Country: Sudan

FSD Africa Investments provides capital to a ground breaking COVID-19 recovery fund

Financed by the investment arm of UK aid-funded FSD Africa and international partners CDC (the UK’s development finance institution), DFC (the US government’s development finance institution) and JICA (Japan International Co-operation Agency), the BlueOrchard COVID-19 Emerging and Frontier Markets MSME Support Fund is the first facility of its kind to provide support to financial institutions across emerging markets. The fund is expected to finance 20 institutions, serve 3 million micro-entrepreneurs and maintain 60 million jobs for every USD 100 million invested in emerging markets.

Government support for smaller financial institutions has largely been absent in emerging and frontier markets, and this has meant that entrepreneurs have often been overlooked in economic recovery programmes.

This pioneering fund will help to ensure that micro, small and medium sized enterprises (MSMEs), the backbone of economic growth and employment in developing countries, are not left behind.ockquote>
Although many financial institutions have weathered the current crisis well, there are others in need of help to keep financing MSMEs. The fund will be equipped with a dedicated Technical Assistance Facility, to ensure that the liquidity provided allows MSMEs to fast track their recovery – even in the most vulnerable sectors and geographies.

The first close of the fund marks an unprecedented moment in which investors have come together to support the MSME sector in light of COVID-19, underlining the power of bringing together like-minded public and private capital to tackle the unique challenges of the pandemic. FSD Africa’s contribution, through a high-risk capital layer, was critical not only in securing investors’ commitment to the fund but also in ensuring that Africa would receive a fair share of investment by the fund.

FSD Africa’s CEO, Mark Napier, said:

“As 2020 comes to an end, it is clear that the economic damage wrought by COVID-19 will be with us for some yee. So, we are pleased to have been able to play an important part in bringing this fund to a first close and helping to create a sustainable financing vehicle that will provide liquidity to smaller financial institutions which are mostly not able to benefit from governmental support. We are committed to ensuring an inclusive recovery from COVID-19 in Africa.

“The UK government has stated that its development budget should be used to the fullest extent possible in mitigating the worst effects of COVID-19. This new fund should be seen as an important demonstration of the UK’s, and FSD Africa’s, commitment to go the extra mile in using its funds to make a vital difference to businesses which are providing key support to these economies.”

FSD Africa Investment’s Chief Investment Officer, Anne-Marie Chidzero, said:

“As FSD Africa works to deliver a financially inclusive recovery from COVID-19 across the continent, we find a lot of merit in partnering with BlueOrchard to establish this one in a number of starting points in our efforts to use inclusive finance as a means of impacting the COVID-19 recovery program.

“FSD Africa’s commitment will allow for BlueOrchard to underwrite liquidity financing to financial institutions on the African continent. By providing necessary support to MSMEs, we are, in turn, fuelling the engine for Africa’s post-COVID-19 recovery.”

Philipp Mueller, Chief Executive Officer, BlueOrchard Finance Ltd, said:

“The BlueOrchard’s Covid-19 Emerging and Frontier Markets MSME Support Fund is a key facility that will help mitigating some of the challenges of the pandemic. We thank the FSD Africa team for supporting our efforts to provide vital financing to micro, small and medium-sized enterprises in Africa. We are proud that we have successfully brought together a renowned group of public and private actors to pave the way for recovery and preserve vital jobs across sector

FSD Africa Investments commits $4.5 million to a new fund supporting MSMEs through pandemic recovery

The investment will strengthen debt facilities by Lendable Inc. while offering increased security to micro, small and medium enterprises recovering from the pandemic

NAIROBI, December 15, 2020 – FSD Africa Investments (FSDAi), the investment arm of FSD Africa, has today announced a $4.5million commitment to Funds set up by Lendable Inc. (Lendable). This will boost the capacity of alternative financial service providers in sub-Saharan Africa to provide credit to micro, small and medium enterprises (MSMEs) recovering from the effects of the pandemic.

Lendable is a fintech startup which provides structured finance to alterative lenders in frontier and emerging markets. By providing funds to support the lending capacity of alterative financial service providers, these providers will, in turn, provide much needed capital to MSMEs. This is at a time when MSMEs need help in fuelling their recovery from the effects of the pandemic – and when credit from other sources may be difficult tise.

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Africa’s insurance fails to deliver on COVID-19

This article was originally published in the Africa Report on 23 November 2020

The COVID-19 pandemic has shone a light on the need for the African insurance sector to demonstrate its critical role in supporting people and businesses. The pandemic has been the most severe risk event in Africa in years, but many insurers have not delivered on their promise.

If the sector is to improve the narrative and rebuild trust, bold changes need to be made.

