Country: Ethiopia

How green bonds can fund development

Posted on by TIMOTHYRADIER

Opinion article originally published on Devex.

One of climate change’s great injustices is that the worst affected countries are the ones that have contributed least to the problem.

In 2015, the world coalesced behind the Paris Agreement on climate change in an effort to transition to a low carbon future. And while much attention has been on the United States’ decision to withdraw from the agreement, many African governments have been stepping up.

Following the African Union’s lead, Ghana, Ethiopia, and Kenya, among others, have all factored climate change into their national development plans. And it is easy to see why these African nations are approaching climate change with earnest given the danger climate change presents to the continent. Cyclone Idai, for example, left incalculable destruction across three countries last month, an unfortunate reminder of the devastation climate change could have on the continent.

Trillions of dollars of investment are needed to combat climate change. And while the Paris Agreement does have funding mechanisms to support developing countries, these funds can only go so far.

Moreover, unlike the world’s primary greenhouse gas emitters, developing countries in sub-Saharan Africa need to encourage growth without fueling emissions.

Take electricity: Sustainable Development Goal 7 states that everyone should have access to affordable and reliable electricity by 2030. Yet, in a region where more than half the population still does not have access, governments need to improve access and reliability without turning to high-emitting power sources such as coal.

The role of green bonds

A solution to the crisis may lie in green bonds, which allow issuers to raise money specifically for environmentally friendly projects, such as renewable energy or clean transport.

This year, analysts predict the green bonds market will grow to $200 billion, a 20% increase from last year and a significant jump from 2016, which saw $87 billion raised. But while the global market continues to grow, there are fewer bonds available across Africa.

Most of Africa’s green bonds have been issued by the African Development Bank, which has raised over $1.5 billion since 2013. While Nigeria issued a $29.7 million bond to fund solar energy and forestry projects in December 2017, no other countries have followed suit.

African governments have historically relied on development finance institutions to fund green projects such as irrigation initiatives and solar energy. However, this is unsustainable and ignores potential capital that could be raised from pension funds, the diaspora, and the middle class. For example, Kenya’s pension sector is valued at about 1.2 trillion Kenyan shilling, or $11.9 billion.

If national governments want to unlock more capital, structures are needed to give investors the confidence to invest.

Kenya, Nigeria, and South Africa are leading the charge in sub-Saharan Africa. Since 2017, these countries have been working with a range of partners, including FSD Africa, to develop a robust framework for the issuance and listing of green bonds. Now, Nigeria and Kenya have joined India, China, and Indonesia in turning their frameworks into official guidelines — and the market is responding.

Last month, the Nigerian-based Access Bank issued Africa’s first certified corporate green bond, unlocking $41 million to protect Eko Atlantic City, near Lagos, from rising sea levels. This bond will also support a solar energy project. Notably, the bond was fully subscribed, highlighting the fact that if the frameworks are built, investors will come.

While development finance will always play a critical role in supporting development on the continent, countries are recognizing they need to unlock funding from other areas. Kenya and Nigeria have heard this call and global markets have responded. This should give other countries confidence to follow suit.

Given the nascent nature of capital markets in Africa, we have the unique opportunity to build them from the ground up and respond to pressing priorities including climate finance. This is particularly critical as governments start to pursue infrastructure development at a larger scale.

Green bonds may still be a small piece of the global bond market, but they are showing real potential for helping developing countries move to greener, more equal economies.

A place to call my own: the significance of housing for women

Posted on by TIMOTHYRADIER

Nearly one in four households in Africa are headed by women, reaching 41% in Zimbabwe, 36% in Kenya and 35% in Liberia according to the World Bank. Female-headed households have been increasing across all countries, globally. So, as well as considering the broader challenges and opportunities affordable housing creates for everyone, we should also ask: what’s the significance of housing specifically for women?

The consequences of good housing are far-reaching: the quality of housing impacts on its residents’ health and safety, their ability to function as productive members of society, and their sense of well-being in their community. Good housing contributes to good health outcomes, provides protection from the elements and supports a family’s needs throughout its life cycle.  These factors have a particular impact on women. In many low-income households across Africa, whether in rural areas or in the cities, the home is still the woman’s domain.  The quality of the living environment impacts partn her day-to-day experiences and capacities to meet the needs of all who depend upon her. It is for this reason that we know that women are especially keen on home improvements and often the drivers of such initiatives within their households.

