Category: Blog

Protecting our oceans: The Blue Wave Expedition

Posted on by TIMOTHYRADIER

The ocean is a vital part of human life and the global economy, providing food, jobs, and livelihoods for over 3 billion people. However, climate change, overfishing, and pollution are threatening the ocean and the prosperity of people in developing countries. Coral reefs, mangrove forests, and marine populations have already suffered, with a third of global fish stocks depleted. If these trends continue, no stocks may be left for commercial fishing in the Asia-Pacific region by 2048. By 2052, the weight of plastic in the ocean could surpass that of fish, and up to 90% of coral reefs may be lost. Despite these challenges, the ocean remains the planet’s largest natural asset, delivering countless benefits to humanity.

  • The ocean is responsible for the oxygen in every other breath we take. It supplies 15% of humanity’s protein needs.
  • It helps to slow climate change by absorbing 30% of carbon dioxide emissions and 90% of the excess heat trapped by greenhouse gases.
  • It serves as the highway for some 90% of internationally traded goods, via the shipping sector.
  • If the ocean were a country, at several trillion dollars per year of economic activity, the ocean would rank 7th on the list of largest nations by GDP.
  • It is the source of hundreds of millions of jobs, in fisheries, aquaculture, shipping, tourism, energy production and other sectors.

Protecting the ocean from the many threats it faces is not only a moral imperative but also a promising financial opportunity. By responsibly managing the ocean, we can benefit both the environment and the economies of emerging markets. Before the COVID-19 pandemic, the ocean economy was on track to double between 2010 and 2030, reaching $3 trillion and employing 40 million people. The financial sector is starting to recognise the potential of a healthy ocean. It has a key role in shifting the global economic system towards rebuilding ocean prosperity, restoring biodiversity, and regenerating ocean health.

A thriving Blue Economy supports the sustainable use of coastal and marine resources, promoting economic growth, better livelihoods, and more jobs while preserving the integrity and health of these ecosystems. However, keeping the world’s oceans clean will require ambitious projects supported by innovative financing.

It’s upon this basis that FSDA and BFA Global partnered to launch TECA in April 2022; a first-of-its-kind venture launcher, to create fintech start-ups with solutions that enable climate resilience in the most vulnerable communities around the world, with an initial focus on Africa. The first wave, “The Blue Wave”, was set out to address challenges affecting the Blue Economy. It is expected that future waves will take on other challenges on climate change. The team kicked off activities by building a community of diverse, and engaged experts and enthusiasts to collaboratively ideate, strategise, and connect to provide feedback, and support a network for prospective founders as they launch their ventures.

BFA built an active online community interested in TECA and the Blue Economy in Africa on Circle, which onboarded 221 members who are active on the platform to date. The Wave Expedition Series; a series of online webinars in which the TECA Community learnt about and discussed opportunity areas and contributed to building the wave’s ‘Atlas of Opportunity’, ran from May to July 2022 with a total of six expeditions.  

Sourcing for the first cohort of entrepreneurs was completed in August 2022, with selection based on talent, passion and commitment to building innovative solutions for a climate-resilient future. 30 fellows/entrepreneurs were onboarded in the inaugural wave with 50% being female, and representing 7 African countries: Kenya, Tanzania, Uganda, Ethiopia, Egypt, South Africa and Zimbabwe. The fellows kicked off with a huddle in Diani on the Kenyan coast in September 2022, with the huddle objectives being team bonding and trust building, testing hypothesis, exposure to the blue economy and working towards goals as a team (brainstorming together and building together).

 

TECA Huddle 1

 

Related article: 4 Innovation Opportunities to Unlock the Potential of Blue Carbon

Over a 4-month period, the fellows were taken through a mentorship and coaching program, including a “How I Launched” series to refine their venture ideas, after which they did one mock pitch, then a final pitch before a panel. The venture ideas were scored based on a 5-criteria matrix: compelling vision, team-solution fit, scalability/viability, impact on communities in blue spaces, and impact on blue ecosystems. 7 ventures demonstrated that they had refined their problem-solution fit and were working towards a minimum viable product (MVP), and thus qualified for an initial grant of £55,000. TECA will continue to build a diverse and engaged community through the Circle platform and publication of knowledge products. They will also work toward securing further funding for a second wave in FY23-24. 

