AFD AND FINANCIAL INNOVATIONS FOR DEVELOPMENT

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1 AFD AND FINANCIAL INNOVATIONS FOR DEVELOPMENT AFD Photo agence Solutions tailored to new challenges

2 AFD Yves Terracol 4&5 MARS 2010 CITÉ DES SCIENCES ET DE L'INDUSTRIE PARIS - PARC DE LA VILLETTE +CONNECTING IDEAS +DEVELOPING ACTIONS AFD a key player in financial innovation for development Development challenges require financing methods tailored to the specific needs of different sectors, players and developing countries. For several years now, AFD has been diversifying its toolkit of financial instruments in order to meet these challenges. This diversification has been marked by sizeable growth in financing destined for non-sovereign South players (local authorities, economic and social players) and is being pursued and scaled up. AFD consequently provides financing that helps mitigate the vulnerability and volatility of economies and enhance the developmental impact of projects. For example, AFD invests in projects with flexibility mechanisms, in sophisticated guarantee instruments and in targeted categories of investment funds. Beyond financial instruments, AFD and Proparco, its private sector financing arm, seek to build partnerships with philanthropy, insurance markets, the socially responsible investment (SRI) market and solidarity financing in order to boost the mobilization of new resources to support developing countries. Marketplace on Innovative Financial Solutions for Development (4 and 5 March 2010, Paris) AFD, the World Bank and the Bill & Melinda Gates Foundation decided to organize the first Marketplace on Innovative Financial Solutions for Development in order to enhance reflection and knowledge sharing on these topics. The aim is to showcase a wide range of innovative initiatives, jointly analyze lessons learned from the new mechanisms and instruments that have been created in recent years and identify possible areas for future action. An international competition in the form of a call for ideas gives a project dimension to this event, with awards for AFD Paul Kabre

3 AMUNDI AFD AVENIRS DURABLES, investing in development AMUNDI AFD AVENIRS DURABLES was officially launched on 16 September It came about thanks to the combination of the complementary expertise of Amundi Group via IDEAM, its arm specialized in Responsible Investment, and AFD Group. This Mutual Fund is entirely dedicated to long-term financing for projects that promote sustainable development in South countries. This savings product is open to the general public and covers three main areas of operations: the fight against poverty, support for economic growth, environmental protection. The product reconciles cautious and responsible financial investment and development aid. Seeking financial leverage, a strategic priority for AFD AMUNDI AFD AVENIRS DURABLES builds a bridge between savings in developed countries and the financing needs of developing countries. It is consequently a pioneer in innovative savings for the development of South countries. The fund in detail AMUNDI AFD AVENIRS DURABLES is an Undertakings for Collective Investment in Transferable Securities (UCITS) fund managed by IDEAM. It applies the principles of Responsible Investment by selecting businesses and issuers that show concern for environmental and social factors in reaching their profitability targets. AMUNDI AFD AVENIRS DURABLES has a cautious investment strategy: 70 % of its assets are invested in a selection of mainly monetary or bond SRI funds and to a lesser extent in shares. The funds selected give priority to investment in the core sectors of sustainable development, such as access to water, renewable energies and microfinance. The remaining 30 % of the portfolio is earmarked for development aid. Two thirds of this is invested in bonds issued by AFD and the last third is used to cofinance alongside AFD or PROPARCO projects in emerging and developing countries. 10% maximum 20% roughly 70% roughly UCITS* *priority given to responsible approach AFD* bonds *public establishment Project cofinancing (alongside AFD or Proparco) AMUNDI AFD AVENIRS DURABLES Investment strategy HCCL: lending to the poorest countries and preventing the risk of crisis Low-income countries vulnerable to external shocks The Highly Concessional Countercyclical Loan (HCCL) is a flexible credit instrument designed to prevent debt crises in developing countries which suffer from numerous external shocks. Low-income countries are on average more likely to face a sudden fall in commodity prices or unfavorable climate conditions. This has impacts on their export revenues and makes their economies particularly volatile. Restoring access to credit while avoiding a new debt crisis Agence Française de Développement wished to learn lessons from past debt crises by offering these countries a new lending instrument: the HCCL. This flexible loan allows the debtor country to suspend repayments in capital a certain number of times when it experiences a sharp fall in its export revenues. This type of mechanism links repayments by a borrowing country to its capacity to pay. This avoids debt repayment difficulties caused by export shocks. Senegal, Mozambique, Tanzania, Burkina Faso and Mali all low-income countries have benefited from AFD s HCCL.

