might be prone to human error, and often covering only a subset of devices and/or project areas.
  • While intermediaries facilitate access to carbon financing, they can also contribute to pricing opacity between buyers and sellers.

Recently, international organisations and stakeholders, from governments to private sector players, have recognised the imperative to refine carbon markets if they are to significantly contribute to addressing the impending climate change challenges. Initiatives like the development of Core Carbon Principles seek to drive more integrity and fairness into the sector.

Enter Cavex

Cavex is designed to both mitigate these challenges and enhance the integrity of VCMs by:

  • Lowering costs for micro-small projects to generate and sell carbon credits internationally, thus opening doors to the long tail of small-medium sized projects.
  • Utilising digital-MRV tools for real-time monitoring through connected devices or satellite imagery, to accurately assess their carbon emission impacts.
  • Streamlining micropayment processes for carbon credits sales, ensuring capital flows to the most relevant project participants efficiently.
  • Offering a transparent marketplace for carbon credit transactions.
  • Ensuring a greater portion of credit sales revenue reaches the projects on the ground.

Leveraging Digital Monitoring, Reporting and Verification Tools (D-MRV)

Cavex will employ D-MRV tools, like remote monitoring technologies for device-based projects (e.g., solar water pumps, electric cookstoves) and satellite imagery for nature-based projects (e.g., reforestation), ensuring transparency and integrity:

  • For device-based initiatives, digital monitoring hardware/software will collect accurate activity data, such as power usage to calculate CO2e offsets.
  • For nature-based projects, combining on-the-ground data with satellite imagery will monitor project land areas, aiding the validation process of forest growth or loss and above-ground biomass.

Data collected will undergo Data Quality Assurance (DQA) on the Cavex platform, utilising algorithms and random checks to detect anomalies that could misrepresent carbon reductions.

This digital approach reduces the need for costly and time-consuming field audits, allowing for direct platform-based verification. The system itself is audited thoroughly by an independent organisation, that will ensure that the correct (industry established) carbon calculation algorithms are applied to the data, and that the entire reporting processes and ledger systems used are accurate.

For example, in Kenya, a farmer named James reports usage data from his solar water pump directly to the Cavex platform (in either kwh and usage time consumed by the pump controller), translating into digital carbon credit value. These credits, once sold, help James finance his water pump or invest in his farm.

Moreover, Cavex’s digital tools will enable extensive data collection from devices enhancing the accuracy and integrity of the carbon credits generated. This will reduce the need for random selection of devices or plots of land (in nature-based projects) for manual verification, thereby improving the accuracy and integrity of the data underpinning the carbon credits.

A Transparent Digital Marketplace

Validated project data is converted into CO2e units, and eventually into carbon credits, recorded on a digital ledger. Each credit is linked to the project owner, with a traceable journey from creation to retirement. Project owners can list their credits in the marketplace, directly connecting with potential buyers and providing transparent pricing and project information.

Digital Payment Channels Guarantee Direct Benefits to Project Participants

Cavex proposes to integrate digital payment methods like mobile money to distribute proceeds from carbon credit sales directly to project stakeholders. This ensures that projects achieve their goals of GHG reduction or removal by directly benefiting the individuals and communities involved.

For instance, Mary, a small-scale caterer, who purchased an electric cookstove, contributes data that generate carbon credits by displacing traditional carbon-emitting fuels (often charcoal in sub-Saharan Africa). Along with other users, the majority of the proceeds from these credit sales are funnelled back to the cookstove project and its users, reducing costs and enhancing benefits.

Cavex stands at the forefront of democratising Voluntary Carbon Markets, with further trials underway to onboard more use cases, enabling small projects to contribute to climate change mitigation and mobilise finance for resilience.

The role of capital in catalysing the development of a more sustainable Africa

Posted on by TIMOTHYRADIER

Coordination problems are hard! Solving them represent potential for massive returns. The paradox of “insufficient demand” for already available capital pools, and the taunted “financing gap” on the other is perhaps a famous coordination problem in development finance circles.

