Country: Democratic Republic of Congo

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

Posted on by Kihingu Inc

In early November, FSD Africa brought two worlds together for the first time: taking five prominent financial service providers (FSPs) to Gihembe Refugee Camp in Rwanda to participate in a ‘Financial Product Design Sprint’ in partnership with UNHCR, Government of Rwanda, and Access to Finance Rwanda (AFR). We were also joined by a member of UNHCR from Geneva, the International Finance Corporation and FSD Uganda.

Earlier that week, FSD Africa and BFA presented research on ‘Refugees & Their Money’ to over 20 FSPs in Kigali – highlighting the business case for financial products focused towards refugees (you can find a short summary found here). Philip Kakuru, from Tigo, said ‘With the limited access of the refugees, there was little to know about them, but the sprint design opened our eyes’. These FSPs, along with any others, now have an opportunity to win one of our four £10,000 grants in our Innovation Competition – Financial Services for Refugees in Rwanda.

To read more about the wider FSDA approach to refugee finance, take a look at last month’s blog here.

Day One: Any ideas?

The next day, the five FSPs, chosen through an open competition, began the Financial Product Design Sprint. The FSPs were a diverse group representing MMOs, MNOs, MFI and banks: MobiCash, Equity Bank, Vision Fund, Tigo and Commercial Bank for Africa. This three-day event hoped to challenge misconceptions about refugees, their potential and FSPs to consider a refugee product seriously. The first day began with an in-depth presentation of BFA’s research and details regarding the structure of refugee camps. This was followed by product brainstorming with each FSP, before narrowing down to a select two or three ideas which were fleshed out.

Day Two: What are the financial lives of refugees?

On the second day, these FSPs were taken to Gihembe Refugee Camp, a camp with a population of around 12,000 refugees from DRC and located only an hour drive from Kigali. Here, each FSP had the opportunity to speak to at least two refugees and over the course of two hours get a better feel for their financial lives. For most, this was their first time interacting with refugees and particularly in a refugee camp. As one FSP noted ‘With this segment, there is a lot to offer and learn from them’. This was followed by further prototyping of the FSP’s idea and customising their product to the needs of refugees.

Day Three: Is this the right product for refugees?

The final day offered an opportunity to return to the camp and with initial prototypes, in the form of a drawing, poster or app, get direct customer feedback. This proved particularly helpful for many FSPs to refine their product. As Peter Kawumi, from FSD Uganda, said ‘Through the design sprint’s customer interaction iterations, misconceptions about the refugees’ technology literacy, economic independence and financial ambition were debunked.’
The first ‘Financial Product Design Sprint’ was well received by all FSPs and there is also potential for replication in Uganda, with FSD Uganda, and as Vishal Patel from the IFC said ‘helped inform IFC’s work in Kenya in Kakuma refugee camp and town.’
Learning from risk taking

Working with banks and beneficiaries in this way is new to FSD Africa. It builds on the FinDisrupt model, pioneered by our sister organistion – FSD Tanzania. We learned a lot, especially on the value of bringing the refugee voice into FSD Africa planning and FSP business casing. The type of discussion it generates, out of the office environment, created momentum that would otherwise never have been achieved.

To read more about the wider FSDA approach to refugee finance, take a look at last month’s blog here.

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

Posted on by TIMOTHYRADIER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[2] World Energy Outlook 2015.

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

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

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

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.,

Harbingers of doom? bank failures in Africa – how to interpret these

Posted on by TIMOTHYRADIER

Yesterday, Zambia’s central bank announced it had taken over a commercial bank, Intermarket, after the latter failed to come up with the capital it needed to satisfy new minimum capital requirements. Three weeks ago, a Mozambican bank – Nosso Banco – had its licence cancelled, less than two months after another Mozambican bank, Moza Banco, was placed under emergency administration.

At the end of October, the Bank of Tanzania stepped in to replace the management at Twiga Bancorp, a government-owned financial institution which was reported to have negative capital of TSh21 billion.  A week before that, just over the border in Uganda, Crane Bank, with its estimated 500,000 customers, was taken over by the central bank, having become “seriously undercapitalised”. In DR Congo, the long-running saga of BIAC, the country’s third largest bank, continued in 2016, forced to limit cash withdrawals after the termination of a credit line from the central bank. And in Kenya, Chase Bank collapsed in April, bars after the failure of Imperial.

