And… Action! West Africa Bright Future Fund goes live
It is now official. All papers are signed - West Africa Bright Future Fund (WABFF) is launched. We hope that this long and careful journey towards the launch, the dedication of the whole team, the confidence and trust of our partners and external investors will result in a brighter and more sustainable future for people in the fragile states of Mali, Sierra Leone, Burkina Faso, and Guinea.
Guided by a proven Theory of Change, Cordaid Investment Management (CIM) deploys investment capital to MFIs, supporting microentrepreneurs and farmers, as well as SMEs, the driver of direct and indirect job creation in West Africa. Over the last 25 years, CIM has acquired knowledge and expertise in investing in a fragile context.
Over the years, our investments in West Africa demonstrated the great potential of MFIs and SMEs in the region and the transformative role that entrepreneurship has for the local economy and the lives of individuals. In the past two years, despite the challenges of a global pandemic, CIM’s portfolio in West Africa has shown significant growth.
Knowing there are sustainable businesses lacking finance to expand and flourish, CIM is launching a new West Africa Bright Future Fund (WABFF), contributing to economic development and building sustainable livelihoods in Mali, Sierra Leone, Burkina Faso, and Guinea. The €20M Fund aims to fill the SME financing gap in West Africa, offering the “missing middle” loans from €250,000 to €3 million, as well as supporting MFIs with a strong social mission to support women and youth, especially in the rural areas. The fund focuses on three sectors – agriculture, clean energy, and waste management – which have proven to be transformational for the region. Three focus sectors are selected as being critical to the local market development of the WABFF focus countries. Further, these sectors are accessible to women and youth and relevant for combatting climate change.
Agriculture
Investments in Agriculture will generate value in-country, through multiple value chains. Fonio, Mango, Pineapple, Cashew, and Shea show strong potential, as well as agri-processing companies.
Clean Energy
Investments in Clean Energy will focus on decentralized solar and bio-energy solutions, which are deemed most promising in the West African context. This will include off-grid solar power solutions such as mini-grids and commercial & industrial installations, as well as solar home systems and productive use appliances. Biogas and clean cooking are also considered.
Waste Management
Investments in Waste Management will include solid waste management, recycling, waste processing, and water management solutions. Although not a very developed sector in the West African context, the impact and the market potential are significant.
CIM aspires to contribute to job creation for women and youth in West Africa, combining loans with technical assistance and environmental, social, and governance (ESG) development.
The overview of peer investors’ activity in West Africa helped us identify the financing gaps in geography and narrow down our focus to Mali, Sierra Leone, Burkina Faso, and Guinea. Given the small number of investors in fragile West African countries, this provides an opportunity for the Fund to have a catalytic role in the selected countries.
¾ countries WABFF invests in had coup d'etat in recent years. Widespread inequalities across regions, and ethnic groups, and the marginalization of certain populations have triggered both large-scale and low-level violence and conflicts. Although in the last 20 years, the number of civil wars and large-scale conflicts dropped dramatically, other forms of political violence and new threats have emerged: election-related violence, longstanding ethnonational conflict, drug trafficking, maritime piracy, and extremism.
Jobs
West Africa’s population is young and growing at twice the pace of other continents. Half the current population of sub-Saharan Africa is under 25 years of age, and each year between 2015 and 2035, there will be half a million more 15-year-olds than the year before. It is estimated that only 16 % of young people across sub-Saharan Africa are employed in waged jobs in the formal sector. They need jobs WABFF can help create.
Gender equality
Gender-based discrimination in social institutions is estimated to represent a loss of USD 120 billion in income for the region. Access to finance is limited by discriminative practices
and laws. That’s why WABFF supports MFIs that target female clients, as well as female-led businesses. The WABFF is committed to the “2X Challenge” to collectively mobilize $3 billion in commitments that provide women in developing country markets with improved access to leadership opportunities, quality employment, finance, enterprise support, and products and services that enhance economic participation and access.
Climate Change
West Africa could see as many as 32 million people forced to move within their own countries by 2050 in search of water and crop productivity. As many as 2.2 million people living along the West African shore could be forced to move out of the coastal area by 2050 due to sea level rise. Unmanaged climate migration patterns will not just undermine poverty eradication but can also weaken advances in development made in the last decades. That’s why to build up to climate change resilience of the populations, the climate lens is applied to every investment we make.
There is still a huge financing gap when it comes to investing in fragile markets. And those are the ones that need finance the most. Only truly social-minded investors venture to do that, like Cordaid. But in order to maximize impact in fragile countries, we need to scale the investments and attract third-party capital from mainstream investors. That would be impossible without de-risking tools made possible through blended finance partnerships.
To attract private capital to where it is most needed, The West Africa Bright Future Fund offers impact-focused investors a comprehensive risk mitigation framework to preserve capital. The Fund has attracted €3m in committed investable first loss from the USAID West Africa Trade & Investment Hub, the National Postcode Lottery, and private donations. The U.S. International Development Finance Corporation has further committed a Regional Portfolio Guarantee that covers 50% of the financial risk of further investment. Thus, every investment made will have first and second-loss coverage. Further, foreign currency exposure can be hedged.
Blended finance is like a superpower that enables capital flow to Africa’s most underserved markets. That’s why the role that USAID and DFC play as the first-loss guarantee providers is so important. Combined with a good impact-driven investment manager, it produces a powerful catalytic effect.
