SOUTH AFRICA – Absa Bank, South Africa’s third-largest bank by assets, will receive a US$50 million risk-sharing financial facility to provide loans to micro, small and medium-sized enterprises (MSMEs) and households.
The loans will be in local currency with medium to long-term repayment terms and the capital raised by Absa from the British agency CDC Group will be deployed to Covid-19 affected companies seeking financing.
“We are thrilled to once again partner with Absa. This is CDC Group’s first risk-sharing facility, providing a local currency solution to micro, small and medium-sized enterprises, and 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. commented Stephen Priestley, Director of Financial Services at CDC Group.
He added: “CDC remains committed to ensuring that businesses and people have greater access to the financial support needed to enable them to grow and remain resilient throughout the crisis.”
The support comes at a time when commercial lending to businesses has been limited due to the economic challenges induced by the pandemic.
Covid-19 and its impact on the economy have increased the need for financing for SMEs and Absa Bank, therefore, plans to strengthen its financing solutions on the continent.
This MFI and NBFI risk sharing facility is the first of its kind for CDC – supporting lending to these institutions (through credit risk mitigation) and allowing them to better serve households and MSMEs across Africa.
The facility will enable Absa to deploy significant sums of capital and provide vital assistance to businesses and households in need of finance, helping them remain resilient and emerge from the crisis.
“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”Stephen Priestley – Director of Financial Services, CDC Group
This investment bolsters Absa’s strategy to promote responsible lending practices among MFIs & NBFIs in its portfolio and highlights opportunities within the financial inclusion segment – sending a positive signal to commercial banks to increase their lending to this segment of the economy where considerable funding needs remain unmet.
CDC has a long relationship with Absa, Sub-Saharan Africa’s third-largest bank, and this latest investment reinforces the partnership between both institutions.
This facility builds on the existing trade finance partnership, helping to enhance access to funds in the markets, facilitate increased trading of goods and services, and deepen financial inclusion among underserved communities and individuals across Africa’s markets.
Anand Naidoo, Managing Executive: Client Coverage, Absa Corporate and Investment Banking, says: “We are proud to have built this partnership with CDC, which does not only bring value to the relationship but is also aligned to our overall business strategy. This facility is another proof point in the execution of our shared growth strategy which focuses on providing finance and assisting clients to achieve sustainable economic growth in the markets where we operate.
“The framework details the use of proceeds, the process for project evaluation and selection, the ongoing management of proceeds as well as the reporting and transparency. There is a definite trend from global investors to invest in more socially responsible projects and companies because they want to see that their funds are being invested in activities that promote sustainable economic growth,” he added.
Liked this article? Subscribe to DealStreet Africa News, our regular email newsletter with the latest news, deals and insights from Africa’s business, economy and more. SUBSCRIBE HERE