Local Currency Solution for Multilateral Development Bank Portfolio Transfer: Feasibility Study

This feasibility study by FSD Africa explores a mechanism to transfer non-sovereign asset portfolios from Multilateral Development Banks (MDBs) to domestic institutional investors in Africa using a local currency solution. The goal is to free up MDB capital for new investments while deepening local capital markets and reducing foreign exchange risks for borrowers. The study focuses on seven markets in East and West Africa and proposes the creation of a permanent investment vehicle (SPV) managed by a professional Fund Manager to facilitate these transfers.

• Preliminary screening of MDB portfolios identified eligible assets for transfer totaling US$2.453 million, consisting of US$1.571 million from the IFC and US$882 million from the AfDB. An additional US$5.284 million in projects may be eligible pending access to undisclosed data on financing instruments, tenor, and maturity.
• The study estimates that pension funds across the seven target countries could allocate up to US$8.69 billion to a portfolio transfer vehicle if it were locally domiciled; this potential allocation drops to US$6.6 billion if the vehicle is offshore.
• Institutional investors in the target markets show significant interest in diversifying into alternative asset classes, particularly infrastructure projects, as these match their long-term funding needs. While guarantees provide comfort, they are not considered a strict requirement for investment.
• Data on MDB portfolios is often incomplete, fragmented, and inconsistent, which hinders the accurate assessment of exposures. The study advocates for a common, standardised database, noting that the GEMs risk database recently released default statistics showing that recovery rates for private sector transactions are highest in sub-Saharan Africa (83.0%).
• To mitigate risks and legal constraints, the proposed model suggests using participation agreements where MDBs retain a minority stake (skin in the game) rather than full ownership transfer. This allows investors to benefit from the MDB's preferred creditor status and ensures the MDB maintains oversight of the loan.
• The study identifies three main approaches to address currency mismatch: local refinancing by obligors (which may deplete foreign exchange reserves), MDB issuance of local currency securities (which creates liquidity management risks for MDBs), and co-investment by local institutional investors with MDBs on a project-by-project basis.
• Regulatory limits on alternative investments are generally not a major barrier to diversification in the target markets, as current allocations to infrastructure and private equity remain well below national thresholds. For example, infrastructure investments are below 1% in Kenya and below 3% in Nigeria.
• FSD Africa intends to establish a permanent vehicle (SPV or closed-end investment company) and has already received expressions of interest from 16 African fund managers to act as the Fund Manager.

APA

Osano, E., Fuchs, M., Mugi, A., & Gathumi, J. (2024). Local Currency Solution for Multilateral Development Bank Portfolio Transfer: Feasibility Study. FSD Africa. https://fsdafrica.org/wp-content/uploads/2025/05/Report-Local-Currency-Solution-for-Multilateral-Development-Bank-Portfolio-Transfer-004.pdf

Chicago

Osano, Evans, Michael Fuchs, Amos Mugi, and Jemima Gathumi. Local Currency Solution for Multilateral Development Bank Portfolio Transfer: Feasibility Study. FSD Africa, 2024. https://fsdafrica.org/wp-content/uploads/2025/05/Report-Local-Currency-Solution-for-Multilateral-Development-Bank-Portfolio-Transfer-004.pdf.

Wikipedia

{{cite report |last1=Osano |first1=Evans |last2=Fuchs |first2=Michael |last3=Mugi |first3=Amos |last4=Gathumi |first4=Jemima |title=Local Currency Solution for Multilateral Development Bank Portfolio Transfer: Feasibility Study |publisher=FSD Africa |date=2024 |url=https://fsdafrica.org/wp-content/uploads/2025/05/Report-Local-Currency-Solution-for-Multilateral-Development-Bank-Portfolio-Transfer-004.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{osano2024local, author = {Osano, Evans and Fuchs, Michael and Mugi, Amos and Gathumi, Jemima}, title = {{Local Currency Solution for Multilateral Development Bank Portfolio Transfer: Feasibility Study}}, institution = {FSD Africa}, year = {2024}, url = {https://fsdafrica.org/wp-content/uploads/2025/05/Report-Local-Currency-Solution-for-Multilateral-Development-Bank-Portfolio-Transfer-004.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }