By Benadeta Mwaura - Reporter
Kenya, July 23, 2026 - African development banks are spearheading a new financing strategy aimed at unlocking nearly $4 trillion (about KSh516 trillion) in domestic savings to bridge the continent's persistent infrastructure deficit, signalling a shift away from overreliance on foreign aid and sovereign borrowing.
The new approach centres on the expanded use of credit guarantees, financial instruments designed to reduce investment risks and attract pension funds, insurance companies, sovereign wealth funds and international investors into large-scale infrastructure projects such as roads, railways, ports, power plants and digital infrastructure.
The strategy comes at a time when development assistance from traditional Western donors is shrinking while African countries continue grappling with an estimated $100 billion (KSh12.9 trillion) annual infrastructure financing gap, according to development finance institutions.
Rather than relying primarily on concessional loans and external development finance, African financial institutions now want to mobilise the continent's own long-term savings.
According to Reuters, Africa holds approximately $4 trillion in domestic capital through pension funds, insurance companies and sovereign wealth funds, much of which remains invested in low-risk foreign assets because many African infrastructure projects fail to achieve investment-grade ratings.
Banji Fehintola, Head of Financial Services at the Africa Finance Corporation (AFC), said African institutions have reached a turning point.
"Africans, especially the development banks, decided that we need to take our future and our destiny into our own hands," Fehintola said.
He added that, that's really why there's a lot of value in thinking of guarantees as the next thing for us to crowd in capital at scale.
Infrastructure projects in Africa have historically struggled to attract institutional investors because of concerns over political instability, sovereign debt risks, currency volatility and project execution.
Guarantees seek to reduce those risks by assuring investors that losses resulting from loan defaults, political disruptions or project failure will be partially covered.
For borrowers, guarantees can improve credit ratings, lower borrowing costs and unlock longer-term financing that would otherwise be unavailable.
Development finance experts argue that once projects attain investment-grade status, pension and insurance funds become significantly more willing to finance them.
Felipe Berliner, co-founder of investment firm Gemcorp Capital, believes investor appetite already exists.
"We're talking very material sums," Berliner said, adding that insurers would willingly invest tens of billions of dollars if African infrastructure projects achieved investment-grade ratings.
The initiative has gained momentum under the African Development Bank's new President Dr. Sidi Ould Tah, who recently unveiled the New African Financial Architecture for Development (NAFAD), placing guarantee instruments at the centre of the Bank's strategy to mobilise private capital.
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The model seeks to reduce reliance on scarce public resources while encouraging greater participation by domestic financial institutions alongside global investors.
The World Bank's Multilateral Investment Guarantee Agency (MIGA) has also expanded its guarantee operations, with guarantee issuance more than doubling over the past five years as demand for risk-sharing mechanisms continues to rise.
Africa's pension and insurance sectors remain an underutilised source of long-term capital despite managing trillions of dollars in assets.
Much of these funds are currently invested in government securities or offshore assets because infrastructure investments are perceived as too risky.
By reducing those risks through guarantees, development banks hope domestic savings can finance projects that stimulate industrialisation, regional integration and economic growth while generating returns for pension contributors.
For Kenya, the strategy could help finance major infrastructure priorities without significantly increasing public debt.
Projects including transport corridors, renewable energy, affordable housing, logistics hubs, digital infrastructure and water investments could increasingly attract private investors if backed by credible guarantee frameworks.
The approach also aligns with Kenya's efforts to expand public-private partnerships (PPPs) as fiscal space becomes more constrained.
Africa's infrastructure ambitions have often been constrained by limited fiscal resources and rising debt burdens.
The emerging guarantee model represents a broader shift in development finance, from governments borrowing more to institutions creating conditions that allow private capital to finance development.
If successfully implemented, it could fundamentally reshape how Africa finances its infrastructure, transforming the continent's own savings into a powerful engine for economic growth while reducing dependence on external aid.