Increasingly, and especially in high-unemployment contexts, the income-earning potential of housing is also being recognised. Many women identify entrepreneurial opportunities through their housing, using their homes as their business premises, running a shop on site, or working remotely. Some are renting out one or two rooms, or a structure in the backyard (see our video interviews with two female clients of Sofala’s i-build home loans project) contributing to household income. Recent research finds that poverty falls faster, and living standards rise faster, in female-headed households.

A home and its surroundings also affect a woman’s identity and self-respect. This social dimension, while less tangible, is nevertheless hugely significant. A home offers long- and short-term security for women as household members, especially those that are unmarried. Secure housing provides safe shelter and protection from homelessness after divorce, widowhood, job loss or other challenging circumstances. A key development worth noting has been that all government subsidised homes in South Africa are now registered in the names of both spouses. In short, a secure home enables more choices and more individual freedom. Having “a place to call my own” makes it possible for a woman to run her own household, that is, to become the head of the household, providing a degree of security to ride out and rebound from life’s uncertainties, such as temporary unemployment or illness.

Another impspect of home ownership is access to collateral, which enables women to access financial services and accelerate their earning potential. A savings account in a woman’s name offers a form of security and independence: a safe place to store and protect earnings. Women make better borrowers because they know that their ability to improve the home in the future depends on the reputation they develop in managing a particular loan. Women are therefore a very important part of the housing solution, and should be understood as such, by policy makers, project implementers, and service providers. In cases where women do not have title deeds for their home, banks are revolutionising the way they lend for home construction. For example, in Kenya – a country with a population of 50 million, but less than 30,000 mortgages – the Kenya Women Microfinance Bank (KWFT) has created a new loan product called “Nyumba Smart” (“smart home”). Using flexible collateral, the loans provide female customers with up to $10,000, repayable over three years, for the construction of all or part of a house.

Despite this progress, over 300 million women live in African countries where cultural norms prevent equal property rights, even when there are formal, equitable property laws ouragingly, innovative technology-based tools are helping to overcome this barrier. For example, the social enterprise, Map Kibera is working on an open-source mapping platform for Nairobi’s largest slum. The objective is to give inhabitants an informal claim to their land, to lobby for services and to act as “evidence” in negotiations with municipal governments, which may otherwise bulldoze settlements with no legal title without warning.

At FSD Africa, we believe housing plays a crucial role in economic development and poverty reduction, not least for women. That is why we have partnered with the “http://housingfinanceafrica.org/”>Centre for Affordable Housing Finance in Africa (CAHF) to promote investment in affordable housing and housing finance across Africa; we have also invested in Sofala Capital, which includes Zambian Home Loans Limited and iBuild Home Loans Pty Limited as part of its group of companies.  By strengthening Sofala’s balance sheet, we are enabling these companies to achieve scale with their innovative housing finance product offerin

What’s next for green bonds in Africa

Posted on by TIMOTHYRADIER

The Green Bonds Listing Rules and Guidelines for Kenya were issued last week. These make it clear to issuers of Green Bonds in Kenya what the regulators expect of them by way of disclosure. Regulatory certainty is the bedrock of well-functioning financial markets and so the launch is an important milestone in the development of this fast-growing market.

The Kenya Green Bond Programme, co-funded by FSD Africa, has already identified KSh90bn of investment opportunity in Green Bonds in the manufacturing, transport and agriculture sectors in Kenya, a small but significant contribution to a global market that is already worth almost $400bn.  The Kenyan government itself is planning to issue its first Green Sovereign Bond, perhaps in the next six months.

The Patron of the Kenya Green Bond Programme, Central Bank Governor Patrick Njoroge, a passionate environmentalist, spoke eloquently at the launch about the societal value of investing through Green Bonds.

The elephant in the room was the interest rate cap in nya. While caps remain in place, the pricing for Green Bonds, as for other non-sovereign bonds, will almost certainly be prohibitively expensive compared to long-term bank finance.  We run the risk that the momentum that now exists in Kenya for Green Bonds will stall because of this almost existential problem. The Governor urged us to take a long view – implying the caps will one day be lifted.  We live in hope but it is a pity that priority sectors for Kenya’s economic development, such as affordable housing and manufacturing, cannot at the moment easily benefit from investor interest in this asset class.

