MICROCAPITAL BRIEF: CDC Group Announces $50m Risk-sharing Facility with Absa Bank to Boost Lending to Households, MSMEs in Africa

CDC Group, a development finance institution backed by the UK government, recently announced a risk-sharing facility of USD 50 million in partnership with Absa Bank Limited, which is based in South Africa and operates in 14 African countries. Under the agreement, CDC will reimburse Absa for an undisclosed percentage of losses the bank may incur on a package of loans to households as well as micro-, small and medium-sized enterprises (MSMEs). Absa will distribute the loans in multiple countries via its microfinance institutions and non-bank financial institutions. Among the goals of the agreement are facilitating trade, boosting financial inclusion and helping MSMEs that have been facing liquidity challenges stemming from the COVID-19 pandemic.

CDC’s Managing Director and Head of Financial Services, Stephen Priestley, said, “This is CDC’s first risk-sharing facility that provides a local currency solution to MSMEs and local households. We are confident that CDC’s counter-cyclical funding will provide much needed support to local financial institutions by diversifying their funding base and enhancing their ability to provide smaller loans to local businesses and hard-to-reach communities.”

Founded in 1991, Absa offers “personal and business banking, corporate and investment banking, wealth and investment management and insurance.” The firm has insurance operations in Botswana, Kenya, Mozambique, South Africa and Zambia; and it holds majority stakes in banks in Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania, Uganda and Zambia. In addition to its headquarters in South Africa, Absa operates administrative offices in Namibia, Nigeria, the UK and the US. For 2020, the bank reported total assets of ZAR 1.52 trillion (USD 111 billion). The institution generated return on assets of 0.52 percent and return on equity of 7.2 percent, down from 1.20 percent and 15.8 percent, respectively, in 2019. Absa, which is listed on the Johannesburg Stock Exchange, paid no dividend in 2020, after paying ZAR 0.01125 (USD 0.08) per share in 2019.

Established in 1948 as the Colonial Development Corporation, the mission of the CDC is to foster growth in “sustainable” businesses to raise living standards in developing countries. Since 2012, it has invested in 1,200 businesses in Africa and South Asia, using debt, direct equity investments and “fund-of-funds” strategies. During 2020, CDC’s investment portfolio was valued at USD 6.2 billion, and it reported new commitments worth GBP 1.75 billion (USD 2.47 billion).

By Sophie Fiala, Research Associate

Sources and Additional Resources

CDC press release
https://www.cdcgroup.com/en/news-insight/news/cdc-group-provides-50m-risk-sharing-facility-to-absa-to-support-lending-to-msmes-and-households-through-microfinance-and-non-bank-financial-institutions-in-africa/

CDC homepage
https://www.cdcgroup.com/

Absa Group homepage
https://www.absa.africa/

Absa Group 2020 annual report
https://www.absa.africa/content/dam/africa/absaafrica/pdf/2021/results-booklet-for-the-period-ended-31-december%202020.pdf

Previous MicroCapital article on CDC
https://www.microcapital.org/microcapital-brief-stanbic-ibtc-of-nigeria-to-borrow-75m-from-cdc-group-for-on-lending-in-sectors-with-significant-sme-supply-chains/

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