MICROCAPITAL STORY: African Development Bank Group, Agence Française de Développement Group, European Investment Bank, Development Bank of Southern Africa, KfW Bankengruppe, Islamic Development Bank Group, and World Bank Group Launch USD 15bn Joint Action Plan for Africa Including Support for Microfinance Programs

Seven international financial institutions (IFIs) and development finance institutions (DFIs) have announced a Joint IFI/DFI Action Plan to respond to the Financial Crisis in Africa (Joint Action Plan). In a communiqué signed at the annual meeting of the African Development Bank Group (AfDB) in Dakar, Senegal, the organizations jointly pledged to increase commitments by at least USD 15 billion in the next two to three years. Among goals such as promoting trade and increasing funding for infrastructure and agribusiness, the Joint Action Plan also allocates significant funding to strengthen the financial sector and support micro, small and medium enterprises in the region affected by the global economic slowdown.

The Joint Action Plan will be implemented through the African Financing Partnership (AFP), a co-financing platform that was initiated in September 2008. The AFP, which is coordinated by the AfDB, aims to become a self-managed pool of funds that enhances the effectiveness and efficiency of large and complex financings in Africa. Alongside the AfDB, Promoting Partners of the AFP include The Agence Française de Développement Group and KfW Banegruppe. The Partnership is looking to expand to additional DFIs, as well as Commercial Partners.

While the Joint Action Plan facilitates the pooling of resources and expertise, and many of the programs under the Plan are jointly administered, each of the individual IFIs/DFIs will contribute funding through its own initiatives. The Joint Action Plan itself will operate as a platform for financial institutions and project sponsors working in Africa, for policymakers in the region, and for public-private sector coordination.

The AfDB, a regional multilateral development bank that offers loans, equity investments and technical expertise in Africa, has pledged to create a USD 1.5 billion liquidity facility, that will support both governments and non-sovereign operations suffering from a lack of liquidity. The AfDB also launched the African SME Guarantee Fund, a multi-donor fund of USD 300 to 500 million to increase and maintain access to finance for SMEs, MFIs, and nonbank financial institutions.

The Agence Française de Développement Group (AFD), a bilateral DFI that works on behalf of the French government, will increase its commitments in Africa to EUR 600 million (USD 818 million) in 2009 through its subsidiary, Promotion et Participation pour la Coopération économique (PROPARCO). Through the Fonds d’Investissement et de Soutien aux Entreprises en Afrique (FISEA), AFD will invest up to EUR 250 million (USD 341 million) in African SMEs. In addition, AFD’s loan guarantees mechanism, ARIZ, has been scaled up to EUR 250 million (USD 341 million) to give SMEs and MFI’s better access to financing.

Although the Development Bank of Southern Africa (DBSA) did not publicize any specific microfinance program support, the development bank will increase its technical and grant assistance for project development and training by USD 50 million.

The European Investment Bank (EIB) has already approved a USD 50 million contribution to the IFC/KfW-initiated Microfinance Enhancement Facility, which provides short term financing to MFIs globally in response to global liquidity constraints, and is finalizing approval for a EUR 15 million (USD 20.5 million) contribution to the Regional Micro, Small and Medium Enterprise Investment Fund for Africa (REGMIFA), described below.

The German Federal Ministry for Economic Development and Cooperation (BMZ) is working through the KfW Bankengruppe and leading the effort to establish the REGMIFA to strengthen Africa’s financial sector by providing longer term and local currency financing to MFIs. They also support the TCX currency exchange fund, which provides currency and exchange rate risk management products. KfW will additionally contribute to initiatives and programs amounting to over USD 1.1 billion, including contributions to the Microfinance Enhancement Facility.

The Islamic Development Bank Group, through the Islamic Corporation for the Development of Private Sector, will contribute up to USD 250 million over the next five years, including USD 50 million for the development of Islamic banking industry and USD 50 million for SME development.

The World Bank Group will implement programs through several of its member organizations. In particular, the International Finance Corporation (IFC), will contribute funding to strengthen the capital base of banks through the Africa Bank Capitalization Fund and increase microfinance lending, while the Multilateral Investment Guarantee Agency (MIGA), which promotes foreign direct investment in developing countries, has fast-tracked support for SMEs through the Small Investment Program.

Through all these programs and initiatives, the seven IFIs and DFIs have collectively pledged at least USD 15 billion to the region over the next two to three years, and microfinance programs have figured prominently among the investments. It is hoped that this plan will help reduce the humanitarian toll in Africa resulting from the global economic slowdown.

By Jaclyn Berfond, Research Assistant

Additional resources:

African Development Bank: Joint International Financial Institutions (IFI)/Development Finance Institutions (DFI) Action Plan for Africa

Communique: Joint IFI/DFI Action Plan to Respond to the Financial Crisis in Africa

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