How are we to interpret this? It seems that 2016 is the year in which latent fragility in Africa’s banking sectors is being laid bare.  After years in which observers have favourably contrasted the relative stability of African banking with the financial sector chaos in Europe and the US, it seems that three critical perils – mismanagement, political interference and economic woes – are conspiring to transform the landscape of African banking into a decidedly treacherous place for depositors and investors.

We have had remarkably few bank failures in Africa in recent years and yet this sudden uptick in stories like Crane and Chase, against a backdrop of economic challenges in many places, raises the question as to whether there is worse to come.

Mismanagement and/or political interference have been at the root of most bank collapses over the past few decades. Martin Brownbridge’s grimly fascinating analysi”https://fsdafrica.org/knowledge-hub/blog/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/#_ftn1″ name=”_ftnref1″>[1] on this subject from 1998 concluded that “moral hazard, with the adoption of high-risk lending strategies, in some cases involving insider lending” was behind most of the bank collapses in the 1990s. This certainly resonates today. Catastrophic lapses in governance rather than economic malaise are alleged to be behind the recent Kenyan bank failures (although their shareholders and directors vigorously refute this) – but how else can you explain why a small number of banks fail when the sector as a whole has been returning well over 20% on its equity for the past several years?

There are some excellent programmes like “http://www.centerforfinancialinclusion.org/programs-a-projects/abf” target=”_blank” rel=”noopener”>Accions’s Africa Board Fellowship Program, which aims to strengthen capacity at financial institutions because their promoters understand that weak governance undermines trust in the financial system and is therefore very bad for financial inclusion. But it is one thing to know what you’re supposed to do as a bank board director – quite another to actually do it.

Each bank failure seems to have its own special story – and we derive comfort from this. It is somehow reassuring to think that that might be the case because the prospect of a system-wide failure is so awful.

And each country context has particular features that impinge on the stability of the financial system. There are deep concerns in Kenya, for example, that the recent imposition of interest rate caps is going to result in a very messy period of bank failures and/or consolidation.

But are there common patterns that we should be taking note of?  Is there a system-wide issue that we should be facing up to?

Well, one pattern might be positive – that central banks are intervening more, and more quickly, to weed out the miscreants, less cowed by the politicians than they might have been in the past and more concerned to protect their well-earned professional reputations. Another is that central banks are finally implementing the increases in minimum capital requirements which many have been talking about for years with the inevitable intended consequence that some banks will be forced to get out of the market.

These might be two good reasons why we are seeing more collapses. You could say that’s excellent news for the future of African banking. But perhaps only to a point. There is still the risk that the cumulative effect of bank failures as a result of zealous supervisory action causes a loss of faith in the entire system resulting in mass panic and the withdrawal of deposits and credit lines.

Also, the inevitable result of this would be fewer, bigger banks which may have negative consequences for competition and access – altht worth pointing out that Tanzania, which has 55 commercial banks, still only manages to bank around 12% of its adult population (FinScope).

The more concerning issue is the impact of underlying economic weakness. Leaving aside the paradox that some of these bank failures are taking place in economies that are growing quite fast (Kenya and Tanzania forecasting 6-7% GDP growth), lower commodity prices and their pervasive impact across African economies are going to make life much tougher for banks – especially if they are poorly managed and have political skeletons in their cupboards.

One problem we have, especially when economic conditions are changing fast and for the worse (as in Mozambique), is that data is often out of date and is not sufficiently disaggregated. So, when we look at Africa as a whole, or even the banking system of one country as a whole, the averages we tend to look at create a blithely benign picture which masks dramatic variations.

So, non-performing loans (NPLs) across Africa up to014 were a little over 5% but NPLs in Ghana were more like 11-12%. NPLs in Tanzania are currently a little over 8%, yet Twiga Bancorp’s NPL’s were – unbelievably – at 34% in early 2015, according to media reports.

We think the African banking sector is in for a rocky ride in 2017 and 2018 and, in the short term, this is not good news for the real economy. However, one industry that is set to grow, surely, is central banking supervision.

“https://fsdafrica.org/knowledge-hub/blog/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/#_ftnref1” name=”_ftn1″>[1] Brownbridge, M (1998): “Financial distress in local banks in Kenya, Nigeria, Uganda and Zambia: Causes and implications for regulatory policy” Development Policy Review, vol. 16, no.