4 ARIZ, AFD guarantees for access to financing for South businesses ARIZ is one of France s major mechanisms to promote economic growth and job-creating start-ups in Africa. Ariz gives private small and medium-sized enterprises and microfinance institutions easier access to financing. It consequently acts as a lever for economic growth. Thanks to partnerships built with banks, financial institutions and private equity investment entities, ARIZ supports the start-up or development projects of small and medium-sized enterprises in South countries. A wide range of loan and equity investment guarantees ARIZ offers a wide range of instruments that are flexible and easy to mobilize, such as the SME single deal guarantee, the SME loan portfolio guarantee, or risksharing on financing for microfinance institutions. From microenterprises to SMEs, ARIZ helps promote and secure bank financing for corporate projects via medium and long-term credit or leasing. The ARIZ guarantee helps strengthen corporate equity by covering part of: equity or quasi-equity injections by mother companies into their majority-owned subsidiaries equity investment in local SMEs/SMIs from equity investment organizations ARIZ provides local banks with guarantees of up to 50 % of the amount of the loans they allocate to businesses and up to 75 % of financing for microfinance institutions. Its tools are in local currency or euros and are tailored to risk securitization needs, including political risks or climate hazards. ARIZ in figures - The mechanism is active in over 5 countries, mainly in Africa. - Almost 50 banks are partners. - Since 2000, its commitments have been constantly rising (the volume of guarantees allocated has seen a sixfold rise in 3 years). - An increasing number of businesses have been able to develop each year and support or create thousands of jobs (almost in the past two years). - In 2009, ARIZ facilitated the allocation of a volume of 200 million euros of loans to some 200 businesses. Examples of projects supported by ARIZ Portfolio guarantee covering 50% of loans allocated to very small enterprises with the subsidiaries of an international banking group in Senegal, Mali and Guinea Conakry. Madagascar: support for the construction of a dental prosthesis manufacturing plant with a 50% guarantee for a bank loan. The company has 322 employees. To go: first ARIZ guarantee in this country for a bank for financing allocated to a microfinance institution. This financing aims to develop a school credit product destined for student parents, school founders and teachers in Togo. AFD Antoine Grimaud

5 five initiatives. FISEA: getting involved and investing in African businesses Africa s private sector is marked by the dynamism of small and medium-sized enterprises and is structuring itself in order to gain easier access to financing. Despite its extraordinary potential to create employment, this segment of the economy experiences serious difficulties in gaining access to financing. The Investment and Support Fund for Businesses in Africa (FISEA) is one of the main mechanisms of the French Initiative for Growth and Employment in Africa. It aims to reduce these difficulties and act as a lever for economic growth in Africa. Its objective is to promote the growth of businesses and financial institutions in Sub-Saharan Africa by giving them access to equity and support in managing their investments. An original mechanism for growth and employment FISEA is a 250 million euros fund held by AFD and managed by PROPARCO, its private sector financing arm. With an annual investment target of 50 million euros, FISEA is expected to finance some sixty projects in five years and help create over jobs in Africa. This mechanism is coupled with a line of grants to finance support measures and technical assistance for management or governance. FISEA s operating methods FISEA s operating methods mainly involve making minority equity and quasi-equity investments either indirectly (in other investment funds) or directly (in banks, microfinance institutions, businesses or infrastructure projects). FISEA consequently targets investment fund managers mainly investing in Sub-Saharan Africa as well as businesses with little access to traditional financing, entrepreneurs that need financial assistance in order to develop their activity and banks and microfinance institutions seeking equity and support for their medium-term operations. The main financial instruments used are: equity investments, subscriptions to bond issues, shareholder current accounts, the possibility of technical assistance for a limited amount linked to the investment. Projects financed must be financially profitable in the medium term and comply with international environmental, social and anti-money laundering standards. The unit investment amount is between 1 and 10 million euros and the maximum shareholding period is between 7 and 10 years. AFD Éric Beugnot

6 AFD Yves Terracol With offices in more than 50 countries, AFD finances and supports projects that improve people s living conditions, promote economic growth and protect the planet. AFDfunded projects provide schooling for children, support farmers and small businesses, supply drinking water, preserve tropical forests and fight climate change, among other things. AFD committed nearly 6.2 billion to financing aid activities in developing countries and the French Overseas Communities in The funds should permit the vaccination of 1,8 million children, give 7.3 million people access to drinking water and create or save jobs for 900,000 workers engaged in private enterprise; funding for energy efficiency projects will save nearly 5 million tons of carbon dioxide emissions per year. PROPARCO PROPARCO, AFD s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment. This brochure respects the environment and was printed using vegetal ink on FSC certified paper (sustainable forest management) AGENCE FRANçAISE DE DéVELOPPEMENT (AFD) 5 rue Roland Barthes Paris Cedex 12 France Tél. : Fax : Crédits photos : AFD sauf mention - Exécution : Planet 7 Février 2010 AFD stands for the Agence Française de Développement. AFD is a public development-finance institution that has worked to fight poverty and support economic growth in developing countries and the French Overseas Communities for more than 60 years. AFD executes the French government s development aid policies.