Already Nigeria, which issued a Green Sovereign in December 2017, is pulling ahead of Kenya and the Nigerian corporate sector seems to be gripping the Green Bond opportunity more vigorously than Kenya with several issues at an advanced stage, including in the commercial banking sector.  FSD Africa has an active Green Bond programme in Nigeria too.

Another problem is easy access to competitively-t from Development Finance Institutions. On the one hand, DFIs push environmental priorities through ESG frameworks. On the other, they offer credit lines to potential issuers on significantly more attractive terms than bond pricing.  Does that matter – if green projects get funded anyway?  Well, yes it does, if it means we keep not seeing demonstration transactions for Green Bonds. The potential supply of finance for Green Bonds from local pension funds and other institutions is so much greater than what DFIs will ever be able to make available – we should take what opportunities there are to get local institutional capital into this market and DFIs should step back.

A big part of the attraction with Green Bonds is the extra corporate disclosure that is required. Companies are required to lay out their environmental strategy for the Green Bond they want to issue and what systems they will put in place to make sure the bonds proceeds are allocated for the stated environmental purpose.  This createunity for a different kind of conversation between investors and issuers, forging a connection that is values-based as well as purely economic.

In the same way, according to Suzanne Buchta of Bank of America, a big issuer of Green Bonds, Green Bonds create opportunities for new kinds of “corporate conversation” within companies – how green is this initiative, how green are we as a company?  Buchta suggests that the ESG disclosures from Green Bonds lead to such positive outcomes that they could become the norm for all bonds.

Interestingly, the Economist this week is also calling for companies to be obliged to assess and disclose their climate vulnerabilities by making mandatory the https://www.fsb.org/2017/06/recommendations-of-the-task-force-on-climate-related-financial-disclosures-2/ voluntary guidelines issued in 2017  by the private sector Task Force on Climate-related Financial Disclosures set up by the Financial Stability Board.

This trend towards transparency is good for market-building.  It’s good for investors, companies and for employees of those companies.  And Green Bonds are playing an important catalytic role in this.

Where are the flows? exploring barriers to remittances in sub-Saharan Africa

Remittance flows represent an increasingly important source of income for sub-Saharan Africa (SSA). Between 2012 and 2015, formal flows steadily grew at a higher growth rate than foreign direct investment (FDI) and official development assistance (ODA). As a result, the value of formal remittances sent into SSA today almost matches those of FDI and ODA. Formal flows between countries in SSA are greater than ever. However, since 2016, the value of formal remittances sent into the region is no longer growing. Much of which is migrating to informal channels as SSA still has the most expensive corridors in the world, both in terms of sending funds from outside as well as within the region.

Remittances act as key sources of financial support for households: they reduce the likelihood of impoverishment, contribute to improved health and education, and provide greater resilience to financial shocks. To maximise formal remittance impact in the region, the true cost of sending and receiving the funds needs to drop to incentivise higher formal flows. This does not only include a decline in the remittances prices but also improved access for senders and recipients at the first and last mile.

To offer a more detailed analysis of the barriers to formal remittances in SSA, a new report from Cenfri and FSDA outlines the complexities of achieving sustainable cost reductions and increased access for remittance senders and recipients.

Vol. 1 of a seven-part series marks the start by identifying the most prominent corridors within and into SSA in terms of volume, cost and importance for the economy. It also investigates the relationship between remittance flows and migration patterns, used as a proxy to identify pain points in specific corridors. This report is aimed at remittance stakeholders, policymakers and anyone who is interested in understanding the remittance market in SSA in more detail.

Vol. 2 investigates barriers based on deep dives in four different countries in SSA providing the overarching barriers to understand a highly complex value chain. Vol. 3 – 6 provides case studies of the four countries against the backdrop of their unique country context. Vol. 7 concludes with recommendations on necessary policy actions and multi-country approaches for remittance players.

Vol. 3 explores the state of the remittance sector in Uganda and unpacks the key challenges and best practices within the industry.

Vol. 4 explores the state of the remittance sector in Ethiopia.

Vol. 5 explores the state of the remittance sector in Côte d’Ivoire.

Vol. 6 explores the state of the remittance sector in Nigeria.

