Country: Sub-Saharan Africa

Nature and financial institutions in Africa: A first assessment of opportunities and risks

The fast pace at which nature is degrading and the severe consequence of environmental tipping points make ambitious global consumer and policy action to address the nature crisis more likely. In the scenario of ambitious policy action, nature-related impacts are material, especially for the agriculture and extractives sectors and thus require immediate attention.

In this collaborative report with Vivid Economics by McKinsey, we underline the importance for financial institutions to unlock the potential benefits of investing in businesses that protect and grow nature.

Applying a first-of-its-kind analysis to three private banks and the financial systems of Zambia, Egypt, Ghana, Mauritius, Kenya, and South Africa, the report shows that for the most exposed lending portfolios, nature-related risks in agriculture and extractives could almost double expected losses by 2030.

Given the materiality of nature-related risks that the report demonstrates, African financial institutions are encouraged to engage with global standards for managing and disclosing nature-related financial risks, such as the Taskforce on Nature-related Financial Disclosures (TNFD).

The state of climate finance in Africa: Climate finance needs of African countries

Determining climate finance needs in developing economies is critical to identify financing gaps and opportunities to guide stakeholders to effectively access, allocate and mobilize climate finance. Such data supports international policy processes, like the determination and implementation of a new collective and quantified goal on climate finance and accelerates action. The process of estimating needs also helps in assessing the effectiveness of climate finance flows.

51 out of 53 African countries that submitted Nationally determined contributions have provided data on the costs of implementing their NDCs. Collectively, they represent more than 93% of Africa’s GDP. Based on this data, it will cost around USD 2.8 trillion between 2020 and 2030 to implement Africa’s NDCs.

African governments have committed USD 264 billion of domestic public resources, about 10% of the total cost. USD 2.5 trillion must come from international public sources and the domestic and international private sectors. This externalinancial support, required beyond domestic public sources, is defined as “climate finance need”. While almost all African regions have expressed high needs (Figure 1), these could be underestimated due to a lack of capacity and guidance to make accurate assessments and a lack of data from subnational governments and vulnerable communities. Countries may not be able to provide as much domestic public finance as initially estimated given high debt levels amid unanticipated budgetary pressures — for example, from the COVID 19 c

Savings groups and women’s financial inclusion

Women with access to a range of appropriate financial
services are more likely to develop sustainable livelihoods,
invest more in health and education, and interact with
and benefit from markets.
In sub-Saharan Africa, however, less than 30 percent of women have an account with a financial institution; and women’s financial exclusion is more severe among the rural poor, young women and other marginalized population

Seeking sustainable change in Africa’s financial systems

Launched on 4 June 2015 alongside the World Economic Forum in Cape Town, this report is the result of a research by FSD Africa in conjunction with the Accenture Development Partnerships (ADP).

Despite strong evidence of the potential for large market revenue from low income banking consumers in SSA, most financial sector players are not prioritising this under-served segment. This originates from their strategic positioning as well as internal capacity constraints.

This paper starts by recognising the need for change and capacity building for financial services players to successfully develop new models that would enable them to profitably exploit the revenue potential in under-served segments. It identifies a set of success criteria for organisations seeking to trigger and sustain change necessary to drive business models that would effectively and profitably serve low consumer segments.

Professional services providers also play a critical role in supporting financial institutions with successfully managing the change process. The paper identifies how services providers can be successfully leveraged to support the change process within financial institutions.

Development sector organisations have played a big role in the past supporting the increase in depth and breadth of financial access in SSA, albeit not in a sustainable, market-building manner. The paper identifies how development sector organisations can work more effectively with the financial sectors and professional services providers on inclusive financial sector development and building sustainable financial markets.

A key insight from the paper is that: by working together, the three sectors (financial institutions, services providers and development organisations) can leverage each others’ strengths to de-risk the process of inclusive financial sector development. Specifically:

  • Experienced service providers and development organisations can provide change management support to reduce the risk of financial institutions moving into new, underserved markets.
  • Development organisations can provide support to reduce the selling and engagement risks of professional services providers involved with financial inclusion targeted financial institutions.
  • Experienced services providers can provide guidance to mitigate the risks inherent to development organisation support of financial institution change management processes.

The impact of executive education in sub-Saharan Africa

In the last ten years sub-Saharan Africa (SSA) has experienced significant growth in the banking sector including its emergence as a mobile banking leader, openness to foreign, global and Pan-African banks and active use of microfinance mechanisms. However, the region’s financial sector is still considered ‘underdeveloped’ with major challenges of unmet financial and banking needs that executive education (ExEd) training can help to address.

