Ghana produces the world’s highest-quality bulk cocoa beans and is the world’s second largest producer of cocoa, accounting for 20% of global production. But a great deal of the actual cocoa processing does not take place in Ghana.

Niche was set up to fill the vacuum that existed in local cocoa processing, with the aim of producing high-quality, semi-finished cocoa products and confectionery. There was also growing demand from the premium chocolate sector for a quality processed product that would enable confectioners to focus on top-end refining and marketing. Niche is also the only independent active grinder in Ghana that is not linked to a large trader or processor.

Tackling cocoa’s new challenges

The strategy is the brainchild of the firm’s founder, Edmund Poku, who originally came up with the idea for Niche while working on his MBA thesis, and returned to Ghana from a career abroad in investment banking to make it a reality. He found the cocoa industry was facing a mix of longstanding and new challenges, including price volatility, fluctuations in the value of the cedi, Ghana's currency, and the entry into the market of new competitors.

Niche was supported through a technical assistance grant from FMO in 2007, and went on to develop a 30,000-tonne processing plant that it subsequently sold in 2015 to French multinational Touton. Niche is now operating a much larger factory with additional refined cocoa capabilities.

Contributing to Ghana’s cocoa industry and society

Niche is positioned to bring substantial benefits to both the cocoa industry and Ghana's wider society and economy. It has already demonstrated through the Touton factory sale that it is possible for a privately-owned local firm to compete against state-owned companies and multinationals.

The company employs more than 340 people domestically, and its activities represent an important source of foreign exchange earnings for Ghana. Poku says Niche is already playing an important role in disseminating critical technical knowledge within Ghana’s cocoa-processing industry while improving the livelihoods of local farmers. The company also strongly embraces ESG principles – it is UTZ-certified for the provision of 100% environment-friendly cocoa and also sells organic cocoa.

Improving the lives of cocoa growers

One of the big social issues tied up with cocoa farming in West Africa is how the industry can improve the lives of the thousands of cocoa farmers who supply their crops twice a year. Niche is working closely with two cocoa co-operatives to produce certified products and enhance the position of the country's farmers, who work under highly challenging conditions.

FMO continues to work with Niche and is supporting its expansion plans, in 2018 extending a $10 million loan to finance a new cocoa liquor facility, which will help to expand its processing capacity from 60,000 to 90,000 tonnes. The plant will produce high quality, semi-finished cocoa products including cocoa liquor, butter and powder sought by global confectioners.

Creating opportunities for local people

The changes are contributing to Niche’s progression up the value chain, in the process creating job opportunities and skills in the local economy. While the company continues to compete in established sectors, it is also seeking to expand its reach into new areas of the industry and meet the needs of untapped markets – for example, the increasing demand for chocolate in developing economies.

It remains important for Niche to obtain working capital on affordable terms. A further $1 million from FMO has been earmarked for resource efficiency investments, assisting Niche with further water and energy efficiency projects. FMO is also examining the case for further capacity development to enable the distribution of affordable cocoa drinks to 5.5 million schoolchildren in Ghana.

Good governance plays a critical role in ensuring that the companies and projects with which FMO works are sustainable throughout their life cycle, enjoying the confidence of investors and counterparties. Even after FMO completes its dealings with a company – for example, when a loan is repaid – our goal is to leave the business or project in the best possible position to raise finance from commercial sources in the future, to grow and to achieve its long-term strategic objectives.

How we get involved

Every deal that FMO considers is subject to early screening - something that is far from a box-ticking exercise. As FMO, we consider it important to ensure professional advice is available to our clients that can help them improve their governance processes, and make their corporate structures both more robust and more transparent.

Therefore, FMO maintains an in-house team of corporate governance specialists, experienced in dealing with emerging and frontier markets. Their role is to use the opportunity created by FMO’s engagement to discuss governance with the board and management of companies. The governance team works closely with investment teams where it is felt we can add value and help to advance the interests of the companies we deal with.

