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 announced a $75 million re-guarantee agreement for SMEs across Africa.
AGF and BII will provide credit guarantees to partner financial institutions for up to 75% of the risk on SME loans through this facility, increasing access to credit and reducing collateral requirements for these SMEs. As a result of the eight-year partnership, up to $150 million in loans to 17,300 SMEs will be made possible through partner financial institutions. This collaboration will also encourage lending to women-owned or led SMEs, as well as climate-focused SMEs.
Access to credit remains a significant challenge for African SMEs. Financial institutions are frequently constrained by regulatory requirements, a limited appetite for a segment perceived to be higher risk, a lack of adequate collateral available from SMEs, lender knowledge gaps, and SME borrower skill gaps.
Risk-sharing facilities are an important tool for lenders to use in filling knowledge gaps and broadening their SME lending while mitigating risk and allowing them to build capabilities and a track record in serving this market segment. As a result, at least half of the overall facility will specifically target SMEs in the most vulnerable African economies in order to support promising businesses that can contribute to long-term productive economic development.
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.