Country: Nigeria

CAHF 2019 housing finance in Africa yearbook (10th edition)

Our partner, the Centre for Affordable Housing Finance has launched the 10th Edition of its Housing in Finance Yearbook, which now contains 55 country and five regional profiles.

Targeting housing finance practitioners, investors, developers, researchers and government officials, the 2019 Yearbook provides an up-to-date review of practice and developments in housing finance and delivery in Africa, reflecting the dynamic change and growth evident in the market of each country over the past year.

The intention of this publication is to build a community of practice of housing finance experts in-country. Throughout its ten-year span, the Yearbook has retained a focus on the lower end of the market. What makes this publication unique is its overt emphasis on affordable housing. The profiles focus on the critical need for housing and housing finance solutions that are explicitly targeted at the income profiles of the majority of the population, for whom most commercially-developed residential property is out of reach.

Download the yearbook here.

How personal relationships can bank the unbanked in Africa

Posted on by TIMOTHYRADIER

Opinion article originally published on Business Day Nigeria.

Over the past decade, financial institutions have altered their view of unbanked rural populations from an impossible challenge to a fragment of society with real untapped potential.

But how do you deliver banking services to hard-to-reach communities? People who live where there is little infrastructure yet still need to buy goods, pay school fees and save for emergencies?

Recent technological developments have shown that banks can offer financial services without growing their branch network or installing more ATMs.

Financial institutions are now working with agents – local entrepreneurs who have established a business – for example a retail outlet, to provide basic banking services in the customer’s own neighbourhood.

This dynamic is known as agency banking. It enables banks to increase their reach with greater cost efficiency and it isn’t just the banks that benefit: jobs are created, local businesses grow and money flows through communities.

EquiCongo uses agency banking to reach customers in far-flung corners of the country who would otherwise be excluded from the banking ecosystem.

Reaching women

In Nigeria, Diamond Bank – recently acquired by Access Bank – developed an agent network with a focus on serving women. With 70% of women unable to access bank accounts or other basic financial services, Diamond Bank designed innovative savings schemes and rural credit that delivered financial services to women in their own communities.

The results have been impressive with 600,000 new accounts opened. This goes to show that women value the convenience and reassurance of agents who they trust, as they know them personally. This secret lies both in the power of personal relationships and word-of-mouth.

The power of digital

Digital technologies, such as the mobile phone, are central to successful agency banking models. According to the GSMA, a global organisation representing the interests of mobile operators, there has been an increase in both the number of active agents and the values they transact. In 2012, agents processed US$4.2bn in transactions. By 2017 this figure had jumped to US$17.2bn. Over the same period, the number of agents also increased significantly from 538,000 to nearly 2.9 million globally.

However, technology alone is not a quick fix. Across our work at FSD Africa – a UK-Aid funded organisation working to transform Africa’s financial markets – we see time and again that human relationships are key to unlocking financial services for unbanked populations. From a customer’s perspective, financial services become tangible and legitimate when delivered through trusted and well-known agents in their respective communities.

Roving agents 

Recognising the importance of human relationships, banks are also turning to roving agents. These agents, with their door-to-door customer service, have reinforced the relationship between the bank and its customers, resul more customer-centric design and provision of financial services.

Nigeria’s Diamond Bank has roving agents dubbed ‘Beta Friends’, who directly market and sell savings and loan products to unbanked market traders, growing the bank’s customer base. Beta Friends visit market traders at their places of trade and help them open bank accounts and make transactions. They also assess loan applications, make recommendations to the bank’s credit officers and collect repayments.

Roving agents allow customers to save time and costs associated with having to visit a branch or an ATM. Women, caregivers and others unable to travel to bank branches also benefit from this model.

More than banking

FSD Africa has supported banks in Nigeria, Ghana and the Democratic Republic of Congo to establish successful agency banking models, bringing services to over two million unserved and underserved customers.

To scale up the model, international development organisations should pitch in to providand technical support. Equally, financial and insurance institutions should invest in agency research and training.

Over the coming years, agency banking will play an important role in financial inclusion, which is critical to the long-term reduction of poverty and economic growth in Africa. It’s now down to the commitment of all stakeholders to enable access to the financial products necessary to support and grow this band of game-changing innovators

Central bank digital currency: friend or foe of mobile money in sub-Saharan Africa?

Posted on by TIMOTHYRADIER

Many claim that Central Bank Digital Currency (CBDC), formally known as Digital Fiat Currency, can have many benefits for financial inclusion and has the potential to impact mobile money. But can CBDC overcome the challenges that current mobile money providers and consumers face?

First things first; what is “Central Bank Digital Currency”. Simply put, CBDC is a digital representation of physical cash. As its digital alternative, CBDC is interchangeable with physical cash on a one-to-one basis as valid legal tender, and adopts all three of cash’s key features: a unit of account; a store of value; and a universally accepted means of exchange between transacting parties. The distinction between CBDC and private cryptocurrencies are summarised below.