“We frequently become engaged in new areas for the bank, be it new markets or sectors, new types of projects, and when FMO has the right to nominate a director to the board of an investee company. In those cases, our unit supports the investment team to find the best possible individual for the board seat, typically nominating external candidates with the most complementary skills and expertise”, says Rebeca Sanchez de Tagle White, FMO's senior corporate governance officer. FMO also works with other partners, for example private equity funds that are involved as a co-investor alongside FMO.

Why good governance matters to FMO

Governance issues for a development bank often go deeper than board-level personnel matters. “We require a more granular level of analysis, and ask questions about working practices, strategy setting and decision-making. While these may be difficult questions, they can help our clients to avoid difficult and damaging situations in the future”, says Rebeca.

“We often deal with family-owned businesses where founders and their relatives are employed in senior executive or board-level roles. We need to be sensitive to these circumstances and to the goals and concerns of firms' creators.

Our methodology includes a deep assessment of the company,” adds Rebeca. “We need to explain to the owners why various governance reforms will benefit the company. We want their company to be alive and well for the long haul.”

Governance in the financial sector

Cultural sensitivity is particularly important for clients in the financial services sector, where FMO sometimes needs to push back against arguments centred on local or cultural issues that are used to justify why banks and other financial institutions are shirking governance responsibilities.

While there may be an awareness of what good financial industry governance looks like, principals at banks and other institutions will often have arguments as to why things are different in their particular market, which will need to be addressed.

“With debt clients it can sometimes be tough to explain why an independent board may be necessary, and conversations can take a while to digest,” says FMO corporate governance officer Jasper Veel. "But, in the end, financial institutions come to appreciate an outside opinion - it helps them to think more broadly about their business."

A consultative approach to governance

While the governance team at FMO is small, albeit growing, the expertise of its members is on hand for clients in cases where there is perceived to be a need. Jasper adds: “we take a highly consultative approach, requiring us to understand how our clients have been established and have grown to where they are now.”

While these functions are in many ways similar to the consulting services offered by the management consultants at major banks, the markets in which FMO operates require to be both sensitive to local situations and able to come up with non-traditional solutions.

Ultimately, the aim of the governance team at FMO is to help companies - and other investors - minimise their risks, and reduce the possibility of a corporation or project going out of business, while ensuring long-term success. The main added value of a good governance proposition is that it can help firms raise further funding from commercial parties in the future and enable the business to mature and grow over the long term.

Primary healthcare in East Africa faces a challenge of early engagement. Traditionally, people have tended to defer seeking treatment because of the cost involved - no universal primary healthcare is provided by governments, which instead are seeking to persuade citizens to pay for national health insurance.

This diffidence about seeking treatment means that clinics and healthcare professionals tend not to see cases until they have reached a serious stage. Both the expense and the risk to the patient become magnified in the process.

According to the World Health Organization, the strengthening of primary healthcare is the most efficient and cost-effective means to achieve long-term beneficial health impacts.

Healthcare for the most vulnerable in Kenya.

In Kenya the government delegates the provision of primary healthcare to local county authorities. It is here that the Netherlands business team of FMO has become involved in a public-private partnership project with health organization Amref Health Africa, headquartered in Nairobi, and Royal Philips, involving various kinds of support for three clinics in Makueni County.

The project is initially designed to improve access to healthcare for 20,000 people in the county, but in December 2018 a memorandum of understanding was signed by Amref and FMO envisages preparing to follow the feasibility stage with a scale-up that will widen the scope of the initiative to as many as 1 million people and explores new opportunities for collaboration. Amref combines knowledge of the market and healthcare sector with 60 years on the ground experience in African. FMO in turn, brings extensive expertise in financial development that is crucial for running more financially sustainable programmes.

FMO is providing funding through the Development Accelerator facility, as well as legal and business expertise, and is working closely with the regional government, which is responsible for health policy, regulation and quality management at the clinics. Amref, as the largest African health organization, trains health workers, manages facilities and establishes community health units to improve prevention within communities and provide efficient referral. Philips is supplying medical equipment and health systems infrastructure specially designed for use in the demanding environment of rural Kenya.

