The African Development Bank (AfDB) has approved an equity investment of Sh2.1 billion ($24 million) in the East African Development Bank (EADB) to strengthen its balance sheet.
A statement from AfDB said the funds, out of which Sh869 million ($10 million) will be "paid in" with the balance in the form of callable capital, will enable EADB to contribute to improve its international credit rating.
"The project will help EADB consolidate the gains of its successful restructuring program. It will assist the current business strategy of the bank by strengthening its capital base," AfDB said in a statement released Wednesday.
EADB aims to support regional economic development and enterprise in the four member states of Uganda, Rwanda, Tanzania and Kenya. The bank has also announced a positive trend in profitability as well as improvement in asset quality for the third consecutive year.
AfDB said the transaction, mobilising significant financial resources in the East African Community (EAC), will support capital market development, government revenue generation and foreign exchange ultimately stimulating economic development and employment opportunities in the region.
AfDB said it will exploit synergies from its partnership with EADB, stemming from complementary sources of comparative advantage.
EADB, with its field presence and local knowledge of the EAC market, provides a logical conduit for AfDB to reach out to end-customers, including SMEs, by efficiently leveraging its scale.
Last year, EADB announced it will invest Sh20.9 billion ($240 million) in development projects in key economic sectors as it seeks to fast-track regional integration.
The bank said its strategic focus for the next three years include support of regional integration efforts; food security; environment and natural resource management; skills development; infrastructural development and resource mobilization for the region.
According to AfDB, in addition to providing fresh resources to EADB, the project is expected to help improve the quality of the callable capital of the bank, which is a major factor driving its credit rating.
"From this perspective, the project is aligned with AfDB's East African Integration Strategy, with its focus on sub-regional development finance institutions, as well as with the key pillars of AfDB's forthcoming Long-Term Strategy, particularly private sector development and regional integration," the statement said.
AfDB said the project is a crucial condition for mobilising financial resources from capital markets at more affordable terms and meeting the growing demand for investment in the EAC.
EADB is a sub-regional multilateral lender based in Kampala, Uganda, and operating in the EAC. Its interventions mainly take the form of loans, leases and equity participations.