Blended finance for African risk mitigation

FMO, the Dutch Entrepreneurial Development Bank, is making significant strides in Africa with a portfolio of 4.4 billion euros, the highest among all the regions they invest in. In a recent interview with CNBC Africa, Peter Maila, the Co-Chief Investment Officer at FMO, shed light on their commitment to making a positive impact through investments in key sectors such as agriculture, renewable energy, and financial inclusion. These sectors are crucial for fostering sustainable development and economic growth in Africa. Maila emphasized that FMO's success is measured not only by financial returns but also by the impact they make in the communities they invest in. By improving governance, enhancing environmental and social standards, and supporting financial inclusion, FMO is dedicated to driving positive change in the region. One of the key challenges faced by investors in Africa is local currency depreciation. While many businesses are thriving at the local level, converting profits into hard currency can be a barrier. Despite these challenges, sectors like agriculture and renewable energy have shown promising returns, with some businesses successfully exporting goods and earning hard currency. In line with their commitment to financial inclusion, FMO's Nasira program has been instrumental in providing credit to historically unbanked individuals and small businesses. Through this program, clients have been able to improve their credit quality over time and transition to more traditional banking services. However, investing in Africa comes with inherent risks, including political instability, changes in laws, and market volatility. To mitigate these risks, FMO adopts a diversified approach by investing in multiple sectors and geographies. By working closely with local governments, partners, and fund managers, FMO aims to address key challenges and find sustainable solutions. In response to emerging risks such as the impact of COVID-19, conflicts, and rising commodity prices, FMO has launched the Market Creation program. This initiative focuses on de-risking investments by identifying gaps in the value chain and supporting local entrepreneurs in making their projects more viable and attractive to investors. By addressing issues such as financial literacy, policy changes, and market access, FMO aims to create a more conducive environment for investment in Africa. The Market Creation program seeks to turn unbankable projects into bankable opportunities, attracting both development finance institutions and commercial capital. Overall, FMO's blended finance approach and focus on risk mitigation are driving positive change and sustainable development in Africa, paving the way for a more inclusive and prosperous future for the continent.