The $1.3 million project was launched in July 2018 and will run until August 2019. If it is successful, the next phase will see the project rolled out nationwide to around 200 community health units, 200 dispensaries and 240 health centres, some of them already in place but in need of upgrading, while others need to be set up.

The trial is important because it involves a non-NGO model of sustainable finance designed to help the health system support itself and provide much-needed primary healthcare to Kenyans at an affordable price.

Targeting universal healthcare goals

The trial is generating considerable interest among healthcare policymakers in Kenya and other countries in East Africa where Amref also operates. It is part of a much wider strategic initiative to help African countries achieve their universal healthcare goals.

Within Kenya, despite the national government's efforts to date, the most vulnerable have yet to benefit fully from the healthcare insurance system. The model adopted by Amref, FMO and Philips in Makueni County is designed to enable this segment of society to benefit from direct healthcare at a price people can afford.

“If we are able to keep people healthy at home, the overall cost to the system will be less,” says Patricia Vermeulen, CEO of Amref in the Netherlands. “If we want this model to be financially sustainable, people need to be insured. To ensure access to care for everyone, the people who cannot afford the insurance will be subsidised by the Makueni government.”

The critical part of the project is ensuring that affordable healthcare is delivered not just to citizens who could not previously pay for it without incurring considerable debt, but also to the most vulnerable. This means innovation such as additional provision for maternity healthcare.

“It was important to develop a model that would build on the existing infrastructure, the clinics and personnel already there,” Vermeulen adds. “Delivering high quality primary care is and will remain a responsibility of the government. This model gives them the opportunity to outsource the execution. By combining the strengths of the public and private sectors, we can improve quality and efficiency.”

Learning from success in healthcare funding

Part of the funding will go toward improving the training of medical personnel and modernising the facilities available in the clinics. FMO is also working closely with all the parties involved to offer vital consulting expertise.

The partnership represents a new venture into healthcare for FMO, one that will help the organisation to develop a more informed strategy for the deployment of capital in frontier markets.

Georgia has benefited from a growing economy, strong international trade ties and a reputation for being business-friendly. While the economy has overcome a number of shocks over the past 20 years, the country's financial services sector has faced the persistent problem of a high degree of dollarisation - use of the US dollar as a substitute for the lari, the national currency.

A dollarised financial system can expose developing economies, and individual companies within them, to significant currency risks when mismatches arise between assets in local currency and liabilities in US dollars - hence efforts by the National Bank of Georgia, the country’s central bank, to reduce the level of dollarisation.

The dollarisation phenomenon is common to many frontier and emerging markets, but in the case of Georgia, high levels of inflation have exacerbated the impact on the local economy, with depreciation of the currency creating debt service problems for institutions that borrow in dollars and lend in lari. A side-effect has been to push local currency interest rates higher.

Supporting the uptake of local currency activity

De-dollarising its economy should improve Georgia's financial stability and contribute to the development of its domestic capital markets. FMO is one of a number of supranational institutions that have provided an important source of GEL-denominated funding for domestic financial organisations.

We have been working with Bank of Georgia, one of the country's two dominant commercial banks, in a relationship stretching back to 2011. Over this period the bank has expanded its operations both within the domestic market and internationally, and has become an important provider of financial and banking services to both private and corporate clients.

In August 2018 FMO issued a GEL160 million ($65 million) loan to Bank of Georgia, raised via a lari-denominated bond listed on the Georgian Stock Exchange, the first by FMO of a GEL bond and our largest local currency bond to date.

The funding programme will protect Bank of Georgia by helping to finance its local currency lending business, reducing the risk of currency mismatches in the bank’s balance sheet. It will also help Bank of Georgia comply with the de-dollarisation measures instituted by the National Bank of Georgia, requiring institutions to increase their levels of lari-based lending to both retail and business customers. 