Over the past few months, we at FSD Africa have had discussions with over 80 insurers, reinsurers, regulatory authorities, associations and technical service providers across 27 countries in Africa to assess how the sector has been impacted by and is responding to the COVID-19 crisis. The broad consensus is that insurers have not fulfilled the role that the sector ought to play in responding to large systemic risk events.

Many businesses and households paid their premiums thinking they were covered for big risk events like the pandemic, but are now being forced to take general insurers to court to seek redress. In March, the Insurance Regulatory Authority in Kenya announced that all health-related COVID-19 claims would be honoured by insurers. Despite the initial agreement, as COVID-19 related health claims started trickling in, the industry began to backtrack on its commitmentJuly.

Some insurers are now turning away insured individuals who have medical bills worth thousands of shillings, saying that COVID-19 is a pandemic which is not covered by existing health policies. This is one of many examples where the insurance industry has struggled to deliver on its promises at time when it is needed most. As a result, trust is being eroded and many policyholders – whether it be businesses or individuals – are quickly becoming disillusioned with the sector.

However, there are some examples that do tell a more optimistic story. Companies like Prudential Life, which operates across eight African markets, added free new COVID-19 life insurance cover to existing and new clients and staff across their markets. Other companies including Hollard Mozambique and Naked Insurance in South Africa provided relief measures such as premium holidays and reductions to help take some of the financial burden off customers.

Rebuilding trust

In Africa, insurance is already anstry that individuals and businesses are wary of. Many often question its value: why pay money towards something that may not actually happen? Many are willing to take the gamble instead. Unfortunately, COVID-19 has, for the most part, exacerbated this perception, leaving the insurance industry at an all-time low.

With this low comes an opportunity for the insurance sector to step up and rebuild trust while adapting to new ways of doing business. Regulators have a key role to play. In instances where market consolidation is inevitable, regulators must act proactively to unwind weak insurers in an orderly fashion, ensuring that clients remain protected and their claims are honoured. If this transition is well-managed, there is potential to better facilitate market development and investment in products.

The insurance sector should prioritise innovation. The pandemic has highlighted the limited reach of insurance on the continent and the lack of products designed well enough to offer consums value and effectively address their risks and realities. Regulators should engage and support innovators as a key part of the recovery.

Meanwhile, insurers should encourage internal innovation and external collaboration with fintech to rethink and reimagine their approach to reaching new customers.

Now is the time for the insurance sector to reflect on how it can build trust in the sector by responding to customer realities and needs, and by meeting customers halfway. With largescale, systemic and society-wide risks like climate change continuing to gain prominence in the public conversation, insurers should use this time to enhance and accelerate efficiency.

The sector must consider resilience holistically and go beyond offering insurance products. Insurance alone will never be a sufficient mechanism to deal with major risks like pandemics or climate risks. We need to think about risk layering and public pools, consider options for risk prevention, management and mitigation by both pubic and private players. This applies at the macro and micro level. Micro and small businesses have been among the worst affected by the pandemic. They need tangible solutions that help them to understand, prevent and manage their risk – not just basic insurance policies that give poor cover for specific risks.

These are just recommendations. The choice to move forward is up to insurance companies. Do they continue with the old way of doing business or do they reinvent themselves to become more relevant to customer and business needs? What is clear is that insurers must adapt their business for the inevitable large-scale risks to come.

CAHF’s African housing investment landscapes report series

The rising urban middle class, increasingly localised construction materials industry and innovations in housing finance, including the emergence of Real Estate Investment Trusts and mortgage liquidity facilities, are seeing increasing interest in investment in housing across Africa.

However the lack of credible, updated data on breadth and nature of funding flows for infrastructure continues to create barriers for increased investment. This is particularly true for the housing sector as stimulating targeted investments requires highly differentiated data that unpacks market segmentation for varying household income levels.

By providing clear market intelligence that quantifies, tracks and analyses investment in underserved housing markets, we can support a better policy environment & increased private sector activity in affordable housing. Improved data can thus catalyse scale interventions.

In the current environment, there is little information on housing investment activities and trends in Africa. Specific information gaps include:

  • Market overview data on who is investing in housing delivery, where, and at what level.
  • Market performance data segmented by target market, housing type or investment intervention and geography, in order to understand which are the top performing investment instruments, and why.
  • Competitive market horizon, including historical data on the mortgage, home equity, personal loan, consumer loan, microfinance and housing microfinance sectors—to enable credible modelling of investment horizons.

The Housing Investment Landscapes report series forms part of the Centre for Affordable Housing Finance’s Investor Programme which aims at plugging in some of the above-mentioned gaps, with the intention of identifying and championing increased investment in affordable housing across the African continent.

