Effort to improve SMEs access to credit receives a boost

It is estimated that small and growing businesses create around 80 per cent of Africa’s employment, establishing a new middle class and fuelling demand for new goods and services.

Credit has however remained a major challenge to the sector knocking out vibrant ideas almost at early stages of inception.

On Thursday, the French Development Agency (AFD) and African Guarantee Fund signed a a sub-participation agreement of over Sh3 billion seeking to improve access to credit throughout the continent.

The pact broadens the existing cooperation between the two entities, by providing AGF with a counter-guarantee of over Sh3 billion, using the ARIZ risk-sharing mechanism: a support for the risk of financing private investment.

It consists in a final loss guarantee offered to financial institutions by AFD to cover 50 per cent to 75 per cent of an individual loan or a loan portfolio for SMEs and microfinance institutions (MFIs).

Through its leverage effect, the counter-guarantee will enable AGF to extend guarantees of USD 60 million to local financial institutions, thereby allowing the latter to lend a total of USD 120 million to African SMEs. It is estimated that such an amount of loans would benefit 1,800 SMEs and support 5,400 jobs.

After the signing ceremony, Mr. Rémy Rioux, Chief Executive Officer of the French Development Agency (AFD), and Mr. Félix Bikpo, Group Chief Executive Officer of the African Guarantee Fund for Small and Medium-Sized Enterprises (AGF)discussed further areas of collaboration in the near future.

Special emphasis was placed on increasing African women’s access to finance through the Affirmative Finance Action for Women in Africa (AFAWA) initiative that will be implemented through AGF.

AFAWA was officially launched earlier this week at the Global Gender Summit having already received commitment from the Government of France during the Biarritz Summit in August 2019. AFD and AGF are currently exploring different modalities of support for the initiative.