This transaction was followed in October by a five-year loan facility of GEL103 million ($40 million) to TBC Bank, with which FMO has been in partnership since 2006. The facility, also funded by a placement of bonds on the Tblisi exchange, will primarily help finance young entrepreneurs running micro, small and medium-sized enterprises in Georgia, as well as mortgage loans for retail customers.

The importance of local currency bonds

In the past FMO has provided loans to both Bank of Georgia and TBC Bank with currency risk hedged by Amsterdam-based Currency Exchange Fund (TCX), which was initiated by FMO in 2007. TCX manages currency risks by pooling non-correlated frontier and emerging markets currencies, despite often challenging market conditions, and since 2016 it has been working closely with FMO to develop a market for local currency bonds that can feed into a growing supply of local currency lending.

Last year's issue of local-currency bonds by FMO also introduce AAA-rated bonds to the GEL fixed-interest market, which historically has been dominated by government issues. The bonds will also be available as a pledge for repo transactions with the central bank.

Local currency bonds can tap both local savings and offshore investment, playing a critical role in the practical de-dollarisation of economies. We see growing appetite from investors for this type of bond, leading to larger deal sizes.

FMO's aim is to help make Georgia’s local currency economy more stable, robust and, ultimately, more dynamic. GEL-denominated loans funded by bonds of this kind help FMO to protect clients in emerging and frontier markets from the most damaging consequences of fluctuation in the exchange rate with the US dollar, particularly sudden depreciation, which can disrupt and delay vital economic activity. The confidence shown by the FMO bond also represents a signal to help attract other outside investors to Georgia.

India faced demand for electricity that outstripped its generation capacity; the country relied heavily on imported coal, and industry and consumers still suffered from frequent power outages. There was a lack of long-term funding for clean energy projects, including rooftop solar panels and wind power, and around a quarter of the population – 300 million people – had no access to electricity.

The Indian government remains committed to the goal of creating 100 GW of solar power capacity by 2022, an ambitious plan that would require $35 billion in capital and entail 95% annualised growth over the next four years. The government also aims to provide 24-hour electricity to the entire country within the next few years. Private and development capital, including from international sources, is already playing an important role.

The government is delivering on ambitious growth targets for solar power generation, and in 2018 overtook the US to become the world's second largest solar energy market.

Funding rooftop power in India

The scarcity of production resources also represents an opportunity for countries and companies to more easily make a development leap to a better diversified energy mix instead of relying only on fossil fuels for their economic growth. This opportunity was seized by Azure Power already in 2009. At that time, the entire country had only 10 MW of installed solar generation capacity, compared with more than 25 GW now.

It is a remarkable growth story, in the course of which power costs for Azure’s clients have dropped by 80% over the past five years. FMO has taken an active role in this revolution by financing Azure Power and its sister company Azure Rooftop Power. In 2017, we provided Azure Power with a local currency senior loan facility for the equivalent of $30 million, financing that will enable the company to expand its power generation platform rapidly.

In May 2018, together with IFC, Proparco and OEeB, FMO agreed to finance a further $135 million of rooftop solar projects, which will provide to 200 MW of power generation capacity. Azure Rooftop Power is delivering rooftop solar power solutions for a wide range of clients, from government institutions to commercial and industrial businesses.

Local challenges, strategic success

Doing business in India is accompanied by inevitable social and environmental risks, for example with regard to land acquisition. It represents a complex and challenging context for companies such as Azure, which has projects installed and operating throughout the country, and it is critical for Azure to adopt a holistic approach towards safety, health, environment and social-related (SHES) issues.

FMO has supported Azure in integrating a social due diligence process and introducing a land acquisition procedure for all new projects. The company has created a dedicated SHES department, headed by a manager responsible for oversight across the company's growing portfolio, including ground-mounted and rooftop installations. In a FMO-supported workshop, Azure teams have developed innovative solutions to tackle SHES compliance risks throughout the business, and cash-based incentives are provided to staff to reinforce good practice.

