A $75m loan re-guarantee fund coming now available for African SMEs
A $75 million re-guarantee agreement for Small and Medium Enterprises (SMEs) throughout Africa has been announced by African Guarantee Fund (AGF) and British International Investment (BII), the UK’s development finance institution and impact investor.
Through this facility, AGF and BII will offer credit guarantees to partner financial institutions for up to 75% of the risk associated with SME loans, expanding the availability to credit and lowering the need for collateral for these SMEs. As a result, over the course of the eight-year cooperation, partner financial institutions are anticipated to enable up to $150 million in loans to 17,300 SMEs. This alliance will promote lending to climate-focused SMEs as well as SMEs that are owned or led by women.
Small and medium-sized businesses in Africa still have a difficult time getting loans. Regulatory requirements, a lack of appetite for a market segment that is seen as having a higher risk, a shortage of adequate collateral provided by SMEs, knowledge gaps on the part of the lenders, and skill gaps on the part of the SME borrowers frequently place restrictions on financial institutions.
Risk-sharing arrangements are a crucial instrument for bridging lenders’ knowledge gaps, expanding their SME lending while reducing risk, and enabling them to establish capabilities and a track record in serving this market segment. As a result, at least half of the total facility will be devoted to supporting SMEs in the most unstable African economies, helping them grow into successful companies that may help the continent’s economies grow productively over time.
Speaking on this, James Cleverly who is the current UK Foreign Secretary, said: “British International Investment is already a force for good in Kenya, supporting jobs and livelihoods in Africa. This investment shows that when we go together, we can go far.”
Constant N’zi, Deputy Group Chief Executive Officer and Group Chief Risk Officer, African Guarantee Fund said, “Our partnership with British International Investment marks our first engagement with a UK Development Finance Institution and is the beginning of a journey that will positively impact African SMEs. Through this re-guarantee, our capacity to support lending institutions has been increased and we are certain of increased economic growth across the forty African countries wherein our guarantee products are utilized.”
said: “British International Investment is already a force for good in Kenya, supporting jobs and livelihoods in Africa. This investment shows that when we go together, we can go far.”
In the same vein, Constant N’zi, Deputy Group CEO of the African Guarantee Fund said, “Our partnership with British International Investment marks our first engagement with a UK Development Finance Institution and is the beginning of a journey that will positively impact African SMEs. Through this re-guarantee, our capacity to support lending institutions has been increased and we are certain of increased economic growth across the forty African countries wherein our guarantee products are utilized.”
The facility helps achieve Sustainable Development Goal 8 of the UN, which is to promote inclusive and sustainable economic growth. The investment is also eligible for the 2X Challenge, a program launched by the G7’s development finance institutions (DFIs) to raise money for greater economic empowerment for women in developing nations.
