Category: News

FSD Africa partners with African crowdfunding association to build crowdfunding ecosystem in SSA

Posted on by TIMOTHYRADIER

FSD Africa is proud to announce a 2 year programme of support to  the African Crowdfunding Association (ACfA) through a £230,000 grant. This programme is a market-building project that allows FSD Africa to give industry-wide support to the development of alternative lending and capital raising platforms that help connect diverse sources of capital, both debt and equity, to early stage and growth companies.

Mark Napier, Director of FSD Africa, said: “We are excited at the level of ambition that ACfA has shown in wanting to give a serious boost to the development of the crowdfunding industry in Africa.  We need innovative approaches to SME finance in Africa. Crowdfunding has the scope to become a much bigger part of the funding landscape in Africa, linking pools of domestic and international capital to job-creating investment opportunities. ”

Kevin Allen, Chairperson at ACfA, said: “The team at ACfA is excited to start work on what is set to be a game-changer for the crowdfunding industry in Africa, and a welcome boost for early-finance in general. Thanks to support from FSD Africa, ACfA will be strengthened as a private sector-led institution committed to innovation in African capital markets. We will engage African regulators in the design of a label which will be granted by ACfA to securities-based crowdfunding platforms that fulfil requirements on investor protection, risk awareness, issuer disclosure and other criteria. This label will build trust and transparency between investors, platforms and SMEs, while creating a critical feedback loop between the industry and regulators.”

This project continues FSD Africa’s work to encourage innovation in Africa’s financial markets, especially through the use of technology-led models of distribution.  FSD Africa has actively encouraged regulators across the region to support innovation through the use of regulatory sandboxes to establish systematic communications channels between innovative service providers and regulators in the lead up to formal regulation as markets evolve. FSD believes that a strong industry association can play a critical role in helping this emerging industry gather momentum, building investor confidence by putting in place industry-led standards and encouraging innovation and competition through knowledge-sharing activities.

For more information relating to this project, contact Fundi Ngundi via fundi@fsdafrica.org or Elizabeth Howard via elizabeth@africancrowd.org.

FSD Africa completes its investment in African local currency bond fund

Posted on by TIMOTHYRADIER

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

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

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

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

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

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

FSD Africa completes its investment in African local currency bond fund (ALCBF)

Posted on by Kihingu Inc

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

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

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

ALCBF has also received funding commitments from lenders totaling $40 million – including the International Finance Corporation ($20 million), Calvert Foundation ($10 million) and the Dutch development bank, FMO ($1s additional funding has enabled the fund to establish a permanent presence in West Africa, where it has now opened an office in Lagos, Nigeria.

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

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

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

Posted on by TIMOTHYRADIER

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

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

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

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

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

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

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

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

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

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

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

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

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

It also leaves some unanswered questions. For instance:

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

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

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

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

Mia Thom

Technical Director

Cenfri

miathom@cenfri.org

Twitter: @thommia

Website: cenfri.org

Juliet Munro

Director – Inclusive Finance

FSD Africa

juliet@fsdafrica.org

Twitter: @juliet_munro

Website: fsdafrica.org

FSD Africa, cenfri and the FSD network commit to collaborating on insurance market development

Posted on by TIMOTHYRADIER

In sub-Saharan Africa (SSA), insurance markets are yet to fully develop. Despite a population of over 1 billion people, there are only an estimated 60 million risks covered and total premiums for life and non-life insurance accounted for only 1.4% of the global insurance market in 2015. The contribution of the insurance sector to the economy in sub-Saharan Africa, in terms of premiums to GDP, is amongst the lowest in the world at 2.9%. If South Africa is excluded, it drops below 1%.

The lack of market development within the region undermines the contribution of insurance to a range of poverty alleviation and economic growth outcomes. As a risk transfer tool, insurance not only assists economic actors to protect the economic and social assets they accumulate, but also unlock new opportunities for economic activity. As a mechanism for intermediation, it directly supports economic growth, and indirectly aids the development of capital markets.