Here are some of the initiatives that have been implemented by the communities in Kwale county as discovered in the expedition:

Mikoko Pamoja Mangrove Restoration

Nestled between sandy beaches, still waters and coconut palms, the Mikoko Pamoja project — Swahili for “mangroves together” — has for nearly a decade quietly plodded away, conserving over 264 acres of mangroves while simultaneously planting new seedlings. About 4,000 new mangroves are planted yearly, steadily swelling Gazi Bay’s forests. The project is an integrated people-centred approach, with a particular focus on women, to address the triple crisis – poverty, climate change, and nature – at the local level.

 

Mangrove

Restoring mangroves is beyond conventional forestry. Besides developing nurseries and supplying seedlings, there is a lot more that must be considered in mangrove restoration, according to Swabra Mohammed; the secretary of Gazi Women Group. Her group established a nursery in 2018 and have sold seedlings for restoration. To the fellows, the huddle was an eye-opener. Over and above species zonation and assessing hydrology, they gained knowledge on identifying mature propagules of various species. The huddle was holistic and practical as it enabled the fellows to identify the challenges and opportunities in mangrove ecosystem restoration and blue carbon monetisation. With deliberate conservation, comes natural perks. Fisherfolk casting nets in nearby shallow waters have seen an abundance of species return to the mangrove-laden shores, now a breeding ground for fish flourishing in the expanded habitat. And project leaders hail the benefits of cleaner air for people who live in or near the forests.

Mangrove 1

Kibuyuni Seaweed Farming

It is estimated that Kenya earns around $2.5 billion annually from its ocean resources, a positive indication that there can be a potential growth of the country’s GDP through the embrace of Blue Economy. At Kibuyuni village in Kwale County, a group of 50 members is already making fortunes from seaweed farming. This project has improved the livelihoods of many families in the area.

Seaweed farming

According to Fatuma Mohamed, who chairs the Kibuyuni Seaweed Farmers Group, the project began in 2010 after KMFRI, conducted research that identified a seaweed species suitable for the area. The group, which at that time had 27 members, received funding from PACT Kenya in 2011 to improve their project. They currently cultivate two seaweed species, with a harvest cycle of 30-45 days, and sell around 50 tonnes, generating sales of approximately KES 1.5 million. The group invests their earnings in table banking and merry-go-round initiatives.

Seaweed farming

We are just beginning to explore how innovation can help us build climate resilience. It’s essential that more people get involved in supporting the development of solutions that can meet the challenges we face now and in the future, and ensure that we use our natural resources in a sustainable way.

TECA Huddle Participants

The 2nd TECA blue economy wave will launch soon in partnership with BFA, IUCN and Ocean Hub Africa and aims to attract 50 fellows and launch 10 new ventures across sub-Saharan Africa.  This was announced in the ocean conference, where the 7 grantees from wave 1 had an opportunity to learn more about the blue economy and pitch to potential funders.FSD Africa is committed to playing its part in bringing together the right people and resources to create a world that is better prepared for the effects of climate change. By serving as a catalyst and bringing people together, FSD Africa can help create a more climate-resilient world.

Photo credits: BFA Global

Building capacity for a more inclusive digital economy

Posted on by 5iveafrica

The world has come a long way since the invention of computers in the 20th century. Digital triage tools are assisting community health workers in reducing maternal mortality in rural Africa. Bitcoin is now legal tender in the Central African Republic. The hashtag #BringBackOurGirls brought global awareness to the plight of 276 schoolgirls abducted in Northern Nigeria and was even retweeted by the former first lady of the United States of America. And, at the click of a button, lunch is at your doorstep! The fourth industrial revolution, a phrase coined by Klaus Schwab, the founder and CEO of the World Economic Forum, signals just how massive the potential magnitude of the technological changes happening around us is.

