How to support NDBs
in attracting long-term capital:
Lessons from experience in Africa
New-York, 1 December 2005
Gilles Genre-Grandpierre
Proparco
Head, Banking & Capital Markets
www.proparco.fr
e-mail: genregrandpierreg@afd.fr
Proparco is a French Development Finance
Institution (DFI), member of the European
Development Finance Institutions (EDFI) network
Agence Française de Développement is its
majority (68%) shareholder
Other shareholders include major private French
and international banks and companies, which
makes it unique among DFIs
Operations in 60 countries in Africa, the MiddleEast, Asia and the Carribean
Proparco combines long-term developmental
objectives with private sector profitability requirements
It offers the full spectrum of financial services and
products, similar to investment and merchant banks
Proparco’s shareholding structure allows it to operate
on longer maturities with riskier products in difficult
environments (additionality principle)
50% of the EUR800 million portfolio invested in Africa,
half of which in the banking and financial sector
To determine appropriate support to NDBs in order to
mobilize private capital:
We carried out internal research on Proparco’s NDB
portfolio - equity and credit - since 1998 (average # of NDBs
in portfolio: 10)
Objective of research: What are the criteria that
distinguish successful NDBs from others in attracting
private capital?
Internal criteria investigated, as well as external ones
(sophistication of local banking & financial markets)
Successful NDBs in mobilizing private capital defined as
being financially sustainable and additional in filling market
gaps (instrument, maturity, objective, etc.)
Portfolio of NDBs in the following countries:
Morocco
West Africa
Gabon
South Africa
Uganda
Swaziland
First conclusions:
Successful NDBs operate in «conflicting» environments,
whether internal (mixed shareholding structure, such as DFCU in
Uganda), or external (competitive environment, such as DBSA
and IDC in South Africa)
NDBs operating in «conflicting» environments are more
efficient at attracting private capital. Good governance and
sound risk management are a consequence of external pressure,
rather than a cause of sustainability
External environment is key in determining appropriate
support to NDBs to mobilize private capital: 3 groups of
countries defined
The 3 groups of countries
Sophistication of banking
& financial market (depth)
+
Importance of economic
cycles and systemic risk,
number of uncertainty factors
+
Group III
(emerging markets)
Group II
(some LICs and most MICs)
-
Group I (mostly LICs)
-
The 3 groups of countries
Group I: Economic sphere is the problem, no long
maturities, no hierarchy of risks on long-term, no longterm private capital
Group II: economic growth, beginning of financial
development and hierarchy of risks, longer maturities,
some private long-term capital on big projects
Group III: emerging markets, cyclical economies, more
depth of financial markets and hierarchy of risks, long
maturities, presence of long-term private capital
Key findings for successful NDBs:
Are able to manage internal or external conflicts
Fill only an incremental - but determining - gap in the market:
They lead the pack in incremental risk-taking (eg, DBSA’s
securitization of municipal finance portfolio in South Africa)
Avoid market distortions and crowding-out effects on private
sector players
Remove abnormal risks between perceived and real risks:
Successful NDBs are not a substitute for the market, they just
help the market go the extra mile
Zone of legitimacy
for NDBs
Cost of funds
«Perceived» risk curve
The extra mile for NDBs
to attract private capital
«Normal» yield curve
Time
3
5
15
30
Appropriate levels of support for NDBs to be
successful in attracting private capital:
The existing banking and financial sophistication of a
market is key in determining relevant market gaps and
appropriate levels of support: The «next step» principle
NEXT STEP
Risk sharing
and mitigation
Maturity and instruments
Maturity
DBSA’s securitization of municipal finance portfolio
IDC’s provision of equity on BEE new ventures
Long-term funding of NDBs and private banks
New shareholding of DFCU in Uganda
Long-term funding of BOAD in West Africa