If capital was a person, she would have to be ambitious – while avoiding hubris, readily embrace ambiguity showing a deep interest in, and a belief in a more prosperous future. She would have natural aptitude for building strong relations and for solving hard relational problems – while not being suicidal. She would be agile – showing great ability to renew herself for new emerging risks and opportunities. She would need to have training in management of trauma and disappointment, all while embodying a philosophy of optimism.

She would brush up on her Keynesian economics and contemplate its implications in the context of low productivity in Africa, ongoing debt distress, and weak institutions of political governance.

Africa needs capital that is fearless, brave, and courageous – intrepid. A form of capital that works on two sides of development, it will serve to accelerate capital flows on one hand, and work to unlock demand on the other. Her vision will draw from two themes – first, an ambition to deeply explore and design paths to solving Africa’s intractable development and second, an ambition that anticipates nasty surprises all the while building partnerships, institutions, and incentives to get things going. An ambition that fuses understanding with execution.

At FSDAi, we are working hard to solve these problems and provide risk-bearing, early-stage capital in innovative forms to support venture-building stage capital allocators who combine capital with other critical support to businesses at the start-up and early stages. We are also working to develop new asset classes – across private credit, guarantees, and alternatives among others. To do this well, we work from the ground up to ensure we understand the demand side of capital – interrogating market conditions, through partners, building a pipeline of investable opportunities, and addressing talent gaps. FSDAi works too on the capital formation side, providing catalytic capital that makes it easier to attract new forms of capital.

In markets, tailwinds can quickly become headwinds. As the global inflation has shown, capital flight is all too easy. The inflationary pressures were not always obvious, and most countries in Africa were focused on kickstarting their economies from the ravages of the Covid pandemic when the inflationary headwinds hit. Africa faces weak economies, high unemployment rates and low productivity and debt overhang – local and external. Backing enterprise is not equivalent to putting out your sail; and yet, optimism of the future of Africa should be fused well with certainty of turbulence in markets over time.

Africa will need capital that encourages entrepreneurs to emerge. That will mean finding capital that is patient and that can catalyze other capital to flow onto the continent. Capital that can persuade local pension funds to invest. The current equilibrium is unsatisfactory – there is not enough capital that accepts disproportionate risk, enables third-party investment that otherwise would not be possible, and is long term. Capital at start-up, early, venture-stage and SME growth capital is still severely in short supply.

Local capital is all too often preserved in money markets and government treasuries and only trickles into the real economy. Capital flows to address early-stage ventures is especially limited as most fund managers are too risk-averse and impatient. Even when they take risks, venture funds are pack hunters – signalling each other to back the same ventures.

To truly address the demand side – enterprises that have ambitions to build sustainable infrastructure, innovate to cut pollution, manage just transitions, and spur investment across a wide range of sectors will be essential.

FSDAi and FSD Africa are working on innovations to catalyze capital flows across the continent. These initiatives include supporting structures that facilitate risk transfer mechanisms including credit enhancement and mechanisms to manage foreign currency risks. In addition to backing fund managers to build capacity and accelerate investment in climate. Other initiatives have included investing in themed investment structures that can respond to specific priorities such as affordable housing, agriculture, or even investments towards green transition.

FSDAi has been supporting capital allocators by enabling blended structures. In these structures, FSDAi provides risk-bearing equity that shields private capital that is less courageous. Convertible instruments is another tool in FSDAi’s stable – allowing conversion to equity upon success

Unlocking capital through demonstration is also a tactic that we have deployed. This allows founders with credible business models to access capital early, test and raise further capital on the back of a tested business model.

FSDAi is working to provide mechanisms to test, accelerate and mobilise capital at scale to address these demand and supply side issues to deepen access to inclusive and functional financial markets. In return, ventures will emerge to address the climate challenge. When more appropriate capital is available, more of these ventures will thrive.

Braving the Bonds: Empowering Women Entrepreneurs in Tanzania

Posted on by TIMOTHYRADIER

Women in Tanzania face a range of challenges in their participation in significant economic activities, as well as in their homes and communities. While not all these obstacles directly affect women’s inability to benefit from financial services, they all contribute significantly to the problem of women not making the most of their skills and opportunities. If these barriers are eliminated, more women can engage in economic activities and, consequently, the financial sector.

