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

The study explores a mechanism to transfer non-sovereign MDB loans to African institutional investors, particularly pension funds, in East and West Africa. It identifies a potential pool of eligible assets from the IFC and AfDB and estimates that up to US$8.69 billion in pension assets could be allocated to such a vehicle if locally domiciled. The report proposes a phased implementation starting with a pilot, managed by a dedicated Fund Manager, using an umbrella fund structure with local currency sub-funds to mitigate foreign exchange risks.

• Preliminary screening identified eligible MDB 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 further data on financing instruments and maturity.
• Institutional investors, specifically pension funds, show significant interest in diversifying into alternative asset classes like infrastructure, which align with their long-term funding needs. While guarantees provide comfort, they are not considered a strict requirement for investment.
• The potential allocation from pension funds across seven target countries is estimated at US$8.69 billion if the investment vehicle is locally domiciled, decreasing to US$6.6 billion if the vehicle is offshore.
• Data on MDB portfolios is currently fragmented and inconsistent, which hinders the accurate assessment of exposures. The report argues that a standardised, central database like the GEMs database is essential for the successful packaging and transfer of assets.
• Recent GEMs risk database statistics from March 2024 show that recovery rates for private sector transactions are highest in sub-Saharan Africa (83.0%), challenging the perception that the region is inherently high-risk.
• To address currency mismatch, the study considers three approaches: local refinancing by obligors (deemed unlikely due to depletion of foreign exchange reserves), MDB issuance of local currency securities, and project-by-project co-investment between local investors and MDBs.
• The proposed institutional setup involves a permanent Special Purpose Vehicle (SPV) or closed-end investment company acting as an umbrella vehicle with country-specific and sub-regional sub-funds denominated in US dollars and local currencies (e.g., Kenyan shillings, Nigerian naira, Ghanaian cedi, and CFA franc).
• The report recommends that MDBs retain a minority stake in transferred assets through participation agreements rather than full ownership transfer. This ensures the MDB retains 'skin in the game' and maintains oversight of the borrower.

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} }