New Urban Finance Facility for Africa

The New Urban Finance Facility for Africa (NUF) will provide catalytic capital to African financial institutions to stimulate lending for housing microfinance and basic services infrastructure.

The NUF Facility will enable local financial institutions in Africa to serve growing market demand for housing microfinance and basic services by the rising middle class, those earning between $2 and $20 per day, who have the desire and the ability to spend part of their discretionary income on improved living conditions if suitable housing finance were available to them. The market for housing microfinance and basic services improvement lending to this market segment in growing African cities is estimated at over $4 billion in the Facility’s top four target countries alone (Ghana, Kenya, Tanzania and Uganda).

Financial institutions in Africa are expressing a demand for catalytic capital to increase lending to this expanding client base for housing and basic services improvement. The NUF management team has developed investment structures through previous work in Africa that are designed to assist local banks to reach these target populations. Successful pilot project investments made by the NUF management team under UN-Habitat programs have created demand for follow-on investments.

Financial description

The Facility will make three types of investments:
1. Tier II Capital investments in banks, housing finance institutions and microfinance institutions demonstrating commitment to expanding into housing microfinance. Tier II Capital in the form of preferred stock will enable these clients to raise additional debt or attract additional core deposits for longer tenor lending.
2. Project-related Investments in FI sector clients for on-lending to affordable housing and community upgrading projects, including provision of water, toilet and shower blocks and market stall installations with water and sanitation facilities. The NUF investments will help meet the demand for construction capital for affordable housing and basic services installation. (Example: Investment in local banking institutions for on lending to community upgrading projects. Previous successful track record includes development of market stall improvements and shower and toilet facilities managed by community organizations.)
3. Regional Credit Enhancement program with DFIs: The NUF will make an equity-type investment in a credit enhancement program to encourage global commercial banks with operations in Africa to offer medium term working capital loans to local financial institutions.
Returns to investors will consist of interest on Facility investments, paid on a pass-through basis and investment upside (e.g. equity kickers, conversion of convertible preferred to equity and exit from equity.)