Innovative financing for affordable housing in Africa
In Africa, lack of housing stock creates a vicious circle of rising purchase and rental costs. In response, the Private Infrastructure Development Group (PIDG) is applying innovative finance solutions from traditional infrastructure developments to help enlarge Africa’s stock of affordable homes.
“It always seems impossible until it’s done,” wrote Nelson Mandela. That inspirational quote might stand as the mission statement for raising money to tackle the enormous shortage of affordable housing in Africa.
Few endeavours can be of greater humanitarian, economic or social benefit than providing decent housing to people on steady but modest incomes.
A good, modern, affordable home is protection from the elements, a place of fresh water, sanitation and power and light at the flick of a switch. A place to eat, sleep, rest, relax, study and live in dignity, secure in the knowledge that as long as the rent or mortgage is paid and you’re a good occupier it will be yours.
In Africa, a vicious circle exists of too little stock pushing up house purchase or rental costs and local borrowing for capital projects that is frequently too expensive for affordable housing developers.
Virtuous circles are achievable, as the Private Infrastructure Development Group (PIDG) has demonstrated. Its key drivers are pushing down affordability and pushing up green standards.
PIDG recognised that the financial model and innovative finance solutions its operating companies use to support traditional infrastructure developments in Africa could be applied to enlarging Africa’s stock of affordable homes.
PIDG’s core function is to mobilise private capital so that infrastructure vital to promoting economic development in emerging economies gets built.
In a comprehensive demonstration of PIDG’s ability to pull its group resources together to find infrastructure finance solutions, it mobilised the PIDG businesses EAIF, GuarantCo and PIDG TA on what became PIDG’s first affordable housing project.
Together, the businesses delivered an almost seamless project finance package of financial technical assistance, long-term debt and contingent credit solutions.
Student housing sector
The client was Acorn Holdings, a business making inroads in the student housing sector in Kenya. Kenya has a higher education student population of some 550,000. Their success is central to the nation’s economic future, but by 2019 there were only 40,000 rooms available to house students, many of whom have family homes too far away from their places of study for daily commuting.
Acorn’s biggest project to date is in Nairobi, where it is building six properties to accommodate 5,000 students in safe, affordable and green housing. The project has been financed using a privately placed bond issued in Kenya that raised Ksh4.3bn (US$39m).
EAIF was the anchor investor, investing Ksh1.3bn ($12.7m). GuarantCo provided investors with a partial
credit guarantee to cover 50% of principal and interest due under
the note programme.
PIDG TA supplied a part-repayable grant that supported the cost of the note issue. With the support of PIDG, Acorn Holdings then cross-listed the bond on the Nairobi Securities Exchange and the London International Securities Market.
The bond was the first to achieve ‘green certification’, meaning that the new facilities will meet globally recognised green standards adhering to the EDGE international rating system.
Included are areas like construction materials, water systems, energy conservation and carbon footprint. Half of the accommodation is expected to be occupied by female students. Measures to deliver good standards of personal security, particularly for women, are being designed-in. Lifts and ramps will be provided for disabled students.
The international ratings agency, Moody’s, has rated Acorn’s medium-term note programme B1. This is the first non-governmental green bond rated by Moody’s in Africa and will serve as an example for other corporate issuers who wish to seek funding from institutional investors.
Another PIDG company, InfraCo Africa, recently subscribed to Acorn’s innovative Real Estate Investment Trust (REIT) issue, investing $10m worth in local currency to enable Acorn to scale its business. Unlike traditional equity, REIT issues offer a tax-efficient means of raising capital. InfraCo Africa’s anchor investment will give comfort to local private sector investors, helping to mobilise local capital markets.
When we think of infrastructure our minds often go to facilities that serve thousands of people – power plants, ports, water supplies, digital telecommunications, roads – the foundations of modern life. Each affordable home that PIDG support helps build is surely infrastructure. It is a house. More importantly, it is a home.
The Private Infrastructure Development Group (PIDG) an innovative infrastructure development and finance organisation delivering pioneering infrastructure in the poorest and most fragile countries.
To read more articles from our special report on affordable housing in Africa, coordinated by AFFORD UK, visit the Housing a Continent webpage.