Financing remains a challenge as SMEs mark UN day

Danish Investment Fund for Developing Countries: Mr. Morten Christiansen– Senior Vice President, IFU with Mr. Felix Bikpo – Chief Executive Officer, AGF during the signing ceremony that saw AGF increase it's capital to USD 26 Million.

NAIROBI, KENYA: The United Nations General Assembly, recognising the importance of Micro-, Small and Medium-sized Enterprises declared June 27 as a day to raise public awareness of SME’s contribution to sustainable development.

This year is the third edition after the day was instituted in April 2017. 

Despite the internationally recognised importance of SMEs, African small businesses often have difficulties accessing financing for growth and innovation from the formal financial sector.

SME financing is often considered by many financial sector players in Africa to be a risky activity as promoters quite more often than not, fail to come up with the collateral levels required to secure bank facilities.

Studies done by the World Bank and other organisations have revealed very low levels of bank financing to SMEs in Africa compared to other developing countries.

Through its guarantee facility, organisations like AGF fills in the financing gap by assisting financial institutions partially cover the risks associated with SME financing and thus enables them to increase their portfolio in that asset class.

Since inception, AGF has issued almost Sh100 billion (1 billion USD) worth of guarantees which has been leveraged by its Partner Financial Institutions (PFIs) to avail about 2 billion of financing to SMEs.

Out of this, USD 1.3 billion has already been disbursed to Small and Medium-sized Enterprises across 40 countries in Africa. This has facilitated more than 20,000 SMEs in various sectors to access finance wherein women entrepreneurs own 30 per cent, while youth own 60 per cent of the supported businesses.

It must be emphasised that this is a category of SMEs who would otherwise be locked out of the financial market due to lack of sufficient collateral required by most financial institutions.

AGF extends risk-sharing guarantees to Partner Financial Institutions (PFIs) which acts as a catalyst to unlock resources to finance SME business activities. This is achieved through the provision of its three products - Loan, Fundraising and Equity guarantees to financial institutions for onward lending to SMEs. In addition, AGF provides Capacity Development assistance to both the PFIs & SMEs.

This improves the PFIs’ ability to properly assess SME risks whereas for SMEs it builds their capacity for easier access to finance.