IFC's $20mn fund for Africa's bond market

The International Finance Corporation has made a significant investment of $20 million in the African Local Currency-Bonded Fund, signaling a major milestone in the development of local currency markets across Africa. CNBC Africa's Nozipho Mbanjwa engaged in a conversation with key players in this initiative, Carl von Klitzing, Project Manager at KfW Development Bank, and James Doree, Director at Lion's Head Global Partners. Von Klitzing expressed enthusiasm about the increased firepower the investment brings to the fund, pushing the investable capital to beyond $60 million. This injection of funds will facilitate the provision of local currency funding to SMEs, banks, and mortgage financiers, shielding final borrowers from the pitfalls of being exposed to foreign currency risks. This move is set to have a substantial impact on local borrowers, providing them with access to much-needed financing in their local currency. Doree highlighted that this investment also presents a significant opportunity for pension fund players to venture into the space, tapping into the growing pension fund assets in Africa and directing them towards transparent and well-governed capital markets for investment beyond public debt. The involvement of the IFC in the fund signifies a pivotal shift, opening doors for additional private and DFI investors to join the initiative, with projections to grow the fund to approximately $150 - $160 million this year. This expansion could potentially lead to a total investment of $1.6 billion through third parties, an important step in cultivating local currency markets and promoting capital circulation in Africa. Von Klitzing shared insights on KfW's role in the fund, underlining the bank's commitment to fostering capital market development in Africa since the fund's inception in 2012 under the G20 leadership of Germany. The success of the pilot phase has paved the way for the inclusion of external investors, with a focus on providing the right financing avenues for SMEs and banks to thrive without being exposed to the risks associated with foreign currency financing. Doree shed light on the essential components that drive the success of ALCB, emphasizing on being an anchor investor in bonds, offering technical assistance, and providing guidance to local players and issuers. This comprehensive approach plays a crucial role in building confidence among issuers and investors, creating a conducive environment for market participation and innovation. Looking ahead, the fund eyes expansions into new sectors such as green bonds, microfinance institutions, and agricultural businesses, with plans to extend investments across various African countries. The continued efforts of ALCB aim to trigger substantial investments totaling $1.6 billion, contributing significantly to the growth and stability of African local currency markets.