Today, the application of digital technologies is having a significant impact on economies and on societies. In Africa, digitalised economies present new livelihood and welfare opportunities for low-income people across the continent. Online e-commerce platforms like Jumia have provided access to new markets for small retailers, while logistics and ride-hailing platforms like Sendy and Little Cab have enabled drivers and boda-boda riders to earn a liveable wage. Successful fintechs like MFS Africa and Chipper Cash are allowing more affordable and reliable access to remittances for low-income people across Africa, and insuretechs like PharmAccess are providing vulnerable people more affordable access to healthcare.

These opportunities, however, do not come without risks and access issues persist. The ‘digital divide’ refers to the gap between those who can access and benefit from the internet – and those who cannot. Despite the rapid expansion of broadband and mobile data coverage across the continent, many Africans remain excluded. Data is still very expensive and unaffordable for millions of low-income people and digital literacy remains low, particularly among women, older people and rural dwellers. The digital divide grows when we take relevance into consideration. Are digital tools accessible in local languages? Are solutions relevant and beneficial for the majority of Africans?  If governments and other market actors do not actively work towards closing digital divides, the inevitable continued growth of digitalised economies risks excluding millions of Africans.

In 2020, FSD Africa and the FSD Network partnered with Digital Frontiers Institute (DFI) to develop a course on inclusive digital economic development (iDED). This 4-week course brings together definitions, tools and terminologies from global thought leaders on the digital economy and provides learners with an inclusive perspective and the digital economy’s effects on low-income and vulnerable people. The offering provides the sector with a solid foundation for professionals working in the digital economy who are passionate about inclusive development.

This collaboration builds on our long-term partnership with DFI to build a new Digital Finance profession for Africa. FSD Africa is providing full scholarships for 40 excellent candidates from Ethiopia, Ghana, Nigeria, Somalia or Sudan who are interested in pursuing the course in October 2022.

There is no doubt that the digital transformation age is an exciting one, with opportunities beyond our imagination and value we are still learning how to measure. It is, however, important to remain grounded in the principles of equity and inclusion that govern how each of us meets our basic needs. We encourage professionals working in governments, development organizations and the private sector who are interested in building an inclusive digital economy to apply for a full iDED scholarship from FSD Africa here.

Pension savings a must for Africa’s retirees

Posted on by 5iveafrica

Who will look after you when you’re retired? Will it be your children, as you did for your parents when they became old? Will they be able to afford to support you, while raising their own family?

A great tragedy we see too often is old-age poverty. Where, after a successful career and life, our elderly fall into poverty. This is mainly due to lack of retirement savings through formal pension schemes or other ways of saving for retirement, for needs such as food, shelter, and medication.

While you would expect that those most affected are in informal sectors, it is disturbing to note that even those in formal sectors where there are no government-driven retirement plans are also affected. Poor plans for old age are a result of retirement illiteracy, closed-mindedness towards retirement contributions and limited access to savings channels.

Between 2014 and 2019, investments in private equity accounted for less than one per cent of total pension assets for most countries in sub-Saharan Africa.

Effecting systemic change has become critical in ensuring that future generations do not suffer due to a lack of enough retirement cashflows to sustain their lives. This has a direct nexus with economic development, poverty reduction, improved livelihood, and increased resilience of individuals.

The pandemic caused a 6% fall in per capita incomes in 2020 – setting living standards back by a decade in a quarter of sub-Saharan Africa, (WB, Jan 2021). Gross Domestic Product (GDP) Losses were estimated at $146bn in 2020-2021, with an estimated 25 to 30 million jobs lost.

With this, the continent faces a financing gap for future development of $290 bn for 2020–2023. Private flows would barely cover half of the financing needs while other flows from various donors are thin. According to the International Labour Organisation, pension coverage remains low in Africa with only 9.6% active contributors from the working-age population (15-65 years).

