{"id":12061,"date":"2022-03-26T06:22:20","date_gmt":"2022-03-26T06:22:20","guid":{"rendered":"https:\/\/www.africa-press.net\/lesotho\/all-news\/backbone-of-africas-banking-system-development-finance-institutions"},"modified":"2022-03-26T07:41:42","modified_gmt":"2022-03-26T07:41:42","slug":"backbone-of-africas-banking-system-development-finance-institutions","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/lesotho\/all-news\/backbone-of-africas-banking-system-development-finance-institutions","title":{"rendered":"Backbone of Africa\u2019s banking system: Development Finance Institutions"},"content":{"rendered":"

Africa-Press – Lesotho. <\/strong><\/span>Development Finance Institutions (DFIs) have long played an important role in financing Africa\u2019s private sector. With patient capital and a high-risk tolerance, they hold Africa\u2019s largest portfolio, directing significant resources to enable the continent\u2019s banks and private investors to finance corporate growth.<\/p>\n

According to our data at Asoko Insight, Europe\u2019s 15 DFIs, the International Finance Corporation (IFC), Canada\u2019s FinDev and the US Development Finance Corporation (DFC), have deployed over $48bn to Africa alone between 2015 and the first quarter of 2021. Growing trends<\/p>\n

Several trends are driving the continued growth of their activity, including supporting the financing demands necessitated to respond to the Covid-19 pandemic, the ongoing impetus to fill Africa\u2019s persistent infrastructure shortfall and increased emphasis on impact investing that meets environmental, social, and governance (ESG) criteria.<\/p>\n

Overlaying these market factors, Africa\u2019s role on the world stage is driving wider geopolitical dynamics that have seen international partners look increasingly to investment to cement their role in Africa\u2019s future growth.<\/p>\n

Recent years have seen DFIs gradually moving up the value chain by taking direct interests in private companies, with CDC, Finnfund, FMO, Proparco and IFC being among those exemplifying this trend. Concentration of investments<\/p>\n

That said, a look at the breakdown of DFI investments since 2015 by sector shows a continued concentration of deals in the financial services space \u2013 making up close to a third of the nearly 500 deals recorded \u2013 confirming that development finance provides key support for the continent\u2019s banking system and is the backbone of private equity and venture capital growth.<\/p>\n

This funding ultimately keeps Africa\u2019s engine of small and medium-sized enterprises running, and has been particularly crucial since the onset of the coronavirus pandemic.<\/p>\n

At the start of the pandemic in 2020, the Center for Global Development highlighted the need for DFIs to prioritise solvency at local financial institutions, while the Overseas Development Institute urged OECD governments to reallocate aid budgets to DFIs, which were best placed to deliver counter-cyclical support.<\/p>\n

Emphasis on impact The impact of this funding ripples outward, and today DFIs directly or indirectly support over six million African jobs. Impact is at the heart of DFIs\u2019 mandate.<\/p>\n

In a conversation with Asoko earlier this year, Benson Adengua, head of office and coverage for the UK\u2019s CDC in Nigeria, said: \u201cAs a development finance institution, we consider impact in everything we do.<\/p>\n

We use a very broad definition of impact that covers the direct and multiplier effect of an investment on the economic growth of the market. \u201d This emphasis on impact investing has increasingly aligned with wider trends that have focused investment criteria on sustainability, gender parity and inclusive economic growth.<\/p>\n

Climate crisis Addressing the climate crisis is high on this agenda, and is reflected in the large number of power and utilities investments made by DFIs.<\/p>\n

These undertakings often require long-term financing with a high-risk appetite, making DFIs key to the foundation on which Africa\u2019s infrastructure will be built.<\/p>\n

At least half of these deals involve renewable projects, including Kenya\u2019s Lake Turkana wind project, the continent\u2019s largest wind farm and Kenya\u2019s biggest private investment, which is funded by a consortium including three European DFIs.<\/p>\n

Agriculture Agriculture is another key area of focus for Africa as it seeks to ensure its resilience to climate change and improve its ability to feed its population.<\/p>\n

As our data shows, DFIs have historically been active in this space, with agribusiness representing the third-largest number of deals at 10% of deals.<\/p>\n

The sector continues to attract significant attention, with a coalition of DFIs committing over $17bn to improve food security in Africa in early May. Such broad goals are matched by the breadth of DFI financing, which covers three-quarters of the continent.<\/p>\n

The investment hotspots at each of the four corners \u2013 Egypt, Kenya, South Africa and Nigeria \u2013 are the top destinations for DFI-backed deals, together representing 45% of the total.<\/p>\n

This concentration is a reflection of the developed financial services and entrepreneurial ecosystems in these markets, which enables comparatively easier access to data about rising private sector stars to support the investment inflows.<\/p>\n

For More News And Analysis About Lesotho<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – Lesotho. Development Finance Institutions (DFIs) have long played an important role in financing Africa\u2019s private sector. With patient capital and a high-risk tolerance, they hold Africa\u2019s largest portfolio, directing significant resources to enable the continent\u2019s banks and private investors to finance corporate growth. According to our data at Asoko Insight, Europe\u2019s 15 DFIs, […]<\/p>\n","protected":false},"author":84,"featured_media":12060,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,6,8,16],"tags":[242,233,246,245],"class_list":["post-12061","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-files","category-homepage-english","category-twitter","tag-africa","tag-africa-press","tag-africa-press-lesotho","tag-lesotho"],"yoast_head":"\nBackbone of Africa\u2019s banking system: Development Finance Institutions - Lesotho<\/title>\n<meta name=\"description\" content=\"Development Finance Institutions (DFIs) have long played an important role in financing Africa\u2019s private sector. 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