Business and Technology Reporter in Nairobi, Kenya
Tanzania’s NMB Bank this week raised Tsh262.5 billion ($100 million) through a Tanzanian shilling-denominated bond listed on the London Stock Exchange (LSE), the first such transaction in East Africa, creating a potential new funding source for lenders and businesses in the region.
The money will support NMB’s lending to micro, small, and medium enterprises (MSMEs), women-led businesses, farmers, and entrepreneurs in Tanzania, boosting the lender’s loan book and improving access to credit for an underserved market in the country.
NMB is Tanzania’s largest commercial bank by customer numbers, serving more than 10 million customers through 248 branches and an extensive agency banking network. The lender has increasingly positioned itself as a leading financier of small businesses and agriculture, sectors that typically struggle to obtain long-term credit.
Issued by the International Finance Corporation (IFC), the 5-year bond carries a coupon rate of 7.6 percent, and was placed with European institutional investors, with Goldman Sachs acting as the transaction dealer.
Although the bond was not oversubscribed, both NMB and IFC contend that it signals growing confidence not just in Tanzania as an investment destination, but the entire region by extension, signalling the possibility of similar bonds by the region’s banks and businesses. “The transaction demonstrates the potential of offshore local currency bonds to mobilize international capital and expand local currency financing in emerging markets beyond the capacity of domestic markets,” said IFC in a statement.
Offshore financing denominated in local currencies significantly reduces foreign exchange risk for borrowers by matching their debt obligations with the currency in which they earn their income and shielding them from exchange-rate swings that can inflate debt servicing costs.
The Tanzanian shilling-denomination means the bond’s value and returns are linked to the local currency even though international investors receive payments in US dollars, according to the IFC.
The structure allows NMB Bank to access long-term local-currency funding for on-lending to businesses, reducing the foreign exchange risk that arises when companies borrow in dollars but generate their income in local currencies.
In East Africa, no firm or state has successfully issued a local-currency denominated bond in an off-shore market, and the funding stream has remained largely untapped, due to the perceived risk of local currency volatilities. “Unlike foreign currency borrowing, the Tanzanian Shilling-denominated financing enables businesses to invest and grow without exposure to foreign exchange-risk, supporting greater financial resilience and long-term economic sustainability,” said NMB’s managing director Ruth Zaipuna.
East African banks have traditionally relied on customer deposits, domestic bond markets and syndicated loans from development finance institutions to fund lending.
Offshore local-currency bonds have remained rare because international investors have been reluctant to take on East African currency risk, while the region’s relatively shallow capital markets have made it difficult to establish reliable pricing benchmarks.
The NMB transaction suggests international investors are becoming more comfortable with taking exposure to selected African currencies through highly rated issuers such as IFC.
Tanzania joins a small group of African countries whose currencies have been used in offshore local-currency bond issuances. Similar transactions have previously been arranged in South Africa, Nigeria, Ghana and Zambia, largely by multilateral lenders including IFC to channel long-term local-currency financing to domestic financial institutions.
The Tanzanian transaction is, however, the first of its kind in East Africa, potentially creating a template for banks in Kenya, Uganda and Rwanda seeking to diversify funding beyond domestic deposits and foreign-currency borrowing.
Kenyan banks have periodically tapped international markets through syndicated loans and Eurobond-linked facilities, but none has yet raised offshore financing denominated in shillings.
Analysts say the NMB transaction could provide a blueprint should investor appetite deepen and hedging markets become more developed, although Kenya's more liquid domestic bond market means local lenders have traditionally had less incentive to seek offshore local-currency funding.
