British International Investment, African Guarantee Fund, Sign $75m deal to fund African SMEs
By Chisom Nwatu
The UK’s development finance institution and impact investor, British International Investment (BII), and African Guarantee Fund (AGF), a leading Pan African guarantee provider, have today announced their partnership deal of $75 million re-guarantee agreement for Small and Medium Enterprises (SMEs) across Africa.
Through this partnership, AGF and BII will provide credit guarantees to partner financial institutions for up to 75 per cent 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 $150 million 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.
Commenting on the deal, Constant N’zi, deputy group chief executive officer,AGF, said the partnership with British International Investment marks its 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 AGF CEO said.
On her part,Jo Fry, investment director & head of intermediated credit, British International Investment said the organisation is delighted to partner with African Guarantee Fund, a deeply impact-focused African institution, on the critical mission.
According to Fry, the investment will increase access to finance for SMEs across the African continent, with a focus on those in the most challenging contexts.
The investment director added that the partnership, which will also target funding at climate-focused businesses as well as SMEs owned and led by women, will contribute toward increasing inclusive and sustainable development for Africa.
“The programme represents BII’s commitment to working with best-in-class local institutions who are deeply embedded in the countries and communities that they serve,” she said.
As SMEs in Africa continue to face significant challenges in accessing credit, analysts note that 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 considered 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 by BII and AGF, 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.
The joint facility/partnership contributes to the United Nations Sustainable Development Goal 8 on promoting inclusive and sustainable economic growth.