MICROCAPITAL STORY: African Development Bank (AfDB) Warns Microcredit in the African region is Dwindling; AfDB To Double Annual Lending to USD 11 Billion to Help Countries Deal with the Global Downturn

The African Development Bank (AfDB) has announced that it would double its annual lending this year to USD 11 billion to help countries in Africa deal with the global financial crisis. According to a press release by Reuters, AfDB which normally provides loans and grants worth around USD 5.5 billion ever year expects more countries to turn to it for financial aid, hence the doubling of its annual lending. Commenting on AfDB’s funding efforts, its President Donald Kaberuka said AfDB had in place an emergency liquidity facility amounting to USD 1.5 billion and another USD 1 billion from its trade financing facilities. The remaining amount, he said, would be filled from AfDB’s own capital resources. AfDB has sufficient capital to lend for the next five years. However, the new demand created by the crisis to which the Bank is responding implies that the Bank’s risk capital would have to be boosted by the end of 2011.

Speaking on the impact of the global crisis in Africa, Mr. Kaberuka warns there are signs that the African microcredit sector, which had withstood the initial stages of the crisis, is now dwindling. Growth prospects are discouraging in the African region, especially given the uncertainty in duration of the economic crisis and the unrest in African countries such as Madagascar and Guinea Bissau. Mr. Keberuka was quoted as saying that for Africa, ‘the economic crisis was just the beginning’. Hence the need to provide financial institutions in the region with the means and financial backing to be able to respond to a ‘prolonged’ crisis, he said.

AfDB’s announcements follow a recent study by the World Bank which states that 94 out of 116 developing countries have experienced a slowdown in economic growth since the beginning of the global crisis, with the poverty rate even increasing in 43 countries. The World Bank estimates that as many as 53 million more people could be trapped in poverty as economic growth slows around the world, in addition to the 130-155 million people already pushed into poverty in 2008 because of soaring food and fuel prices. In the case of Africa, the economic slump has led to a reduction in foreign direct investment, remittances and tourism, in addition to a fall in prices of major commodities produced in the continent. Chief economist of the World Bank’s Africa region, Mr. Shantayanan Devarajan, predicts the current global financial crisis would decrease private investment flows in Africa which in turn would compromise the financing of many infrastructure projects in the continent. According to the Managing Director of the International Monetary Fund (IMF) Dominique Strauss-Kahn, the global financial crisis could push ‘millions of Africans’ back into poverty and conflict. The IMF forecasts a GDP growth rate of 3.5 percent for Africa, which is 1.6 percentage points lower than the previous forecast, and 1.9 percentage points below the 2008 growth rate.

The African Development Bank (AfDB) was established in 1964 as a regional multilateral development bank to support economic and social development in the African region through loans, equity investments and technical assistance. Based out of Abidjan, Côte d’Ivoire, its shareholders include 53 African countries and 24 non-African countries from Asia, Europe, North America and Latin America. MicroCapital has previously reported on the activities of AfDB; please click here for a list of our past stories.

By Bharathi Ram, Research Assistant

Additional Resources:

Reuters.com: Press Release

International Monetary Fund: Home, World Economic Outlook

Council on Foreign Relations: Interview with Chief Economist of the World Bank’s Africa Region

AfDB: Home, About Us