Definitions and scope

This research focuses on how bilateral development finance institutions (DFIs) can best link their mobilisation actions to support the development of local capital markets (LCMs), with a primary focus on sub-Saharan Africa (SSA). It distinguishes bilateral DFIs from multilateral development banks (MDBs) by their lack of preferred creditor status and different policy leverages. Key concepts include private capital, defined as commercial capital from private sector investors, and local institutional investors, such as pension funds, insurance entities, and sovereign wealth funds (SWFs), which are increasingly seen as vital for domestic sustainable development funding.

Introduction

The global financing gap for the Sustainable Development Goals (SDGs) is estimated at USD 3–4 trillion annually, while institutional investors collectively manage approximately USD 120–150 trillion. In emerging markets and developing economies (EMDEs), LCMs are essential mechanisms for raising private capital. However, these markets often remain shallow and concentrated in sovereign debt, with limited liquidity and insufficient pipelines of investable assets. DFIs are well-positioned to address these constraints by using tools such as anchoring issuances, de-risking bonds, and contributing to improved disclosure and standardisation.

How DFI mobilisation can help build LCMs

Local institutional investors in Africa are growing steadily; their combined assets exceeded USD 1 trillion in 2024, representing approximately 40% of the continent’s gross domestic product (GDP). In 2023, pension fund assets in Africa stood at roughly 22.6% of GDP, compared to a world average of 34%. There is significant variation between countries; for instance, pension fund assets represent 103.6% of GDP in Namibia and 83.2% in South Africa, but only 7.8% in Nigeria. LCMs provide these investors with long-term assets to match their liabilities without the currency risk associated with foreign investment.

Africa possesses 29 stock exchanges serving 38 nations, with a total market capitalisation of approximately USD 1.7 trillion as of early 2026. The ‘Big Four’ markets—South Africa, Morocco, Nigeria, and Egypt—account for the vast majority of this liquidity, with the Johannesburg Stock Exchange alone representing circa 80% of total market capitalisation. Corporate bond markets remain even smaller than equity markets, often hindered by a shortage of investable assets and high institutional allocation to government securities, which exceeds 80% in Ghana and 65% in Nigeria, effectively crowding out private issuance.

A proposed country classification for local capital market and mobilisation interventions

The report suggests categorising countries by GDP to determine the potential for LCM scaling. ‘Scale markets’ (+USD 100 billion GDP), such as South Africa, Nigeria, and Ghana, offer the largest potential for a range of DFI interventions. ‘Mid-growth economies’ (USD 25–99 billion GDP), including Kenya, Tanzania, and Côte d’Ivoire, possess foundations for scaling through anchoring and technical assistance (TA). The ‘developing middle’ (under USD 25 billion GDP) faces structural challenges due to small investor bases, while ‘fragile states’ generally lack the stability required for LCM growth, although Ethiopia is noted as a potential exception due to its large GDP and newly established exchange.

DFI interventions

Six primary DFI interventions are identified to support both mobilisation and LCM development. First, anchoring involves DFIs making early, visible commitments (typically 10–30%) to corporate bonds or equity to signal quality and encourage private participation. Second, de-risking through guarantees or blended finance tranches helps align risk-return profiles with investor needs. Third, issuing local currency bonds, exemplified by the International Finance Corporation’s (IFC) USD 17 million-equivalent Rwandan bond, helps lengthen yield curves and demonstrates strong issuance practices.

Fourth, investing in market infrastructure, such as the African Exchanges Linkage Project (AELP), enhances trading reliability and investor confidence. Fifth, providing transaction-specific and upstream TA is critical for strengthening policies, regulations, and institutional capacity. Finally, expanding platforms with dual mandates, such as the Africa Local Currency Bond Fund (ALCBF), which maintains a portfolio-level mobilisation ratio of over 1:9, can catalyse sustained domestic private capital.

Conclusions

Developing LCMs in EMDEs is a long-term process that requires strategic coordination across various sectors. DFIs should focus efforts on markets with existing infrastructure and investor bases, such as Nigeria, Kenya, and Zambia, while supporting more advanced markets like South Africa to introduce sophisticated products. Success requires moving beyond individual transactions toward intentional market-building and enhanced collaboration between DFIs to standardise templates and share data. Aligning mobilisation objectives with LCM development can create resilient financial systems that allow countries to take full ownership of their development agendas.