Arusha, Tanzania — Kenya and Tanzania are set to benefit from the African Development Bank (AfDB) $300 million to finance a wide range of projects in local currencies across Africa.
The funds to be managed by the South African based FirstRand Bank Limited are a seven-year multi-currency line of credit.
A statement issued by the bank last week said that most African countries are characterized by low discretionary rates of domestic savings.
"As a result, the intermediation capacity of the financial sectors is limited, leading to the gap currently being filled with borrowings denominated in foreign currency," said the statement adding that however, this introduces a currency mismatch in the financial systems' balance sheets constituting a potential source of instability.
"Thus, there is a clear need for providing stable sources of local currency financing and the line of credit from the AfDB will contribute to filling this gap by making available medium-term local currency financing to sub-borrowers across Africa," said the statement.
It revealed that the line of credit will be drawn in multiple African currencies including the Nigerian Naira, the Kenyan Shilling, the Zambian Kwacha, the Ghanaian Cedi, the Mozambique Metical and the Tanzanian Shilling.
Further, in line with the AfDB's mandate to contribute to the development of local capital markets, it is expected that the local currencies will be mobilized through the establishment of bond issuance programs in the domestic capital markets and the issuance of local currency denominated bonds to meet the specific local currency requirements of FRB.
These programs are expected to complement existing efforts to develop Africa's local capital markets thereby providing a strong catalytic and demonstrative effect.
The line of credit to FRB will contribute to mobilizing significant financial resources in the countries where its proceeds will be deployed, ultimately contributing to economic development and employment opportunities. The line of credit is also expected to contribute to government revenues, the development of local capital markets as well as African regional integration.
Timothy Turner, Director of the AfDB's Private Sector Department said: "With this line of credit, the AfDB is introducing a new and innovative form of local currency financing. This structure can be replicated by other banks in Africa to gain access to funding in African currencies thereby reducing unnecessary currency mismatches and deepening the local capital markets."