British International Investment (BII), the UK’s development finance institution and impact investor, and African Guarantee Fund (AGF), a leading Pan African guarantee provider, have today announced their partnership of a $75 million re-guarantee agreement for Small and Medium Enterprises (SMEs) across Africa.
Through this facility, 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.
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.
UK Foreign Secretary, James Cleverly 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.”
Jo Fry, Investment Director & Head of Intermediated Credit, British International Investment added: “We are delighted to partner with African Guarantee Fund, a deeply impact-focused African institution, on this critical mission. This investment will increase access to finance for SMEs across the African continent, with a focus on those in the most challenging contexts. 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.”
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 (DFIs) of the G7 to mobilise capital to support increased economic empowerment for women in emerging economies.
British International Investment (BII) is the UK’s development finance institution and impact investor. British International Investment is a trusted investment partner to businesses in Africa, Asia and the Caribbean. BII invests to support the UK Government’s Clean Green Initiative and to create productive, sustainable and inclusive economies in our markets.
British International Investment plays a key role in the UK Government’s wider plans to mobilise up to £8 billion a year of public and private sector investment in international projects by 2025. Over the next five years, at least 30 per cent of BII’s total new commitments by value will be in climate finance. This will it make it one of the world’s largest climate investors in Africa.
BII is also a founding member of the 2X Challenge which has raised US $10 billion to empower women’s economic development. The company has investments in over 1,300 businesses in emerging economies and total assets of £7.7 billion.
African Guarantee Fund is a specialised guarantee provider with the mandate to increase African SMEs’ access to financing by providing partial guarantees or risk sharing facilities to SME lenders. With an AA- Fitch rating, AGF’s guarantees provide significant risk mitigation and capital relief to partner financial institutions on their SME loan portfolios.
AGF also provides capacity development assistance to its Partner Financial Institutions to help them improve their SME lending capabilities. Since inception, AGF has issued a guarantee portfolio of c. USD 1.8 billion of guarantee contracts that have unlocked more than USD 3 billion SME financing, through partnerships with 200 partner financial institutions across 40 African countries.
As a 2X Challenge qualified institution, AGF is committed to support women-owned and women-led businesses through the AFAWA Guarantee for Growth program which aims to unlock up to USD 5 billion for African women businesses by 2026. AGF fosters sustainable growth by offering a Green Guarantee Facility to lending institutions to enable them ease access to finance for SMEs investing in climate and green growth-oriented economy.
AGF was established in 2011 by the Government of Denmark (represented by DANIDA), the Government of Spain (represented by AECID) and the African Development Bank (AfDB), with a mandate of facilitating access to finance for SMEs to enable them fully play their role of driving the growth of African economies.
Other shareholders include: French Development Agency (AFD), Nordic Development Fund (NDF), Investment Fund for Developing Countries (IFU), KfW Development Bank (KfW) and Proparco. AGF is also sponsored by Global Affaires Canada and USAID’s West Africa Trade & Investment Hub.
