The African Development Bank says it has approved $10 million equity investment in the financial sector deepening fund to strengthen the capital base of local financial institutions.
The bank said in a statement on Saturday that the investment would also help in stimulating the Africa’s corporate bond market.
It also said the approval of the fund on the platform of its private-sector window in the Africa Financial Sector Deepening Fund was being managed by Adventis Limited, as the fund manager.
According to the bank, the fund seeks to raise $100 million by the first closing and $200 million by the second closing.
The development bank said the investment would span over 10 years to address the growing demand among local financial institutions for Tier 2 capital and to deepen local currency capital markets.
“Given scarce long-term local currency funding and underdeveloped non-sovereign local currency bond markets, the fund will offer a significant private-sector demonstration effect by making sizable Tier 2 capital available to financial institutions.
“By leveraging capital structure and balance sheets, Tier 2 instruments will allow financial institutions to grow their lending and to scale up their long-term loan portfolio to support infrastructure, industries, and manufacturing, among other sectors, in the targeted economies.
“It will invest in mainly subordinated debt instruments issued by financial institutions, support bond issuances as anchor investors to be listed on local exchanges and crowd in local institutional investors.
“In addition, the bank said that it would help to scale up investments in financial institutions to optimise and enhance their long-term capital base and develop local bond markets.
“Based on market opportunities, the fund has identified priority countries as Botswana, Ethiopia, Côte d’Ivoire, Kenya, Mauritius, Namibia, Rwanda, Tanzania, Uganda, Ghana and Zambia.”