Corporate interview with African guarantee fund CEO Felix Bikpo

African Guarantee Fund(AGF) Group CEO Felix Bikpo. (PHOTO: COURTESY)

The African Guarantee Fund (AGF) was set up in 2011 to promote the growth of small and medium enterprises in Africa. Today, AGF has operations in 35 countries across the continent, issuing guarantees of Sh23 billion to financial institutions to support SME growth. AGF CEO Felix Bikpo spoke to ‘Business Beat’ about the fund’s work.

How does the Africa Guarantee Fund work?

The African Guarantee Fund (AGF) was initiated in 2011 as a limited shareholding company, with registration in Mauritius and operational headquarters in Nairobi.

Its purpose is to contribute to growth and youth employment in Africa by enhancing small and medium-sized enterprises’ access to finance. This is done through providing loans, fundraising and equity guarantees to financial institutions for onward lending to SMEs.

In addition, AGF supports capacity development both for partner lending institutions to provide financial services to the SME market segment, and for SMEs to improve their business management skills.

What is behind AGF’s focus on SMEs?

SMEs are major players in the private sector — they are growth drivers, yet they contribute a very small fraction of the GDP in Africa. Economic growth, job creation and poverty reduction can be achieved if the challenges facing SMEs are sufficiently addressed.

A very significant portion of African companies identify lack of access to finance as a major constraint to doing business. The cost of finance, including investment finance, is higher in Africa than in any other part of the world, and the access for SMEs is particularly limited. Very few commercial banks do small enterprise banking in Africa.

The reasons behind this are found both in supply and demand. While the lack of effective business plans and adequate skills within SMEs are a problem on the demand side, supply is constrained by lack of capacity in the financial sector to do business with smaller companies; inadequate information resulting in high-risk assessments; lack of collateral and collateral registries; poor protection of creditors; and lack of availability of longer-term funds.

AGF, therefore, has decided to target the SME segment due to the positive impact that can be achieved through them.

What successes have you recorded so far?

At inception, AGF’s initial focus was to be present in nine countries in Africa and gradually grow. Today, we have guarantee business in 35 countries in Africa.

AGF has issued guarantees of $230 million (Sh23 billion) to financial institutions in these 35 countries to support SMEs, which has enabled the financing of up to $500 million (Sh50 billion) to these enterprises.

Additionally, an estimated 11,748 jobs have been created across Africa, and 1,300 SMEs have been able to access finance as a result of AGF guarantees.

Also, with climate change being a key area of focus globally, AGF partnered with the 
Nordic Development Fund this year to 
launch a Green Guarantee Facility to contribute towards COP21 goals and objective.

What do you consider unique about AGF compared to existing funds?

A majority of existing funds are largely government owned, while AGF is a privately owned company with an ownership structure that provides for a mix of government, financial institutions, corporate entities, trusts, as well as high net worth individuals with a development mandate. AGF also has a product mix that ensures all aspects of access to finance for SMEs are addressed, including debt or equity capital access, covering both short and long-term requirements.

What are your key challenges?

Trying to keep pace with the significant and growing gap between demand and supply. Whereas the demand for financing at the SME level is growing fast, the supply side is yet to keep pace with this, which puts a lot of pressure on AGF and other guarantee funds in terms of financial resources (capital), which usually take some time to raise. We partly address this challenge by partnering with re-guarantors and co-guarantors. Such partnerships unlock capital to enable the issuance of more guarantees.

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