Domestic resource mobilisation has received greater limelight during the Covid-19 period – in line with the Africa Union Agenda 2063, with pension sector development being recognised as key in filling this funding gap. Furthermore, through its asset allocation, pension funds can direct more resources to the private sector, boosting jobs and growth and finding its way to climate-friendly investments.

In 2019, FSD Africa formed the Africa Pension Supervisor’s Forum (APSF), which has a membership of 10 African regulators – Botswana, Egypt, Mauritius, Ghana, Kenya, Nigeria, Rwanda, South Africa, Uganda and Zambia – who combined are responsible for 86% of pension assets on the continent.

The APSF was formed to pave the way for a harmonised approach and collaboration towards interventions and reforms in the pensions sector across the continent. The first APSF Conference, themed Unlocking Africa’s Pension Potential, covered critical topics including new investment products, asset allocation policies, sustainable/climate investments, automation of pensions contributions, incentives for inclusive pensions and emerging trends in RegTech, fintech and SupTech.

Under the Africa Pensions Supervisor’s Programme, which resulted from the APSF, FSD Africa aims to carry out holistic interventions through the application of innovations and a joint approach to resolving common challenges in the region’s pensions sector. This will ultimately encourage long-term savings to not only meet the pension assets’ growth potential but also create facilitative policy, regulatory and industry environment to support appropriate deployment and investment of the pension assets. The initiative also aims to increase pension literacy and knowledge building on retirement products and investments.

To achieve the above targets, Africa Pensions Supervisor’s Programme is looking at ways to provide technical assistance to develop guidelines and regulations that would allow access to retirement savings for housing and mortgages. This will go a long way toward resolving the ongoing housing affordability crisis.

A revolution in the continent’s pensions sector is beckoning. It is envisaged that through this programme, longer-term financial sector and social and real economy impacts will be realised. By deploying capital resources drawn from the pensions sector, it will be possible to efficiently and effectively finance long-term inclusive economic growth. In addition, the programme will also create a sustainable future for pension contributors and increase access to basic services during retirement through cashflows from pension savings.

What financial services would you need if you found yourself as a refugee?

Posted on by 5iveafrica

I often find it difficult for most people to relate to refugees. We seem to forget that we can be in the same situation depending on the circumstances around us. The happenings in Ukraine have shown just how delicate our stability status is, and that we can quickly be turned into forcibly displaced people overnight!

While conflict, war or persecution have been traditionally viewed as the main forces giving rise to refugees, natural disasters triggered by climate change among others are fast becoming a force to reckon with. The number of forcibly displaced people has now surpassed 100 million for the first time, fueled by the war in Ukraine and other ongoing conflicts around the globe.

This takes me back to a scenario in June 2018 when FSD Africa, FSD Uganda and BFA Global were conducting a design sprint with 6 Ugandan financial service providers (FSPs), to develop new ideas for financial products and services for refugees in the country. The 4-day event reached a phenomenal breakthrough when one of the participants posed: “What if something happened and we found ourselves in another country as refugees? What financial services would we need?” Those two questions opened the minds of the participants and ideas started flooding in. The design sprint was one of the 4 steps that FSD Africa has been following to develop financial inclusion for refugees (FI4R) projects. The other 3 are:

  1. Market assessments that capture the financial lives of refugees and show the potential of serving these populations.
  2. Innovation competitions where FSPs are invited to pitch ideas of how they would address refugee financial needs
  3. Financial support and technical assistance to FSPs to develop, pilot and roll-out financial solutions.

In Uganda, working with FSD Uganda, we identified Equity Bank Uganda Limited, VisionFund Uganda and Rural Finance Initiative to offer financial services in various refugee settlements from October 2019. While the project concluded in March 2022, these FSPs have continued operations as this turned out to be a viable business for them. The project engaged BFA Global as the learning and research partner. They undertook a baseline study in January 2020 and a series of 4 financial diaries (linked below) – capturing the financial needs and uses of refugee households.

