In the lead up to the Paris Climate Summit of 2015, it became clear that efforts at achieving the ambitious targets of the SDG’s, would require equally ambitious efforts at utilising the “billions” in ODA (official Development Assistance) and available development resources to attract, leverage, and mobilize “trillions” in investments of all kinds: public and private, national and global, in both capital and capacity.
In April 2015, the African Development Bank (AfDB), Asian Development Bank (AsDB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter- American Development Bank Group (IDBG), and the World Bank Group (WBG), together known as the MDBs, and the International Monetary Fund (IMF) presented a joint vision of what they could do, within their respective institutional mandates, to support and finance achievement of the SDGs.
According to the official report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the transfer of Real Resources to Developing Countries;
The financial structure and financing capabilities of the MDBs and the IMF enable them to leverage their capital to provide finance in many forms (from grants to “blended” concessional finance to loans to guarantees to equity investment) and purposes. The non-concessional institutions/windows of the MDBs are funded efficiently by small amounts of paid-in capital, in many cases backed by callable capital.
Leveraging these amounts, the banking model of the MDBs mobilizes substantial resources from the capital markets at much lower (emphasis mine) interest rates reflecting their strong financial structure and high ratings. In addition, grant and concessional funding from shareholders and other development partners supports concessional financing for the poorest, fragile and conflict-affected states. The MDBs received inflows from their shareholders of around US$ 38 billion in 2012.4 These flows allowed the MDBs to make public and private disbursements of US$ 99 billion in developing countries in 2013, and to approve new commitments for US$ 173 billion.
Blended Finance
According to the IDA; the World Bank’s fund for the poorest, the objective of its Blended Finance Facility (BFF) is to mitigate the various financial risks associated with investments in SMEs and agribusiness as well as pioneer investments across sectors to unlock private sector opportunities that promote productivity improvements and innovation with strong development impact. The BFF builds on and expands IFC’s existing blended finance platforms, including the Blended Climate Finance programs, the private sector window of the Global Agriculture and Food Security Program (GAFSP), and the SME Finance facilities, and extends support into new high-impact sectors.
IDA Blended Finance Instruments Souce: ida.worldbank.org
Existing IFC financial products will be eligible for clients under the facility, including senior loans, subordinated loans, equity (direct and through funds), preferred equity and guarantees (e.g., first-loss in risk sharing facilities). The BFF will enable IFC to undertake additional projects by providing: i) blended financing to enable IFC to support projects which are not yet able to meet fully commercial financing terms, but which promise to be sustainable and have strong development impact; and/or ii) risk mitigation, through subordination, deferrals, provision of first loss, and structuring flexibility (e.g. longer tenors) to enable IFC to support higher risk projects. Long tenors are particularly important for green-field projects, which typically have higher risk than expansion projects, but which are more common in PSW-eligible markets. The facility could incur losses only up to the designated allocation of PSW’s resources.
So how can such instruments be leveraged to finance the delivery of affordable green housing in developing countries such as Nigeria?
BFF for Affordable (Green) Housing Delivery
In a recent blog post titled ‘Blended finance unlocks the keys to affordable housing across west Africa’, Martin Spicer, the IFC lead on Blended Finance highlights how a new financing tool developed by the World Bank Group, is helping thousands of families across WAEMU (West African Monetary Union – consisting of Countries such as Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo), access private housing finance and finally achieve their dreams of owning their own homes.
The tool is the $2.5 billion IDA18 IFC-MIGA Private Sector Window (IDA PSW), launched in July 2017 to help catalyse private sector investments and create jobs in the lowest income countries eligible for financing from the World Bank’s International Development Association.
According to Spicer, the window combines concessional funding provided by IDA donors with financing and guarantee instruments on commercial terms – an approach often referred to as “Blended Finance.” This is a game-changing, long-term initiative to bring investment to places that banks and investors have deemed too risky.
In December 2017, IFC tapped into the IDA PSW for the very first time with an investment in Caisse Régionale de Refinancement Hypothécaire de l’UEMOA (CRRH-UEMOA), a Togo-based mortgage refinancing company sponsored by the West African Development Bank and IFC. IFC purchased $9 million in 12-year local currency bonds to increase housing finance while deepening local capital markets. This enabled CRRH-UEMOA to ramp up its housing portfolio while simultaneously extending the local bond market yield curve.
Spicer goes further to submit that less than a year since this landmark investment, the IFC has helped CRRH-UEMOA strengthen its local bond investor base and raise the interest of international investors for future CRRH-UEMOA bonds. IFC’s initial $9 million investment is expected to expand the availability of housing finance across the WAEMU by $500 million in the next four years. As a result, 50,000 families and businesses are expected to obtain new mortgage loans; 200,000 people will have a new roof over their heads; and about 250,000 new housing-sector jobs will be created.
The project has been so successful that in January 2019, IFC anchored a second 15-year local currency bond in CRRH-UEMOA to support the institution’s efforts to progressively extend its bond maturity terms to 20 years by 2020. IFC now hopes to replicate this project with IDA PSW support to create affordable housing finance across Bangladesh, Rwanda, and Tanzania, where homeowners can sometimes only find mortgages for up to three-year terms – making home ownership out of reach for most.
When the recent push by the IFC to mainstream the Green Building practice in Nigeria through the introduction of its EDGE Green Building standard and certification program is considered together with the colossal housing deficit of over 17 million units, along with the massive underperformance of the mortgage industry in Nigeria, as well as the inability of many SME property developers to access the financing required to deliver the much needed housing units to the market due to the stringent borrowing conditions and the astronomical interest rates, then it makes sense that a similar IDA PSW instrument as that created for the WAEMU countries, be urgently created for Nigeria and other West African states not included in the WAEMU block.
Given the similarities of the challenges of poverty, joblessness, affordable housing delivery and home ownership in these countries and which are particularly exacerbated in Nigeria given its population of almost 200 million people, not creating such an instrument seriously inhibits the full scale adoption of green building practices as such financing is required to incentivize property developers and enable them absorb the marginal cost increments connected with certifying and building to EDGE standards.
