Loans in local currency

Innovative and successful: the African Local Currency Bond Fund (ALCB Fund) has been nominated for international awards. Created by KfW in 2012, the Fund is one of the first to promote local capital markets. African banks and microfinance institutions are consequently given the opportunity to offer customers more loans in their own currency. This stimulates local investment.

Whether the Zambian Kwacha, the Botswanan Pula or the Ghanaian Cedi – the African Local Currency Bond Fund (ALCB Fund) strengthens lending in local currency on the African continent. The beneficiaries are primarily small and medium-sized companies who are provided with loans at more favourable terms. Taking out a loan in local currency is far more reliable for the borrower since they know from the start how much has to be paid back in the local currency.

The ALCB Fund also has another positive impact: it helps banks to borrow on the local capital market by issuing bonds in local currency. The Fund invests in these local currency bonds as an anchor investor. Local investors consider this investment to be a mark of quality which encourages them also to invest in the bonds. African pension funds, insurers and other investors have certainly succeeded in accumulating reserves in local currency, but have as yet failed to pass these on as loans to companies and consumers. The anchor investment of the ALCB Fund now means that these funds can be reinvested into the local economy as loans.

The local currency fund aims primarily to stimulate the local economy in Africa in the respective local currency. Up to now, one USD from the ALCB Fund has generated an investment of more than 10 USD through local investors; this is a leverage ratio of one to ten. The Fund currently has a volume of USD 60 million and is expected to increase to USD 160 million. As a result, investments in the amount of approximately USD 1.6 billion would be possible at the same leverage ratio.

In mid May this year, the World Bank subsidiary, International Finance Corporation (IFC), invested USD 20 million in the Fund. The British Department for International Development (DFID) has already announced it will contribute a further USD 20 million.

Thanks to its innovative character, the ALCB Fund was nominated by the IFC and the British economic paper the Financial Times for the Transformational Finance Award 2017 and by the African Development Bank for the African Banker Award for Financial Inclusion 2017.