Figure 1. Digital Fiat Currency compared to Private Cryptocurrencies

Source: Cenfri, 2018

So, what’s the relevance of CBDC to financial inclusion?

CBDC has the potential to digitise the entire payments value chain, from the first to the last mile in a more cost-effective and efficient way. Cenfri’s 2018 report “The benefits and potential risks of digital fiat currencies” finds that CBDC, unlike cryptocurrencies, can promote adoption through network effects because of the key features that is shares with cash. CBDC’s speed, efficiency and safety (being backed by the Central Bank) introduces much needed trust in digital payment mechanism, something that is lacking in private cryptocurrencies and mobile money. And trust is critical where money is involved. Trust means that CBDC could eventually be adopted along the entire value chain (like cash) and hence could promote financial inclusion at all levels of society.

But what about mobile money specifically?

Mobile money may be a leader in “banking the unbanked” but the phenomenon still faces obstacles that undermine its uptake and use, as shown in the figure below.

Figure 2. Key supply and demand cost drivers of mobile money in SSA

Source: Cenfri 2019, based on data from various literature sources

The application of retail CBDC to mobile money can foster greaterinteroperability, improve payment efficiency, facilitate cost-saving gains and reduce key payment risks typically associated with mobile money. CBDC can also enable trust in mobile financial services due to its safety and the way in which its speed eases liquidity constraints of mobile-money agents. CBDC also eliminates the need for unnecessary third-party intermediaries and so streamlines payment clearance at the same time as enabling true interoperability.

How about the downsides of CBDC?

If CBDC is not implemented appropriately it could exacerbate contextual inequalities along the lines of digital, financial and economic disparities between population segments and also intensify the complexity of mobile money. For example, if not everyone has a mobile phone then only those that do can access CBDC; and if only certain areas have network coverage then only those in those areas can access CBDC; and so on. CBDC could threaten the intermediation role of traditional deposit-taking. CBDC could also exacerbate poor uptake of mobile money (e.g. due to illiteracy) simply because of CBDC’s (perceived) complexity. If everywhere you can only pay in CBDC then it may make the gap between illiterate and literate users even wider. The more vulnerable segments of the population, as primary unstructured supplementary service data (USSD) customers, could also be at greatest risk of identity fraud.

So what can be done to avoid these risks?

CBDC can bring maximum benefits to mobile money and financial inclusion if it meets certain pre-conditions. The basic principles to avoid these risks lie with governments and the enabling financial environment they create in their respective countries. Governments need to ensure appropriate and effective legislation and anti-money laundering and combatting the financing of terrorism regulation, as well as the implementation of robust consumer protection laws and national cyber-security defences. We know that that some developing economies lack these key laws – or lack the ability to uphold the legislation, even if it does exist. Through our Risk, Remittances and Integrity Programme, FSD Africa is partnering with Cenfri to combat these challenges by helping countries implement appropriate regulation that enables low-cost, efficient, domestic and cross-border payments to enable inclusive financial systems to operate at scale, and positively impact broader economic development.

It’s clear mobile money presents a significant use case for CBDC in the drive towards financial inclusion, but not without risks. If governments, supported by development partners, address these concerns, the impact of CBDC on mobile money could not only be positive, but could also contribute to significantly greater financial inclusion and better economic integration altogether.

You can delve deeper into the role of CBDC in delivering financial services to the unbanked and CBDC’s applicability to mobile money by downloading Cenfri’s latest report “Central Bank Digital Currency and its use cases for financial inclusion; a case for mobile money”. 

How green bonds can fund development

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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.

Insurance for inclusive and sustainable growth – imperatives for action

Insurance has a strong role in combatting poverty and advancing development, in at least three ways:

Improving individual and household resilience
Insurance makes households more resilient in the face of financial shocks. Insurance also enables households to access services such as credit, health and education that may otherwise not be attainable to them.

Improving business resilience & productivity
Effective risk transfer is a fundamental part of corporate sustainability.
It also facilitates exports and imports, enables foreign investment and helps to ensure access – at better terms – to business financing.

Developing the demand and supply of capital
Insurance mobilizes capital through premium collection, its role in enabling business development and its linkages with the pensions market.It also pools capital into larger pots of funds that are more efficient to manage and invest.

Recognising the role that insurance can play in supporting sustainable development and growth, the UK’s DFID partnered with the World Bank, FSD Africa and Cenfri to conduct a series of diagnostics that explore how these three roles manifest in four countries in SSA: Ghana, Kenya, Nigeria and Rwanda.

This paper synthesises cross-cutting themes from the study countries and beyond and draws conclusions and recommendations on how to further develop insurance markets.

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.