However, developing a well-functioning insurance market is not a quick and easy process. Several financial sector development programmes (FSDs) across SSA have been making substantive gains over the last decade. Nevertheless, gaps still exist in recognising the potential of insurance market development to contribute fully to poverty alleviation and economic growth.

FSD Africa, in partnership with Cenfri, is working with the network of FSDs across SSA to derive key learnings, as well as identify and suppo new opportunities and approaches to insurance market development. This new collaboration kick-offed at the first FSD Insurance Market Development Workshop which was held in Nairobi, Kenya on March 27th and 28th. In attendance was FSD Kenya, FSD Mozambique, FSD Tanzania, FSD Uganda, FSD Zambia and Access to Finance Rwanda.

There were two key objectives for the workshop. The first was to share strategies, approaches, challenges and successes in insurance market development. The second was to identify opportunities for cross-country learnings and future collaboration.

The workshop was structured around the insurance market development curve and the four stages of insurance market development it introduces. The discussions revealed that while insurance market development is a key focus for many FSDs, many of their approaches differ. The stages provide the FSDs with a tool to inform their approach and there was interest in how their interventions could be shaped per the stages of market development.

The workshop emphasised the need to learn from common successes and challenges. Challenges identified by the FSDs included:

  • Limited awareness and use of insurance;
  • Limited incentives for business to serve low-income people;
  • Questionable sustainability of certain agriculture and health products;
  • Lengthy regulatory change processes; and
  • Limited skills, capacity and data available on the benefit and impact of insurance for poverty alleviation and growth.

Successes highlighted focused on:

  • Creation of local working groups t promote and support inclusive insurance and microinsurance;
  • Innovations in product design such as index insurance and mobile microinsurance; and
  • Capacity Building for regulators and providers.

The FSDs also identified the importance of on-going and sustained engagement with regulators and the private sector. They noted that this engagement has led to increased provider and stakeholder interest; and support for inclusive insurance and microinsurance, as well as positive regulatory relationships and influence.

Going forward, FSD Africa, Cenfri and the FSD network have agreed to collaborate on insurance market development to address these challenges and amplify successes through a Community of Practice to be established for this purpose.

Credit on the cusp

Posted on by Kihingu Inc
Building healthy credit markets in Africa by 2026

African economies are currently undergoing dramatic changes, including a changing consumer base.  Absolute poverty is reducing as a new class of consumer—the cusp group—emerges.  This group (we call “cuspers”), which now accounts for 23% of sub-Saharan Africa’s population, covers a segment of active earners getting by on $2-$5 per day and straddling the formal and informal worlds.  For this group, healthy credit markets could expand opportunity and enable upward mobility, helping to build a true middle class.  But, for this to happen, credit needs to expand and to do so in healthy ways.

In the Credit on the Cusp project, we look at the experience of cusp group borrowers and the lenders who serve them in three distinctive markets—South Africa, Ghana, and Kenya—to better understand what healthy credit market development would mean for this group.  We explore some ways donors and policymakers can help build credit marable upward mobility for Africa’s cuspers

A review of some of Africa’s housing finance markets

Posted on by Kihingu Inc
Overview

Across Africa, the residential investment opportunity is increasingly driving conversations about economic growth. While the definition of who is middle class and how many such households there are continue, the fact of Africa’s rising population and rapid urbanisation is palpable in its cities where the inadequate housing conditions of the majority are obvious.

For every problem, there is an opportunity for a solution, and in increasingly creative ways, this is what Africa’s housing investors are finding.

Most investment funds currently active were initiated when the African growth trajectory was on an upward curve. The past year has been challenging, however. Still among the fastest growing continents, Africa has seen its growth and development prospects seriously challenged by global economic pressures, the commodities downturn and the slowing Chinese economy. Where the prospects of oil and gas discoveries dominated the news five years ago, in 2016 it is their loss in value ng governments reconsider their economic development strategies. The key challenge in this environment, is economic diversification. Can housing contribute towards that opportunity?