In January 2023, I had the opportunity to visit Tanzania to observe first-hand the groundbreaking impact of the Jasiri Gender Bond – an initiative by NMB Bank backed by FSD Africa. The purpose of the trip was to document the tangible outcomes of projects we support across sub-Saharan Africa as part of our “Voices from the Field” series. FSD Africa is dedicated to mobilising finance that not only drives economic and social development but also ensures environmental sustainability and resilience across the continent.

The Jasiri Gender Bond – the first gender bond in sub-Saharan Africa – was launched in April 2022 to address the significant financing gap faced by women-owned and led businesses. Named “Jasiri” – Swahili for “brave” – this bond represents the strength and determination of Tanzanian women entrepreneurs and is aimed at supporting their empowerment in line with the SDGs, particularly 1 (No Poverty), 5 (Gender Equality), and 10 (Reduced Inequalities).

Listed on the Dar Es Salaam Stock Exchange and the Luxembourg Green Exchange, the Jasiri Gender Bond raised approximately US$ 32 million, far exceeding expectations with a 197% oversubscription. This overwhelming response emphasises the bond’s significance as an inspiration for gender-focused economic empowerment in Africa.

A gender bond is a financial instrument that channels its proceeds into empowering women-led ventures. The Jasiri Gender Bond targets businesses that are either predominantly owned by women (at least 50%), have a workforce of more women than men, or offer products or services that significantly benefit women. Male-owned enterprises that notably support women’s needs also qualify as target enterprises. This could encompass a range of businesses, from maternity hospitals to companies specialising in feminine products, emphasising their pivotal role in uplifting women’s economic status.

As part of NMB Bank’s retail products, the Jasiri Bond provides women business owners with access to new markets, going beyond only financial assistance. The project does more than just give these women access to loans with rates lower than the industry average; it also gives them experience in foreign markets in countries like Turkey and China, which helps them become more savvy businesswomen. In addition to providing financial support, the bond cultivates a community of strong businesswomen by connecting them with a varied network of entrepreneurs across the continent.

By providing lower interest loans and educational support, this initiative empowers women, fostering significant personal and business growth, and contributing to the local economy’s dynamism. At the Sinza Business Center, one of the bank’s branches, Istoria Senda, the Business Manager spoke of the bond’s role in overcoming economic barriers for women.

Istoria Senga

Gudila Kimati is the owner of a lucrative boutique, Maggy Dress-Up. She leveraged a loan obtained through the Jasiri Bond to expand her business, specialising in plus-size women’s clothing. This expansion not only grew her business but also improved her personal life, embodying the bond’s goal to enhance women’s economic opportunities.

We also met Mrs. Selina Godfrey Letara, a businesswoman with humble beginnings. Her entrepreneurial journey, from selling second-hand clothes to establishing a successful sanitary products business, showcases the broad impact of the Jasiri Bond. Her story highlights the importance of financial discipline and the role of strategic banking partnerships in women’s economic empowerment.

The Jasiri Gender Bond is more than a financial tool, it’s a catalyst for change, driving economic empowerment for women in Tanzania and setting a precedent for the African continent. By providing over 3,000 loans to women-led MSMEs, the bond has not only facilitated access to finance but also encouraged women’s entry into male-dominated industries, enhanced productivity, and catalysed local economic growth.

Long before Jasiri, the bank was already a champion for women, with a portfolio boasting nearly $500 million in loans to female entrepreneurs. The gender bond initiative didn’t just amplify their commitment; it also spotlighted their dedication to this vital market segment.

These stories from our impact series fall in line with our broader mission to tackle financial exclusion and foster sustainable, inclusive economic growth. Looking ahead, the bank is eager to work with governments, channelling sustainable finance into pivotal projects to secure necessary funding. Moreover, they’re setting their sights on greening their portfolio, aiming for at least 5% investments that align with their National Determined Contribution (NDC) goals by 2030, underlining their forward-thinking approach to both gender equality and environmental sustainability.

Watch the feature story below.