DFIs indispensable for African economic growth - CNBC Africa

DFIs indispensable for African economic growth

Financial

by Thando Matutu 0

Coins and bills.PHOTO: Getty images

“They’ve been playing a significant role in terms of the development of Africa. Particularly in terms of looking at a long term view in African growth,” Suresh Chaytoo, sector director of banks and development finance institutions at RMB told CNBC Africa.

DFIs are financial organisations which consist of government partnerships to provide loan funds or invest in private sector companies.

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These institutions have contributed to infrastructure development in Africa by forming partnerships with African governments. The focus has been facilitating the movements of goods and services in respective African regions and assisting poorer nations into importing their key commodities such as fuel, fertilisers and grains.

“African Development Bank looks at the needs of all the 54 African countries. PTA Bank was formed by the East Africa block, to meet the needs of the East Africa member states and we have AFREXIMBANK which supplements the needs of the sub-Saharan African countries. Smaller banks focus regionally but the main African DFIs have a Pan African focus,” said Chaytoo.

(READ MORE:Africa’s banking sector continues its growth spurt)

Chaytoo explained that in times of strife the private sector banks and developmental banks act as guarantors on behalf of governments or local banks to facilitate imports.

“DFIs have assisted Zimbabwe in keeping the wheels of the economy turning, during strife assisting with importing of food and fuel. When a country like Malawi is having crop failure or in desperate need of foreign currency, fertilisers, food and fuel to maintain the economy, [DFIs assist].”

According to the African Development Bank political interference, poor managerial skills and incoherent corporate governance structures have led to some instances of poor performance from DFIs.

This has allowed some African DFIs to employ cautionary measures in their policy when granting a loan. The debtor is required to pay a minimum capital of 25 per cent of the total project cost and provide a minimum of 35 per cent security in the form of physical assets to cover the loan.

(READ MORE:Global banking regulatory reforms to affect Africa)

Chaytoo further explained that DFIs operate on both commercial and developmental terms. DFIs do not distribute dividends or pay tax and funding is raised through capital provided by member states and the wholesale markets.

However, all lending transactions are to be maintained at environmental and social investments standards imposed by European and global DFIs which allow cohesion between the private and development sectors.

Chaytoo further added that the private sector and the DFIs are working together. “We as RMB would fund AFREXIMBANK if they want to raise funding activities for up to a consortium of eight to 10 banks. African Development Bank funds the private sector to supplement SME initiatives,” said Chaytoo.

BY: THANDO MATUTU

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