With more than 600 personnel on the ground, Azure is well accustomed to dealing with the many linguistic and cultural differences which make India such a complex market in which to operate, especially when introducing new technologies such as solar panels.

Its growth has directly and indirectly created many jobs in India, including in poorer states such as Uttar Pradesh, and it has created cash flows to communities that previously lacked many basic resources but now benefit from a sustained source of income.

A pioneer in the market, Azure has an established track record of installing solar projects and is making a significant contribution to helping India achieve its clean energy power generation targets. From a wider perspective, sustainable energy resources are set to play a vital role in meeting India's energy needs as the country's economic growth drives increased demand for power.

Mongolia is one of the least densely populated countries in the world, with much of the population living in remote rural areas, where many follow a nomadic or herder lifestyle that has not changed for centuries. 

The realities of life in Mongolia are harsh, with monthly temperature variations of 45ºC not uncommon and no city or town within a day’s travel for most people. Yet 80% of Mongolians have a bank account, a much higher rate than in countries such as Russia or Kazakhstan.

Digital banking, supported by a widespread mobile telephony network, serves as the backbone of retail banking in Mongolia. The leader in this sector is Khan Bank, which serves 2.4 million of country's 3.1 million inhabitants, having pioneered mobile banking in 2007 and embraced digital banking in 2013.

Reaching out to the rural unbanked

Khan Bank, which has been an FMO client since 2009, delivers banking services to 70% of Mongolian families. It is the country's largest commercial bank with more than 500 branches around the country, and accounts for 25% of sector assets. Khan Bank is also making considerable inroads into the SME and corporate banking segments.

Mongolia relies heavily on commodity exports, and its once fast-growing economy has experienced a slowdown as a result of the decline in commodity prices since 2015. However, providing finance to marginalised consumers and entrepreneurs is a critical element of the mass market banking function, and plays an important role in reducing inequality, one of FMO’s key priorities among the UN Sustainable Development Goals.

At the instigation of the IMF, Mongolia's central bank appointed an independent auditor to review the asset quality of the Mongolian banking sector. The review, which took place in 2017, caused unrest in the sector and reluctance from investors or financiers to support banks before the review ended. However, as FMO and Khan Bank have a longstanding partnership, and FMO was confident that the bank's review would be acceptable, we issued a letter of interest for a loan facility and started the approval and syndication process ahead of the finalization of the review.

With foreign investment in Mongolia shrinking as the mining sector has struggled, the role of Khan Bank in providing funding to the economy has become even more important. We arranged a $120 million loan to the bank, the largest in its history, to help it continue to serve customers in even the most remote parts of the country. The loan also signals FMO’s own commitment to the Mongolian market, and the transaction is expected to pave the way for further funding from other international financial institutions.

How does FMO’s support reduce inequality?

Khan Bank provides financial services to the rural poor, people that would otherwise lack access to banking services. In many cases this includes families involved in the production and sale of agricultural products in extremely remote parts of the country, living in marginal households.

Mongolia lacks large-scale corporate agricultural activity. Khan Bank works predominately with small or micro-enterprises, with 8% of its loan book devoted to agriculture lending or loans to herders. The majority of its activities (67%) involves retail lending to individuals. The bank does not currently track what portion of its retail lending to individuals meets FMO’s classification of microfinance (loans to businesses with an original amount of less than €10,000), but a significant amount of its retail lending is being used for business or other productive means, and thus could be classed as microfinance.

Outside the loan facility provided by FMO, we will also support further initiatives to strengthen Khan Bank’s environmental and social management system as part of a financial sector-wide initiative to upgrade environmental and social standards led by the Mongolian Banking Association. The bank will continue to develop its ability to reach the country's most remote regions, and to upgrade its mobile banking and digital banking capabilities.

The syndicated loan from FMO is also important for the country on a wider level, by demonstrating the ongoing confidence of investors in Mongolia, its economy and society.