The overall goal of this project is to quantify the breadth of investment activity with respect to housing and housing finance across Africa and to establish a mechanism to track this on an ongoing basis. This project has collected data and highlights gaps and opportunities in the investment landscape in 26 countries to date, across all five sub-regions in Africa. The country and regional reports profile investors and investment instruments with the greatest impact on the housing finance market within Africa.

Access the reports here.

Regional economic hubs in sub-Saharan Africa

Recent years have seen large scale de-risking and financial exclusion happening in developing countries, particularly those countries that most need capital flows to finance social services, aid and development.

Where regional economic hubs are de-risked, it has a profound effect on the developmental outcomes for the hub itself as well as the spoke countries it is integrated with.

To stem the risk of illicit financial flows (IFFs), the threat of being de-risked and the corresponding knock-on effect on capital flows, it is important to ensure that there are adequate regulatory frameworks in place to promote a robust level of financial integrity in a way that does not undermine inclusion.

This two-note series explores the effect of de-risking and illicit financial flows on capital markets and the role of regional economic hubs to address financial integrity issues.

The previous note highlights the relationship between de-risking, illicit financial flows and capital flows in the context of regional economic hubs.

In this second note, Identifying regional economic hubs in Africa, dives into the concept of a regional economic hub, exploring the methodologies for determining which countries are hubs within their respective regions.

Despite the importance of hub economies, very little has been published on the identification and analysis of hub systems in sub-Saharan Africa. Regional economic hubs can be defined as countries that play a significant role in the economy of the broader region and have been found to help facilitate the movement of capital. They tend to have the most developed financial markets in the region as well as more favourable or developed regulatory environments. Hence, they act as gateways for capital to flow into the countries they are integrated with (i.e. their spoke countries). This interconnection between regional economic hubs and spokes can help create stable financial flows for countries in a region and contribute to the development of their financial systems.

This work forms part of the Risk, Remittances and Integrity programme in partnership Cenfri.

De-risking in Africa: Illicit financial flows and regional economic hubs

Recent years have seen large scale de-risking and financial exclusion happening in developing countries, particularly those countries that most need capital flows to finance social services, aid and development.

Where regional economic hubs are de-risked, it has a profound effect on the developmental outcomes for the hub itself as well as the spoke countries it is integrated with.

To stem the risk of illicit financial flows (IFFs), the threat of being de-risked and the corresponding knock-on effect on capital flows, it is important to ensure that there are adequate regulatory frameworks in place to promote a robust level of financial integrity in a way that does not undermine inclusion.

This two-note series explores the effect of de-risking and illicit financial flows on capital markets and the role of regional economic hubs to address financial integrity issues.

This note highlights the relationship between de-risking, illicit financial flows and capital flows in the context of regional economic hubs.

The next note, Identifying regional economic hubs in Africa, dives into the concept of a regional economic hub, exploring the methodologies for determining which countries are hubs within their respective regions.

Capital flows, or moves between capital-rich and capital-poor countries depending on the opportunities for return on investment, and are important for economic development. These capital flows can consist of official capital flows, which include official development assistance and aid in the form of grants or loans, as well as private capital flows such as bank and trade-related lending, foreign direct investment, portfolio investments and workers’ remittances. Foreign direct investment (FDI), foreign aid and remittances are the major capital inflows in Africa. Such inflows play an important role in regional economic development. Between 2000 and 2017, FDI contributed an average of 3.4% to regional GDP in sub-Saharan Africa, with foreign aid and remittances contributing an average of 3.3% an2.3% respectively. These capital flows support job creation, skills and technology transfer, provide financing for government budgets and contribute to long-term economic growth. Capital flows are affected by the risk or perceived risk of illicit financial flows. Regional economic hubs can act as channels for IFFs, thereby in effect regionalising IFFs.

While Note 1 relies on the methodologies explored and utilised, Note 2, provides more details and specifics on the concept of economic hubs.

This work forms part of the Risk, Remittances and Integrity programme in partnership Cenfri.

Viability of gender bonds in sub-Saharan Africa

A landscape analysis and feasibility assessment

Gender bonds are broadly defined as bonds that support the advancement, empowerment and equality of women, though no official definition exists. Like other themed bonds, they can be issued as senior unsecured notes referencing the balance sheet of the issuer, but where proceeds are ring-fenced for specific use on eligible ‘gender’ activities, or as securitisations referencing a pool of assets directly.

The state of the market

There are currently no dedicated guidance principles on how to issue a gender bond, nor any specific eligibility criteria for use of proceeds. Most bonds issued with a gender label have so far relied on the ICMA’s Social Bond Principles, the UN’s Sustainable Development Goals or the UN Women’s Empowerment Principles as reference standards.

