Supporting the development of African capital markets

Local bond markets are a crucial part of any domestic financial sector ecosystem. Bonds enable corporations and financial institutions to raise long-term capital from local institutional investors through standardised, transparent instruments under common terms and documentation. Raising funding in local currency also helps companies minimise their FX risk, matching the currency of borrowings to revenue.

Local institutional investors are natural funding partners for any established corporate/financial institution, as they best understand their local market context and have an inherent interest in supporting their nations economic development. Investing in local currency funding also creates a virtuous cycle whereby economic growth leads to increased savings accumulation, which in turn drives greater domestic investment and further growth.

The bond market is comprised of multiple stakeholders. On one side there are issuers requiring financing to operate and grow. On the other are investors, who have local currency liquidity available to support such investments. This includes local pension funds, insurance companies, banks and retail investors. Between the two are several market intermediaries including arrangers, accounting and legal advisors, rating agencies, and regulators. These intermediaries are crucial in facilitating the smooth operation of the capital market ecosystem, ensuring the efficient allocation of investors capital to the businesses that need it.  

The ALCB Fund takes a supply-driven approach, working to bring new bond issuers to market and increasing deal flow. Through more regular issuances, market intermediaries capacity grow, inherently leading to larger and more complex transactions over time. In addition, the Fund’s anchor role and enhanced due diligence standards provide comfort for local institutional investors to participate in innovative or first-time transactions. And as investors become more accustomed to investing in bonds, the supply of bonds in the domestic market will also rise.
Over time, the ALCB Fund also aims to further deepen local markets by encouraging longer tenors, more complex transaction structures (e.g. project bonds or securitisation), and advocating for improved market standards such as labelling and credit ratings. The Fund also aims to work with other development partners (including FSD Africa) to support the strengthening of the regulatory/institutional framework of local markets.