The 4 financial diaries:

They then carried out an endline study in November 2021. The partners achieved the following results:

  • Over 26,300 customers accessed loans, with 73% being female
  • Cumulative loans amounted to £9 million ($2.7million)
  • 262 bank agents were recruited across the settlements, 15% of which were women
  • Over 93,300 households registered on Equity Bank Uganda’s digital platform
  • 65,484 households receiving digital payments as of March 2022.
  • The bank made payments worth UGX 10.8 Bn (£2.2m) during the first quarter of 2022
  • 8 humanitarian agencies used the Equity Bank Uganda platform for disbursements

Below is a summary of some of the different financial services offered by the FSPs:

Based on the end-line study findings, there is still work to be done to improve financial services for refugees in the following areas:

 

Break the bias: Empowering women in Africa for prosperity

Posted on by 5iveafrica

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

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

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

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

Inclusive Finance

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

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

Gender bonds

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

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

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

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

Our projects in Morocco and Tanzania

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

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

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

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

<i”alignnone size-full wp-image-6055″ src=”https://fsdafrica.org/wp-content/uploads/2022/02/calin-stan-7a_PHX91su8-unsplash.jpg” alt=”” width=”640″ height=”402″ />

Gender-lens investing

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

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

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

Bridging the financing gap

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

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

Creating real impact for women

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

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

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

[1] AfDB

FSD Africa partners with PharmAccess to improve healthcare in Ghana

Posted on by 5iveafrica

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

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

The healthcare challenge in Ghana

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

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

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

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

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

PharmAccess Foundation

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

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

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

FSD Africa and healthcare

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

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

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

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

How the project will work

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

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

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

Posted on by 5iveafrica
Long-term debt in Africa

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

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

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

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

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

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

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

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

The importance of long-term debt

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

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

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

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

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

Lack of data creates higher risk perception

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

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

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

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

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

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

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

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

Posted on by 5iveafrica

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

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

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

The Youth Enterprise Grant project

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

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

Covid-19 strikes

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

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

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

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

The mixed impact of Covid

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

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

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

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

Micro-entrepreneurs were resilient

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

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

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

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

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

Covid was one issue among many

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

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

The challenges of running a micro-business

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

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

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

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

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

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

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

Structural problems must be addressed

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

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

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

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

Smartphones and micro-entrepreneurs in Nairobi’s informal settlemen

Posted on by 5iveafrica

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

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

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

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

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

The Youth Enterprise Grant

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

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

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

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

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

Insurtechs will reshape the insurance sector

Posted on by 5iveafrica

Needed but not prioritised, relied upon but not trusted – these are just some of the perceptions that have characterised interactions with the insurance sector. The sector has been grappling with the challenge of delivering relevant products for a long time, especially to customers at the base of the economic pyramid.

Only 3% of Africa’s GDP is driven by insurance, which is less than half the world average of 7%. Yet, insurance provides a safety net from many external threats like natural disasters, health threats and economic disruptions.

This brings the question: why is there such a discrepancy, especially given Africa is no less exposed to many of the risks that insurance buffers against compared to the rest of the world? Remote locations, lower education levels and a lack of trust or experience with formal institutions have been key contributors to low insurance uptake in Africa.

According to McKinsey, Africa’s insurance industry is valued at about $68 billion in Gross Written Premium (GWP) whichbehind other emerging markets such as Latin America and the Caribbean. Uptake across the continent is also inconsistent with 91% of premiums concentrated in just ten countries; South Africa has the largest and most established insurance market and accounts for 70% of Africa’s premiums.

In Kenya, a 2019 report by the Insurance Regulatory Authority (IRA) showed that insurance penetration dropped from 3.44% to 2.34% over the last 9 years, an indication that the sector has not been successful at capturing the opportunities presented by the expanding economy.

