Kenya and Tanzania are set to benefit from the African Development Bank (AfDB)'s seven-year multi-currency line of credit for an amount equivalent to $300m.
The funds are to be channeled through the FirstRand Bank Limited (FRB) of South Africa to finance a wide range of projects in local currencies and across Africa.
A statement issued by the bank said that most African countries are characterized by low discretionary rates of domestic savings.
"As a result, the intermediation capacity of the financial sectors is limited, leading to the gap currently being filled with borrowings denominated in foreign currency, however, this introduces a currency mismatch in the financial systems' balance sheets constituting a potential source of instability," the bank said in a statement.
It said therefore that there is a clear need for providing stable sources of local currency financing and the line of credit from the AfDB will contribute to filling this gap by making available medium-term local currency financing to sub-borrowers across Africa.
The line of credit will be drawn in multiple African currencies including the Nigerian Naira, the Kenyan Shilling, the Zambian Kwacha, the Ghanaian Cedi, the Mozambique Metical and the Tanzanian Shilling.
Further, in line with the AfDB's mandate to contribute to the development of local capital markets, it is expected that the local currencies will be mobilized through the establishment of bond issuance programs in the domestic capital markets and the issuance of local currency denominated bonds to meet the specific local currency requirements of foreign reserve banks.
These programs are expected to complement existing efforts to develop Africa's local capital markets thereby providing a strong catalytic and demonstrative effect.
The line of credit will contribute to mobilizing significant financial resources in countries where its proceeds will be deployed, ultimately contributing to economic development and employment opportunities.
It is also expected to contribute to government revenues, the development of local capital markets as well as African regional integration.
"With this line of credit, the AfDB is introducing a new and innovative form of local currency financing, this structure can be replicated by other banks in Africa to gain access to funding in African currencies thereby reducing unnecessary currency mismatches and deepening the local capital markets," said the bank's director for the private sector department Timothy Turner.
Andries du Toit, FirstRand Group Treasurer commented that the loan facility further deepens relationship with AfDB, and provides clients access to in-country local currency throughout the African continent.
