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Backbone of Africa’s banking system: Development Finance Institutions

Rob Withagen
By Rob Withagen
co-founder and CEO of Asoko Insight

Rob Withagen is co-founder and CEO of Asoko Insight, Africa’s leading corporate data and engagement platform, providing global investors, multinationals and development institutions the most effective route to discover, shortlist and engage their target universe of African companies. Learn more at

Posted on Wednesday, 26 May 2021 13:26

A man walks past an entrance to the International Finance Corporation building in Washington. (AP Photo/Patrick Semansky)

Development Finance Institutions (DFIs) have long played an important role in financing Africa’s private sector.

With patient capital and a high-risk tolerance, they hold Africa’s largest portfolio, directing significant resources to enable the continent’s banks and private investors to finance corporate growth.

According to our data at Asoko Insight, Europe’s 15 DFIs, the International Finance Corporation (IFC), Canada’s FinDev and the US Development Finance Corporation (DFC), have deployed over $48bn to Africa alone between 2015 and the first quarter of 2021.

Source: Asoko Insight

Growing trends

Several trends are driving the continued growth of their activity, including supporting the financing demands necessitated to respond to the Covid-19 pandemic, the ongoing impetus to fill Africa’s persistent infrastructure shortfall and increased emphasis on impact investing that meets environmental, social, and governance (ESG) criteria.

Overlaying these market factors, Africa’s role on the world stage is driving wider geopolitical dynamics that have seen international partners look increasingly to investment to cement their role in Africa’s future growth.

Recent years have seen DFIs gradually moving up the value chain by taking direct interests in private companies, with CDC, Finnfund, FMO, Proparco and IFC being among those exemplifying this trend.

Concentration of investments

That said, a look at the breakdown of DFI investments since 2015 by sector shows a continued concentration of deals in the financial services space – making up close to a third of the nearly 500 deals recorded – confirming that development finance provides key support for the continent’s banking system and is the backbone of private equity and venture capital growth.

This funding ultimately keeps Africa’s engine of small and medium-sized enterprises running, and has been particularly crucial since the onset of the coronavirus pandemic.

At the start of the pandemic in 2020, the Center for Global Development highlighted the need for DFIs to prioritise solvency at local financial institutions, while the Overseas Development Institute urged OECD governments to reallocate aid budgets to DFIs, which were best placed to deliver counter-cyclical support.

Emphasis on impact

The impact of this funding ripples outward, and today DFIs directly or indirectly support over six million African jobs. Impact is at the heart of DFIs’ mandate.

In a conversation with Asoko earlier this year, Benson Adengua, head of office and coverage for the UK’s CDC in Nigeria, said: “As a development finance institution, we consider impact in everything we do. We use a very broad definition of impact that covers the direct and multiplier effect of an investment on the economic growth of the market.”

This emphasis on impact investing has increasingly aligned with wider trends that have focused investment criteria on sustainability, gender parity and inclusive economic growth.

Climate crisis

Addressing the climate crisis is high on this agenda, and is reflected in the large number of power and utilities investments made by DFIs. These undertakings often require long-term financing with a high-risk appetite, making DFIs key to the foundation on which Africa’s infrastructure will be built.

At least half of these deals involve renewable projects, including Kenya’s Lake Turkana wind project, the continent’s largest wind farm and Kenya’s biggest private investment, which is funded by a consortium including three European DFIs.


Agriculture is another key area of focus for Africa as it seeks to ensure its resilience to climate change and improve its ability to feed its population. As our data shows, DFIs have historically been active in this space, with agribusiness representing the third-largest number of deals at 10% of deals. The sector continues to attract significant attention, with a coalition of DFIs committing over $17bn to improve food security in Africa in early May.

Such broad goals are matched by the breadth of DFI financing, which covers three-quarters of the continent. The investment hotspots at each of the four corners – Egypt, Kenya, South Africa and Nigeria – are the top destinations for DFI-backed deals, together representing 45% of the total.

This concentration is a reflection of the developed financial services and entrepreneurial ecosystems in these markets, which enables comparatively easier access to data about rising private sector stars to support the investment inflows.

Bottom line

DFIs were the dominant source of investment capital pre-Covid, pretty much the only one during it and, as a result, are coming out of it as an even more weighty force. While the long-term, impact-minded nature of the capital is well aligned with Africa’s development needs, it is also a sign of an underdeveloped commercial investment ecosystem.

As Africa’s economy gradually recovers from the pandemic, the balance between DFI and ‘commercial’ money will be one interesting yardstick for the region’s global competitiveness to watch.

Rob Withagen is co-founder and CEO of Asoko Insight, Africa’s leading corporate data and engagement platform, providing global investors, multinationals and development institutions the most effective route to discover, shortlist and engage their target universe of African companies. Learn more at

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