Governments can contribute significantly to a developer’s ability to deliver affordable housing at scale, by paying attention to the rough spots along the housing value chain: the availability of land, its servicing (especially water and electricity), and its registration;
the availability of domestic building materials and a functioning construction sector; the time it takes to get administrative approvals for the building process, and the cost of such approvals; the taxation, finance and macro-economic framework; and the functioning of the labour market, among so many other factors.

Read full report from”http://housingfinanceafrica.org”>CAHF here.,

Digitisation of government payments task force benefits from digital money training

Posted on by TIMOTHYRADIER

Harry Mwangi (R) receiving his certificate from Stephen Mwaura (L), the Head of National Payment Systems at the Central Bank of Kenya during the graduation ceremony in Nairobi

Thursday  14th  July 2016, Nairobi — Financial Sector Deepening Kenya (FSDK), in partnership with FSD Africa and the Digital Frontiers Institute (DFI), held a graduation ceremony at the Serena Hotel for the Digitisation of Government Payments Task Force, who successfully completed the 12-week ‘Certificate in Digital Money’  programme.

Commenting on the programme, Victor Malu, Head of Future Financial Systems at FSD Kenya who also participated in the programme said: “This has been a very exciting 12 weeks. One of the really great aspects of this programme is the sharing of knowledge and experiences both among the participants in Kenya as well those from other countries across the world.”

The certified programme offered by DFI in partnership with the Fletcher School at Tufts University aims at equipping 1,500 digital finance professionals within the next two years with the technical knowledge, vision and skills to drive inclusive innovation in digital finance.

It is estimated that more than a third of the world’s adult population does not have access to basic financial services. In Africa, close to 200 million adults still have no bank accounts to enable them receive loans, send children to school or insure against illness. The training, mentoring and peer networking of DFI’s professional development programme is part of the strategic response to fill the financial inclusion capacity gap in underserved markets over the next five years.

The first cohort of the course, which is delivered using a highly interactive on-line platform, was attended by 125 applicants from 34 countries across six continents, including 21 people from Kenya.  Of this cohort, 31% were female while 69% were male, with 45% coming from private sector organisations, 22% from the development sector, 21% from government and 12% from the education sector. 87% of all participants passed the course successfully, with a commendable 100% pass rate from the Digitisation of Government Payments Task Force, who achieved some of the highest marks overall.

DSC03038
Vincent Mutai at the ceremony

Vincent Mutai from the Task Force, who attained the highest mark of the cohort overall said: “The rich discussions on a range on topics in digital financial services throughout the 12 weeks greatly helped fill my knowledge gaps. Now, I have deeper understanding of how various elements within the digital payments ecosystem interrelate. I also feel more confident engaging in conversations on matters concerning digital financial services.”

Nzomo Mutuku, the Acting Director, Financial and Sectoral Affairs at the National Treasury commented: “This programme was extremely timely as it came at time when the [Kenyan] Government is working to fully digitize government payments and to enhance service delivery. The team from the Government Digital Payments Programme, including myself, who are graduating today will use the knowledge gained to not only accelerate digitisation, but also enhance financial inclusion which remains a key objective of the Government.”

FSD Africa has invested US$1.5 million into DFI, part of which is going towards the provision of scholarships and the convening of in-country “Communities of Practice” in Kenya and elsewhere in Africa. It is expected that these convenings, together with other networking activities, will help to strengthen the learning experience of the students participating in the course.

Commenting on the graduation, Juliet Munro, Director of Inclusive Programmes at FSD Africa said: “This marks a key step forward in building the skills and professional networks required to accelerate the growth and adoption of innovative digital solutions which, in turn, will contribute towards financial inclusion in Africa.”

The second cohort of the course began in July 2016 and is being attended by 180 participants. As demand for the training continues to grow, DFI’s focus will remain on equipping a new cadre of digital finance professionals with the knowledge and skills needed to engage in building digital economies in developing countries across the world.