This is according to the ‘The Impact of Executive Education in sub -Saharan Africa’ research commissioned by Financial Sector Deepening Africa (FSD Africa), and conducted by the Canadian Bureau for International Education (CBIE) in collaboration with its member institution, the University of New Brunswick (UNB). The research focused on Cameroon, Ghana, South Africa, Ghana, Uganda, Senegal, Nigeria, Namibia, Zambia, Kenya and Tanzania. It aimed to develop an understanding of how middle and senior level managers learn most effectively in ExEd courses and how their learning benefits organisations.

According to the research, ExEd positively impacts financial services firms in the aggregate, chiefly through the application of employee skills and knowledge learned in ExEd programmes. It highlights that the market for ExEd is growing and in demand from financial services firms. Additionally, it states that ExEd can be improved in SSA via partnerships with international business schools and a larger focus on practical learning activities as opposed to theoretical ones.

The research finds that ExEd needs to more practical and less theoretical, employees are somewhat dissatisfied with their pay after completing ExEd training, ExEd graduates perceive themselves to be mobile and managers values the skills which ExEd graduates possess. Moreover, it finds that ExEd graduates help make their organisations more prestigious, ExEd improves customer service and relations, ExEd is primarily being provided by universities and ExEd graduates are in demand in SSA financial institutions.

In order to address the needs of the sector, the research concludes that changes are required in the delivery, scope and content of ExEd. It further recommends that there is need to undertake additional research to study the impact of ExEd on the financial services sector over the long term as well as address the question whether ExEd leads to increased access to financial services by the underserved segments.

Climate finance innovation for Africa

The African continent presents a massive investment opportunity for investors to advance climate solutions in the coming decade, however, a set of barriers to finance have stifled requisite investment to date. In this new report, in collaboration with Climate Finance Innovation for Africa and Climate Policy Initiative, we provide a framework for how innovation in financing structures can leverage strategic deployment of public capital to ‘crowd-in’ private investment at levels not yet seen.

This paper focuses primarily on climate mitigation, which represents the largest investment opportunity for private investors. We refer audiences focused specifically on adaptation to the work done by the Global Center on Adaptation and Climate Policy Initiative on Financial Innovation for Climate Adaptation in Africa.

Private debt markets in Africa

We engaged Lion’s Head Global Partners to conduct a study on Private Debt markets in Africa. While keeping a pan-African perspective, the study focussed on Nigeria, Kenya, Ghana, and Morocco as markets of strategic importance. South Africa was used as a reference market, given the development of the financial sector and the size and scale of the South African institutional investor base.

In addition to desk research and data analysis, the outputs, analysis, and recommendations were driven by stakeholder consultations, workshops, and interviews to both reflect individual positions, but also generate buy-in from stakeholders.

The insights from the study will support FSD Africa’s overarching strategic goal to mobilise long-term finance in local currency to support Africa’s development priorities and inform our transaction support, regulatory initiatives and knowledge and capacity-building engagements under its Africa Private Equity and Private Debt programme. The study will also benefit stakeholders including institutional investors, borrowers, regulators and policymakers, who seek to improve the enabling environment.

Building capacity for a more inclusive digital economy

Posted on by Kihingu Inc

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

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

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

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

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

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

FSD Africa and Rabobank ACORN/Rabo Foundation to fund sustainable farming for African small-scale farmers with loans for carbon credits

Posted on by Kihingu Inc

FSD Africa will support Acorn projects in the initial scale phase that aims to benefit around 3,000-5,000 small-scale farmers whilst Acorn has the ambition to reach 1 million farmers all over the globe following the scale-up.

Nairobi – 27 July 2022: FSD Africa and Rabobank ACORN / Rabo Foundation today launched their collaboration in helping small-scale farmers with their transition to Agroforestry, a sustainable and climate resilient farming practice.

Acorn – Agroforestry Carbon removal units for the Organic Restoration of Nature – is a program being developed by Rabobank to unlock the international carbon market for smallholder farmers in the developing world. It aims to help farmers transition to agroforestry at scale and monetize the carbon stored in the trees planted through Acorn’s global transparent and technology-enabled marketplace for carbon sequestration. The collaboration will focus on kick-starting new small-scale farmers’ agroforestry projects in Kenya, Nigeria and Zambia.

FSD Africa together with Rabo Foundation will provide finance to the small-scale farmers to help them transition to sustainable agroforestry. The local implementation partners will collect the farmer data and onboard the farmers onto the Acorn platform. They will then be able to sell carbon removal units (CRU) to corporate off-takers through Acorn’s technology-enabled marketplace. The proceeds of the CRUs will be used to pay back the loan. For FSD Africa as the financier, testing this innovative finance structure will be an important outcome of this first scale phase.

We are proud to acknowledge that this program will contribute to 8 out of 17 UN SDGs, including those related to poverty reduction, food security, reduction of pollution, economic productivity, resilience, sustainability of forests and capital mobilization.
Mark Napier, CEO – FSD Africa