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A Transformative Initiative for Africa’s Development Financing
In a significant move to address Africa’s financing challenges, the African Development Bank (AfDB), the Development Bank of Southern Africa (DBSA), and institutional investors including Academy Securities, Africa50, and Newmarket have signed a Letter of Intent to explore the creation of a multi-originator synthetic securitization platform. The agreement was announced at the 2024 Africa Investment Forum Market Days in Rabat, Morocco. It heralds a transformative step in mobilizing private capital for high-impact projects across the continent.
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This platform builds on the success of the AfDB’s pioneering $1 billion Room to Run synthetic securitization program launched in 2018. Designed as a revolving, evergreen vehicle, the initiative aims to de-risk the balance sheets of development finance institutions (DFIs) in Africa. This will enable increased lending capacity for sustainable and growth-oriented projects. At the same time, it will offer compelling returns for private sector investors.
Unlocking Billions in Development Capital
The proposed platform seeks to aggregate a reference portfolio of $1.5-2 billion, diversified across sectors, geographies, and risk profiles. This broad mix of loan and guarantee exposures will align with AfDB and DBSA’s strategic priorities. The platform will emphasize climate finance, infrastructure development, and financial intermediation.
One of the platform’s key innovations is its ability to transfer mezzanine tranche credit risk to private sector investors while retaining senior tranche risk within the originating institutions. This structure ensures regulatory capital relief for DFIs and frees up vital resources to address Africa’s infrastructure, energy, and financing gaps.
Why It Matters: Catalyzing Growth Across Sectors
The initiative holds immense promise for Africa’s development are numerous.
- Infrastructure Development: By unlocking new financing streams, the platform can address critical infrastructure deficits, fostering economic growth and regional integration.
- Climate Finance: With a focus on sustainability, the platform prioritizes investments that combat climate change and promote green energy solutions.
- Private Sector Engagement: The securitization model offers private investors a unique opportunity to engage in Africa’s growth story, providing both financial returns and developmental impact.
Dr. Akinwumi Adesina, President of the AfDB, remarked on how this will address Africa’s financing challenges. “The proposed multi-issuer securitization vehicle exemplifies how collaboration between multilateral development banks and private investors can unlock transformative capital flows to address Africa’s financing gaps.”
Collaboration for Sustainable Impact
The platform underscores the growing importance of partnerships between multilateral development institutions, asset managers, and institutional investors. Boitumelo Mosako, CEO of DBSA, called for a unified effort. He emphasized, “It is imperative that these stakeholders work as a system to scale up financing available for Africa’s growth.”
Private sector players also echoed their commitment to the initiative. Molly Whitehouse of Newmarket highlighted its potential to replicate and extend the success of the landmark Room2Run transaction. Alain Ebobissé, CEO of Africa50, added, “This initiative represents a pivotal opportunity to free up vital capital to help bridge Africa’s infrastructure gap. Together, we can drive meaningful change and unlock the continent’s potential for sustainable growth.”
A Boost for ESG and Sustainable Lending
With its innovative structure, the platform supports environmental, social, and governance (ESG) objectives. Dan Schaeffer of ABS Capital Markets noted, “This signing showcases the innovative spirit of the Africa Investment Forum. It also demonstrates our commitment to delivering impactful solutions to emerging market challenges.”
A Vision Aligned with Africa’s Goals
The multi-originator synthetic securitization platform aligns with key development frameworks. These include the African Development Bank’s High 5s, the African Union’s Agenda 2063, and the United Nations’ Sustainable Development Goals. As part of the Africa Investment Forum’s mission to accelerate projects to financial closure, this initiative is poised to channel critical resources into sectors that hold the promise of transformative impact.
Unlocking Africa’s Potential
By de-risking investments and leveraging private capital, the platform represents a groundbreaking model for financing Africa’s future. As it moves from concept to execution, it has the potential to revolutionize how DFIs and private investors collaborate. Most importantly, to meet the continent’s pressing development needs, driving inclusive growth and sustainable progress.
