2024 World Bank/IMF Annual Meetings
FSD Africa Side Event
Theme: More Bang for the Buck: Enhancing MDB Capital Efficiency through Financial Innovation
- October 24th, 2024, Time: 8:00 – 09:30 am
- New Venture Fund’s O ce,1828 L Street, Suite 300 Washington DC
Overview
Enhancing MDB Capital Efficiency through Financial Innovation
In 2021, G20 members commissioned an independent review to investigate whether Multilateral Development Bank (MDB) shareholder capital is being used efficiently and the possibility of expanding MDB lending capacity without compromising financial integrity. This review was informed by growing calls for MDB capital to play a more instrumental role in addressing emerging global crises. Africa, for example, needs to mobilise significant capital for its development priorities but faces significant financing gaps—US$1.2 trillion is needed to meet Africa’s SDG goals by 2030, while its annual climate financing need is nearly USD 300 billion.
The independent review panel’s report on MDBs’ Capital Adequacy Frameworks, published in July 2022, made five key recommendations: re-evaluating MDB risk limits, recognising the benefits of callable capital, expanding the use of financial innovations, enhancing dialogue with credit rating agencies, and promoting greater transparency regarding MDB credit performance. Following this report, the MDB Challenge Fund requested proposals to implement these recommendations aimed at empowering MDBs to provide more financing to developing and emerging economies. FSD Africa responded to this call for proposals and was awarded funding to develop a project on a Local Currency Solution for MDBs Portfolio Transfer (the Project).
FSD Africa’s proposed project sought to explore the feasibility of a solution to transfer brownfield assets of MDBs for investment by African institutional investors, freeing up MDB capital for more lending and seeking to leverage pools of local currency capital from African institutional investors, currently estimated at USD 2.4 trillion, while developing domestic capital markets. FSD Africa has conducted a feasibility assessment of the solution, carrying out market-sounding conversations with MDBs, institutional investors, fund managers, investment banks and other stakeholders. FSD Africa launched the feasibility report at the 2024 AfDB Annual Meetings in Nairobi, Kenya.
Since then, FSD Africa has progressed market sounding engagements and initiated the structuring of a vehicle to implement the local currency MDB portfolio transfer solution. This paper outlines a concept for an FSD Africa-curated event on the sidelines of the 2024 World Bank/IMF Annual Meetings to further disseminate FSD Africa’s Feasibility Report on the local currency solution for MDB portfolio transfer.
Objectives of the Event
MDB Portfolio Transfer Proposal
To discuss a proposed MDB portfolio transfer vehicle, insights from market engagements and a review of the MDB assets that could potentially be transferred.
Investor Interest and Market Insights
Explore the interest shown by domestic institutional investors in Africa in the portfolio transfer mechanism along with an analysis of regulatory constraints observed.
Regulatory Impacts and Challenges
Explore the potential implications of implementing the proposed asset transfer vehicle.
Key Messages
Unlocking Domestic Capital for Africa's Development
Africa’s development priorities require significant capital. Domestic institutional pools of capital can more meaningfully contribute to financing Africa’s development priorities, supplementing much-constrained public finance and expanding local currency financing.
'Business Unusual' Approach Needed to Mobilise Capital
Mobilising domestic institutional capital pools for Africa’s development priorities will require a concerted ‘business unusual’ approach—new asset classes, new partnerships, and new enablers.
Innovative Solutions for Deepening Capital Markets
Innovative approaches, such as mechanisms to enhance the e ciency of MDB capital while deepening domestic capital markets, can provide new asset classes for domestic institutional investors and help to mobilise additional capital for Africa’s development priorities.
Institutional Partnerships to Attract Global Investors
Institutional partnerships can deepen collaboration amongst African fund managers and pension regulators, influencing the allocation of African institutional capital and enabling collaboration with global institutional investors to unlock more significant flows of capital for the continent.
Domestic Institutional Capital for Africa's Development
Africa’s development priorities require significant capital. Domestic institutional pools of capital can more meaningfully contribute to financing Africa’s development priorities, supplementing much-constrained public finance and expanding local currency financing.
Institutional Partnerships
Institutional partnerships can deepen collaboration among African fund managers and pension regulators, influencing the allocation of African institutional capital and enabling collaboration with global institutional investors to unlock more significant flows of capital for the continent.
Enhancing MDB Capital Efficiency
Innovative approaches, such as mechanisms to enhance the efficiency of MDB capital while deepening domestic capital markets, can provide new asset classes for domestic institutional investors and help mobilize additional capital for Africa’s development priorities.
Session Agenda
- Time
- Topic
- Panelist
08:15 – 08:35 am
Presentation on FSD Africa’s Feasibility Report on the local currency solution for MDB portfolio transfer
08:35 – 09:20 am
Moderated Experts Discussion
Topic: Capital Unbound - Enhancing MDB Capital Efficiency While Deepening Domestic Capital Markets for Africa’s Growth
Key Discussants:
- Mohan Vivekanandan, Group Executive: Origination & Client Coverage, Development Bank of Southern Africa (DBSA)
- Tim Turner, Senior Advisor, TDB
- Manfred Schepers, CEO, ILX Management
- Fred Mburu, CEO, Fund Managers Association (FMA), Kenya
- Kruskaia Sierra, Senior Manager, Syndication, IFC
- Kwabena Boamah, CEO, Stanbic Investment Management Services
Format: Facilitated Q&A with interactive audience engagement.
Moderator:
- Mark Napier, CEO, FSD Africa
Suggested Questions for Discussion
Capital unbound – enhancing MDB capital efficiency while deepening domestic capital markets for Africa’s growth.
AFDB
In 2019, AFDB embarked on portfolio securitization with its innovative Room to Run transaction, a significant advancement for the continent. Some drawbacks of this approach were the level of guaranteed coverage required and the relatively low level of participation by the private sector. Would AFDB be tempted to collaborate on an alternative approach as suggested by the feasibility study?
IFC
IFC’s approach has been to syndicate participation in IFC assets through the MCPP program. Would IFC be willing to support the process of engaging with African institutional investors? Does IFC have innovative proposals for resolving the currency mismatch problem?
DBSA
As a regional DFI, DBSA’s asset base, which is funded on commercial terms outside South Africa, could be included in the asset transfer program. What is the size of this asset base? What would be the potential size of the assets that are suitable/eligible for transfer?
World Bank and IADB
What is the experience of other MDBs in similar mechanisms to enhance MDB capital efficiency, and what is the potential to replicate the solution in other emerging economies?
Event format
| Format | Room set-up | Interpretation needs | Meeting Type | Livestreaming requirements |
|---|---|---|---|---|
|
Closed-door, invite-only event
|
Max 30 guests, roundtables, Davos Style Stage
|
N/A ( English only) |
Physical meeting
|
N/A (Closed-door session) |
Contact Details
| Evans Osano | Jemima Gathumi | Amos Mugi | Cynthia Burudi |
|---|---|---|---|
|
Director, Capital Markets, FSD Africa Evans@fsdafrica.org |
Head of Programmes, Capital Markets, FSD Africa Jemima@fsdafrica.org +254 717 578 506 |
Technical Specialist, Capital Markets, FSD Africa Amos@fsdafrica.org |
Assistant Programme, Capital Markets, FSD Africa cynthia@fsdafrica.org +254 712 137 141 (also on WhatsApp) |