These statistics clearly depict the protection gap that has left households and businesses vulnerable to shocks triggered by various risks.

Covid-19 has and is still placing significant pressure on the way the insurance business is conducted. The pandemic disrupted providers’ engagement with both regulators and consumers. A study by FSD Africa conducted in 2020 that took stock of the effect of COVID-19 across sub-Saharan Africa, showed that the sector ed to enhance digitalisation as the virus reduced mobility and social interaction amidst government-imposed restrictions. Digitising the sector would also improve access and efficiency of insurance products and services. Furthermore, the study showed that regulators also needed to adjust their service delivery processes of licensing, registration, data collection and product approvals by embracing new solutions.

The pandemic has without a doubt amplified the need to adopt regulatory technology (regtech) and supervisory technology (suptech) in enhancing the efficiency of reporting and supervision processes. There have been notable uptake in online distribution of products, customer-centric services such as the use of chatbots, mapping out trends, assessing risks, managing claims and even marketing. Bold start-up companies are behind some of these most ingenious innovations, with support from the sector’s long-standing players. For example, Lami, in partnership with more than 25 Kenyan underwriters, released its flagship mobile application in early 2020, enabling Kenyans to pay for insurance in instalments and pause coverage if they travel abroad. In addition, Bluewave and APA insurance recently launched an affordable digitally distributed health cover for low-income populations, costing less than USD 2 each month for a hospitalisation cash benefit and funeral expenses benefit of up to USD 500.

To leverage such innovations, Kenya’s Insurance Regulatory Authority, together with its partners, launched BimaLab, a pilot accelerator programme in 2020. The move is meant to enhance visibility and push for resources for talented insurtech founders of early to mid-stage start-ups. The programme will harness innovation for inclusion and enhanced access to insurance products and services with an aim of increasing insurance penetration in Kenya. The programme, now in its second phase and with FSD Africa’s involvement, has seen an increasing contribution of technology to insurance inclusivity through companies such as AiC Chamasure and Sprout.

AiCare is enabling motor insurers to conduct accurate motor insurance risk assessments. This is improving underwriting efficiency and reducing costs of insurance premiums. Chamasure has created a peer-to-peer microinsurance and savings platform which enables those who save through informal social groups to purchase insurance through the groups in case of death or accidents. Sprout Insure developed a faster claim processing solution for crop insurance making it easier for farmers to buy policies and receive timely pay-outs.

It is vital for regulators to balance the need to facilitate and promote innovation with the protection of consumers and the adequate management of the risks that may arise. In this regard, there are seven regulators across sub-Saharan Africa that are also shadowing the second phase of BimaLab programme with an aim of building an enabling regulatory environment. The programme will enable insurance regulators from Nigeria, Ghana, Rwanda, Uganda, Malawi, Zimbabwe and Kenya to adapt and evolve their supervisory processes to be more flexible and responsive to new innovations, technologies, and risks as and when they arise.

As technology advances in the insurance sector, it is important that regulators balance the need to promote innovation with the protection of consumers and the adequate management of the risks that may arise. In this regard, there are seven regulators across sub-Saharan Africa that are also shadowing the second phase of the BimaLab programme with the aim of building a regulatory environment that facilitates and welcomes innovation. The programme will enable insurance regulators from Nigeria, Ghana, Rwanda, Uganda, Malawi, Zimbabwe, and Kenya to adapt and evolve their supervisory processes to be more flexible and responsive to new innovations, technologies, and risks.

Insurtech is revolutionising an almost century-old insurance industry in Kenya, leading to its financial system becoming more accessible to low-income populations. With the trend being recorded across the globe, technology is reshaping the competitive landscape, challenging traditional structures to significantly improving access to insurance.

FSD Africa recognises the role Insurtech plays in increasing insurance penetration and coverage. Thus, we are exploring a pipeline of Digital innovation projects to support this Insurtech revolution and the reshaping of the African Insurance Industry.