Vol. 7 aims to provide stakeholders that are active in remittance sectors with recommendations on how to systematically overcome the supply-side barriers to formal remittances in SSA.

Moving money and mindsets: increasing digital remittances across Africa

In 2015, the UK government committed to the UN’s Sustainable Development Goal (SDG 10.7c), which states that the global average cost of remittances should be no more than 3% of the send amount by 2030, with no single corridor being more than 5%.

With its goal to reduce costs and scale formal flows, the UK Department for International Development (DFID) and its Africa-based partner, FSD Africa, are interested in exploring whether there are ways of accelerating the migration of remittance senders from cash to digital channels.

FSD Africa and DMA Global’s research across 7 African diaspora communities in London aims to understand the reasons behind the existing preference for cash-based remittances in the UK-based Africa diaspora community and the main motivators that could – and are – being used for a switch to digital services.

Moving Money and Mindsets finds that the use of online remittance services has surged in recent years, with roughly half of the FGD participants now using formse participants, for the most part, report having switched to using online services within the last one to two years.

The FGDs suggest that the ‘stickiness of cash’ with respect to sending remittances, varies significantly between diaspora communities. Cash was found to be most ‘sticky’ amongst diaspora from DRC, Zimbabwe and Sierra Leone. These are also the ‘receive-countries’ with the least-developed domestic payment systems. A developed domestic payment system is essential for the growth of international digital remittance services. Conversely, the use of online services was most common (and cash least ‘sticky’) among the Tanzanian, Ghanaian and Kenyan participants. These are also the receive-countries with the more developed domes

Biometrics in digital financial services: an overview

This paper presents the results of a focussed, independent analysis of biometric technologies, and considers their application and acceptance for retail payments and conventional financial services for people in emerging economies. In particular, we consider the application of biometrics technologies for population-scale deployments in the retail financial services sector.

Funding the frontier: the link between inclusive insurance market, growth and poverty reduction in Africa

Over the last decade, insurance markets in sub-Saharan Africa (SSA) have grown from 4.5 million risks covered to more than 60 million risks covered today. However, according to this report, insurance penetration in SSA remains amongst the lowest in the world with life penetration at 0.3% and non-life at 0.5%, limiting its intermediation potential and contribution to inclusive economic growth and poverty reduction.

The report takes stock of the state of insurance markets across a sample of 15 countries in the region (Mauritius, South Africa, Botswana, Ghana, Kenya, Zimbabwe, Nigeria, Zambia, Senegal, Tanzania, Uganda, Rwanda, Mozambique, Angola, Ethiopia). It finds, although there is no universal development path of insurance sectors in SSA, they seem to be progressing, at varying speeds, through four different stages of market development: the establishment and corporate asset stage, the early growth and compulsory insurance stage, the retail expansion stage and the diversified retail stage.

The report highlights that, most countries in the sample are locked into the early growth and compulsory insurance stage of insurance market development due to a number of exogenous and endogenous factors, which serve as barriers to the role of insurance in growth. Exogenous factors include barriers such as low income levels, informalisation of the economy and limited financial sector development, while endogenous barriers include small markets, a shortage of skills and data, and limited distribution infrastructure.

Commenting on the report, Doubell Chamberlain, the Managing Director of Cenfri says:

Insurance contributes to growth and poverty reduction in many ways. Over the last decade, the focus in development circles has been on how insurance, or microinsurance, can support resilience, and encourage productive risk taking behavior, amongst low-income individuals.

There has been less of a focus on how insurance markets can support livelihoods of low-income adults through mobilising and intermediating capital for growth. We hope that this report stimulates a new discussion on the role of insurance in supporting economic growth in SSA and invite those interested to follow up with us or FSD Africa.”

Credit on the cusp report

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 markets thaard mobility for Africa’s cuspers.

Risk, remittances and integrity programme

The five-year RRI programme is a partnership between FSD Africa and Cenfri. Its aim is to improve welfare and boost investment growth in sub-Saharan Africa. To achieve this, it works to strengthen the integrity and risk management role of the financial sector and to facilitate remittance flows within and into the continent

Savings groups national stakeholder meeting

FSD Africa and the SEEP Network convened a stakeholder meeting in Benin in February 2017 to explore the role of savings groups in contributing to broader development goals and activities in the country.