“Blended finance is like a superpower that enables capital flow to Africa’s most underserved markets” – discover how innovative financial instruments, including first-loss grants and credit guarantees, allow for mobilizing private capital flows to fragile countries.
Last Thursday, June 23, the USAID West Africa Trade & Investment Hub and Cordaid Investment Management co-hosted a webinar – Blended Finance for Catalyzing Investments in Underserved African Markets. The event emphasized the importance of blended finance in developing sustainable businesses in the most crucial sectors and creating quality jobs all over Africa and showcased The West Africa Bright Future Fund (WABFF). Our overview has gathered the most interesting insights from the webinar and panel discussion.
This new fund of Cordaid Investment Management invests in the most underserved and fragile countries in West Africa – Mali, Sierra Leone, Burkina Faso, and Guinea. The fund invests in small and medium-sized enterprises (SMEs) focusing on agriculture, clean energy, waste management, and microfinance institutions (MFIs). The WABFF investments are guided by cross-cutting impact themes – job creation, women and youth empowerment, food security, trade, access to finance, climate change mitigation, and adaptation. Yet the high social impact of the fund is accompanied by the increased risks of those fragile environments; making pioneering investments in those markets and attracting private capital is difficult.
The Blended Finance model used in the fund, designed in partnership with USAID and DFC, helps to mitigate those risks. With every investment having first and second loss coverage, Cordaid Investment Management can attract private capital to where it is most needed.
“Blended finance is like a superpower that enables capital flow to Africa’s most underserved markets. 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.”
Josephine Ragni, Social Investment Manager at the Netri Foundation
“The work that Cordaid Investment Management is doing in the region is unique because of the selected geographies: Mali, Sierra Leone, Burkina Faso, and Guinea. To set the context, three out of the four countries in the WABFF had coups over the past couple of years. And you can support investees in those countries because of how well you know the region and how honestly you face its challenges.”
Heather Bateman, Director of Investments in Africa at DFC
“Through this partnership, we have attained some key development impacts like promoting international private investment in sustainable, inclusive businesses operating in fragile environments. As a result, we have created employment opportunities for youth and women. With the first-loss guarantee, other investors or potential partners gain more confidence to invest in West Africa.”
Kafui Djonou, Senior Project Management Specialist at USAID
“Netri Foundation invests primarily for impact, particularly in improving the lives of impoverished people. Focusing on women and youth and looking at other sectors beyond microfinance, we thought the investee reach of WABFF was interesting. At the same time, managing risk and return is important: given the blended finance structure that mitigates the risk of these types of markets, we found that the offer was highly competitive.”
Josephine Ragni, Social Investment Manager at the Netri Foundation
“The fund focuses on challenging countries in West Africa that other impact investors largely overlook, especially when it comes to SMEs. Besides, as a credit guarantee provider, we appreciate the professionalism and the grip on the portfolio’s risks. Having years of experience in fragile markets and a team on the ground, you know how to manage it.”
Heather Bateman, Director of Investments in Africa at DFC
“On the one hand, investing in our focus countries is risky: political insecurity and numerous weaknesses in the financial sector prevent the entrepreneurial ecosystem from flourishing. On the other hand, we see many economic opportunities, and the social impact returns in these markets are potentially high. For example, the agricultural sector has a high potential for exports of fonio, shea butter, cashews, cocoa, and palm oil. But aside from that, there’s also a lot of need for substituting imports and producing goods locally to meet enormous domestic demands for staple foods and raw materials input. Moreover, these countries are also expanding the supply of renewable energy. Thanks to this partnership, we can build a track record and demonstrate that there are viable opportunities in these markets.”
Lorisa Canillas, Senior Investment Manager at Cordaid Investment Management
“To target investment opportunities where they are the most needed, we look at the human development index – apart from income, it takes into account life expectancy, education levels, and so on. So if you look at the ten lowest-scoring countries, you see Burkina Faso, Mali, and Sierra Leone. But most countries at the bottom of that list are also African countries. And they share a lot of similar challenges like high capital costs and high youth unemployment – they are perfect areas for impact investors to focus on.”
Josephine Ragni, Social Investment Manager at the Netri Foundation
“DRC, Uganda, and Burundi – for different reasons, as those are extremely different countries. East Africa has a similar combination of underserved markets and challenging, fragile environments where investors might not want to come in. But many companies do great work there, and many entrepreneurs need finance to support their businesses.”
Heather Bateman, Director of Investments in Africa at DFC
The panellist agreed that there is a huge untapped demand in fragile countries in Africa. And a big market for impact investors to step in, as too many sustainable businesses don’t have access to finance in Africa. We can invest and scale our operations in those fragile markets with blended finance instruments. So it’s through partnerships like this we can maximize positive impact.
