BII, AGF sign $75m initiative to fund African SMEs

The 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 signed a partnership of $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 percent 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. The partnership will also encourage lending to SMEs that are women-owned or led as well as SMEs that are climate-focused.

“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,” Jo Fry, investment director & head of intermediated credit at British International Investment said in a statement.

“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,” Fry said.

“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.”

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 records in serving this market segment.

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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.

“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,” Constant N’zi, deputy group chief executive officer and group chief risk officer, African Guarantee Fund said.

“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,” N’zi said.

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 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,” James Cleverly, UK Foreign secretary said.