As of March 2020, 13 gender-labelled bonds have been issued by a variety of entities, ranging from large commercial banks to NGOs, to multilateral development banks. These can be grouped into three categories:

The majority of gender bonds issued so far address financial inclusion of women and female entrepreneurship in emerging markets or access to leadership positions and gender-positive
corporate policies in developed markets. Missing from the market are companies that provide goods and services which disproportionately benefit women or bonds which look at women in the issuer’s supply chain.

Reporting on the impact of gender bonds also needs further attention. For financial inclusion bonds, few bonds go beyond the ‘loans disbursed’ metric to look at the impact they have on women’s lives. Similarly, for corporate behaviour bonds, it is not always clear whether the companies being lent to are required to improve on their current performance, and if so, how and at what rate.

By making it easy for both investors and issuers to understand what a gender bond is, the potential for market growth increases significantly.

While there is some interest in gender lens investing, no gender bond has yet been issued in sub-Saharan Africa. In our assessment, we focused on the countries with the most developed capital markets and most likely chance of success in the short and medium-term: Nigeria, Kenya and South Africa.

We concluded that issuance in a local market will not be straightforward outside of South Africa, due to mismatched expectations and relatively conservative investors:

Africa green bonds toolkit

Climate change is one of the greatest challenges of our time, requiring far more capital than governments alone can provide. Private sources of finance are needed. Tapping into the international capital markets, as well as domestic capital, will be critical.

Green Bonds are one tool that can offer the African capital markets an opportunity to leverage private capital at scale towards building a more climate-resilient, greener economy. Green Bonds have been an effective financial instrument to moving institutional capital to priority economic sectors in the global economy, promoting the development of climate-resilient, low carbon infrastructure that allows for equitable and sustainable development. Globally the green bond market has grown tremendously in recent years, with issuances totalling USD257.7bn in 2019 (CBI, 2020).

In 2020, we partnered with the Climate Bonds Initiative (CBI) to develop a practical guide to issuing green bonds for Africa. This Green Bond Toolkit has been developed to provide the African capital markets with guidance on how to issue green bonds that are in line with international best practices and standards. The Toolkit provides a backdrop to the development of the market and features successful examples of green bond issuances that have emerged out of Africa – such as Acorn Holdings in Kenya and Access Bank in Nigeria.

FSD Africa also supports Green Bond programmes in Nigeria and Kenya, click here to read more.

Islamic finance toolkit

The Islamic finance industry has expanded rapidly over the past decade where its total assets reached over $2.1 trillion in 2018, spreading across dozens of countries and covering primarily Islamic banking, capital markets, and insurance sectors.

Islamic finance has also been integrated within the global financial system as a universal alternative financial proposition appealing to Muslims and Non-Muslims alike. In fact, many international financial hubs including London, Hong Kong, and Luxembourg, have created enabling environments for Islamic finance to thrive in their jurisdictions and issued sovereign Sukuk (Islamic bonds) to further support their Islamic finance infrastructure.

However, despite having great potential in the continent, the Islamic finance industry in Africa remains relatively underdeveloped where its share of the industry’s total assets is around 1% in spite of Africa being home to 27% of the world’s Muslim population. Similarly, Africa accounted for only 2.2% of global Sukuk issuances between 2001 – 2017, showing the underdevelopment of Islamic capital markets in the continent and signifying the untapped potential of Sukuk in the region.

In an attempt to address the aforementioned challenge, we sponsored the development of this Islamic Finance Toolkit by Islamic Finance Advisory & Assurance Services (IFAAS) for the benefit of the African policymakers and regulators to demystify the key founding principles, structures, and products of Islamic finance, shed light on the industry potential in Africa, and how Islamic finance could be used to achieve the key strategic development objectives of African governments.

DMAC Toolkit: Unleashing the power of data to transform your business

With more data being created at a faster rate than ever before, it can be hard for financial service providers (FSPs) to know what to do with the plethora of data available to them. FSPs are capturing large amounts of data on their internal systems and also have access to external data – as a result of improved connectivity and increasing smartphone penetration, as well as through publicly available external data (e.g. national surveys).

However, many FSPs are not making full use of this data as they may not understand its full potential, have information overload, inefficient processes and systems, and think it is expensive to make use of data. The toolkit aims to help FSPs understand the different data sources available to them and how to use them effectively to transform their business.

Although primarily aimed at FSPs, the toolkit may also be of use and interest to those who provide services to FSPs in their respective markets (such as data management and research firms) and other organisations wanting to implement programmes that encourage FSPs to make more and better use of data.

The toolkit draws on the valuable learning gained through the Data Management and Analytics Capabilities (DMAC) programme that uses data-driven evidence to help FSPs in sub-Saharan Africa to design inclusive and affordable financial products and services that respond to the needs of unserved and under-served adults, with a particular focus on women and youth.