UK development finance institution CDC Group on June 8 announced a $50-million risk-sharing facility with Absa Bank, which increases Absa's capacity to offer financing solutions to micro, small and medium-sized enterprises (MSMEs) and households across sub-Saharan Africa through microfinance institutions (MFI) and non-bank financial institutions (NBFIs).
The risk-sharing facility is the CDC's first facility supporting local currency medium- and longer-term lending to MFIs and NBFIs.
It boosts systemic liquidity in a highly credit-constrained environment and offers financial support to MSMEs and households in hard-to-reach markets, the institution said.
“This MFI and NBFI risk-sharing facility is the first of its kind for the CDC, supporting lending to these institutions through credit risk mitigation and allowing them to better serve households and MSMEs across Africa.
"The facility will enable Absa to deploy significant sums of capital and provide vital assistance to businesses and households in need of finance, helping them remain resilient and emerge from the crisis,” the CDC said in a statement.
The investment forms part of the CDC's Covid-19 response and boosts systemic liquidity at a critical time when commercial lending is limited owing to the economic challenges brought on by the pandemic, it said.
This investment bolsters Absa's strategy to promote responsible lending practices among MFIs and NBFIs in its portfolio and highlights opportunities within the financial inclusion segment, sending a positive signal to commercial banks to increase their lending to this segment of the economy, where considerable funding needs remain unmet.
The CDC has a long relationship with Absa and this latest investment reinforces the partnership between the two institutions.
This facility builds on the existing trade finance partnership, helping to enhance access to funds in the markets, facilitate increased trading of goods and services and deepen financial inclusion among underserved communities and individuals across Africa's markets.
“This is the CDC’s first risk-sharing facility that provides a local currency solution to MSMEs and local households.
"We are confident that the CDC’s counter-cyclical funding will provide much needed support to local financial institutions by diversifying their funding base and enhancing their ability to provide smaller loans to local businesses and hard-to-reach communities,” said CDC Group MD and financial services head Stephen Priestley.
“The CDC remains committed to ensuring that businesses and people have greater access to the financial support needed to enable them to grow and remain resilient throughout the crisis,” he added.
“The framework details the use of proceeds, the process for project evaluation and selection, the ongoing management of proceeds, as well as the reporting and transparency.
"There is a definite trend from global investors to invest in more socially responsible projects and companies because they want to see that their funds are being invested in activities that promote sustainable economic growth,” said Absa Corporate and Investment Banking client coverage managing executive Anand Naidoo.
“We are proud to have built this partnership with the CDC, which brings value to the relationship and is aligned to our overall business strategy.
"This facility is another proof point in the execution of our shared growth strategy, which focuses on providing finance and assisting clients to achieve sustainable economic growth in the markets where we operate,” he adds.