Financing the frontier: approaching financial sector development in fragile and conflict affected states

Posted on by TIMOTHYRADIER

From 2016, FSD Africa will increase its focus on inclusive financial sector development in Fragile and Conflict Affected States (FCAS).

Working with key partners, it will identify and apply learning from excellent practice so far to support the well-being of the most vulnerable and marginalised on the African continent.

With this in mind, FSD Africa will work with Mercy Corps to produce a focussed think piece on ‘Approaching Inclusive Financial Sector Development in FCAS in Africa’ by June 2016. 

To do this, the team will produce four mini-cases of ‘promising practices’ and will answer the three following questions:

  • Defining and understanding FCAS in Africa. What are FCAS, where are FCAS in Africa, and why do they warrant dedicated attention by the international development community?
  • Defining and understanding financial sector development in African FCAS. What makes financial sector development in FCAS unique and/or the same and why is it important? What is the role of the financial sector in resilience-building and fostering economic opportunity in FCAS?
  • Approaching future financial sector development in African FCAS. What have donors learned so far to improve what they could do in the future? 

The learnings will support smart programming by the FSD network and other financial market facilitation agencies. It will also help to identify future key partners with which to work and a list of priority countries and market failures on which to focus.

If you’d like to learn more about the FSD Africa approach to FCAS or know of a ‘promising practice’ that should be showcased then please contact: Joe Huxley, FSD Africa’s Regional Co-ordinator (joe@fsdafrica.org).

Financial service providers ought to focus on the cusp group

Posted on by TIMOTHYRADIER

Central Bank Governor Dr Patrick Njoroge fielded some tough questions from the audience on 9th February 2017 at FSD Kenya’s annual financial inclusion lecture. British economist, Professor John Kay, had just delivered a provocative talk on the risks of financialization in the economy. He cautioned Kenyan bankers and policymakers to avoid the mistakes of the Anglo-American finance model and work towards building a financial sector with local solutions that deliver real value for real people.

The point was not lost on the Governor. In the question and answer session, he was grilled on the future of finance in Kenya and how the CBK would ensure access to services that delivered real value to consumers.  In his response, the Governor singled out the financial needs of “cuspers,” getting by on about $2-5 per day.

This market segment, now includes about 12.6 million Kenyans.  These are not the poor, on the brink of survival.  But nor have they achieved firm footing in the middle class – they live “on the cusp”.  The sheer size of this group means we must pay it attention. Cuspers affect the economic lie classes in innumerable ways. The future of this segment will be affected by changes in the financial sector more than any other.

Providing cuspers with helpful financial tools to smooth the volatility in their incomes and build enduring assets will be key to ensuring that Kenya develops a bigger and more inclusive middle class and benefits from the economic and social gains that such a transformation entails.

But such transformation is not automatic.  In our own research on this market segment, we found that the vulnerabilities of the cusp group mean they could end up simply churning within this low-level income band without ever building real capital or income security. We find that cuspers are very much exposed to macro-level shocks and often lack the tools to manage micro-level ones without major financial setbacks.

We also find that credit can be an important tool for upward mobility, and Kenya’s digital credit revolution is opening up those possibilities more rapidly than anyone could have expecteven three years ago. The question today is whether the financial sector is being driven by short-term profits or taking the long term view of sustainable profits by prioritizing cusper client welfare. We have to ask ourselves – how useful is M-Shwari or Branch or Tala to the asset-building ambitions of the cusp group?

“Good credit” for the cusp group happens when borrowers are not overwhelmed with options, they have a plan for the use of capital, have practiced borrowing, understand their debt service obligations, and select from a diversity of credit offerings to fit the right borrowing need. Most importantly, good credit unlocks a pathway towards real assets like land, housing, businesses, and higher education.

I am pleased to hear that the Governor is thinking and talking about those living on the cusp. The question is, are bankers list