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African Guarantee Fund (AGF), a leading Pan African guarantee provider, has announced a partnership of a US$75mn re-guarantee agreement for small and medium enterprises (SMEs) across Africa

AdobeStock 3094322788The partnership will also encourage lending to SMEs that are women-owned or led. (Image source: Adobe Stock)

The partnership with British International Investment (BII) will provide credit guarantees to partner financial institutions for up to 75% of the risk on SME loans, thereby increasing access to credit and reducing collateral requirements for these SMEs. As a result, the eight-year partnership is expected to facilitate up to US$150mn in loans to 17,300 SMEs through partner financial institutions. This partnership will also encourage lending to SMEs that are women-owned or led as well, as SMEs that are climate-focused.

SMEs in Africa continue to face significant challenges in accessing credit. Financial institutions are often constrained by regulatory requirements, limited appetite for a segment that is perceived to be higher risk, a lack of adequate collateral available from SMEs, knowledge gaps by the lenders and skill gaps demonstrated by SME borrowers.

Risk-sharing facilities are a key tool to support knowledge gaps by the lenders and in broadening their SME lending while mitigating risk and allowing them to build capabilities and track record in serving this market segment. As such, at least half of the overall facility will specifically target SMEs in the most fragile African economies to support promising businesses that can contribute to productive economic development over the long term.

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 40 African countries wherein our guarantee products are utilised.”

The joint facility contributes to the United Nations Sustainable Development Goal 8 on promoting inclusive and sustainable economic growth. The investment also qualifies under the 2X Challenge, an initiative by the development finance institutions of the G7 to mobilise capital to support increased economic empowerment for women in emerging economies.