CASE STUDY

Frontclear

Liquidity

Capital market tool

Anchoring; Guarantees

Geography

Emerging markets (25 countries), with a focus on Africa

LISTING EXCHANGE

N/A

SECTOR

Financial Services

DFI / DONOR INTERVENTION

FSD Africa; FMO; Proparco; FCDO; EBRD; KfW

TRANSACTION SIZE

USD 3.4 billion mobilised

TRANSACTION YEAR

2015

Structure and Capital Market Tool

Frontclear is funded by a consortium of multilateral development banks and DFIs. In 2015, FSD Africa made an early USD 9.5 million investment that anchored Frontclear's subordinated capital and absorbed initial risk, crowding in the Dutch development bank FMO, France's Proparco, the Swedish International Development Cooperation Agency (Sida), the European Bank for Reconstruction and Development (EBRD), Germany's KfW and a number of other European DFIs over the years.

Frontclear's intervention is not aimed at any individual security or issuer. It targets the plumbing without which secondary bond market liquidity cannot develop, regardless of how good the supply of assets is. The scheme employs a two-pronged strategy: absorbing counterparty credit risk in transactions such as repos, derivatives and securities lending, and delivering targeted technical assistance to strengthen regulatory frameworks, market infrastructure and participant capacity. Together, these are designed to open up short-term local currency interbank markets by mitigating the risks that keep banks from dealing with one another, particularly where larger banks are reluctant to transact with smaller local institutions.

Background and Market Context

In developing economies, interbank markets are often fragmented, illiquid and lack sufficient legal and regulatory assurances. In markets where banks do not lend to each other, the repo and money market infrastructure required to support bond market liquidity is absent. As a result, banks hoard cash rather than recycling surplus liquidity, money market development stalls, and financing costs rise.

Frontclear was founded in 2015 by Cardano Development, a fund manager focused on EMDEs, to address this market failure by providing local banks with guarantees covering counterparty credit and legal risks, so they can access both global and local interbank markets. This allows them to use their local currency assets more efficiently, manage risk, and lower their cost of capital.

Development Impact

Frontclear has mobilised USD 3.49 billion in funding through issued guarantees since 2020, expanded activity across 25 countries, and issued 47% of its guarantee volume to African banks since inception. By FSD Africa's estimate, every dollar Frontclear has guaranteed has unlocked almost nine times more in private capital.

This liquidity intervention does not target public capital markets directly. Its connection to public markets is structural rather than transactional, strengthening market infrastructure, reducing transaction costs, and mitigating interbank lending risks. Frontclear demonstrates that development finance can be deployed at the level of market infrastructure rather than individual transactions. By pooling capital together, a consortium of institutions can address systemic constraints.