The Board of Directors of the African Development Bank (ADB) has approved a $10million loan to the African Guarantee Fund (AGF) to enable small and medium enterprises (SMEs) gain greater access to credit.
The AGF is an ADB pan_African initiative set up in partnership with the Danish and Spanish foreign affairs ministries and their development agencies.
The initiative was launched as a follow_up to last year’s Africa Commission Report which recommended the strengthening of financial and technical support to SMEs in Africa.
The AGF will operate as a separate corporate entity to provide loan guarantees for the benefit of SMEs in partnership with financial institutions, including microfinance institutions as well as non_bank financial institutions such as leasing companies. These institutions will also receive capacity development support to enhance their productivity and competitiveness.
This project will be domiciled in Port Louis, Mauritius, and will operate from Nairobi, Kenya. The AGF’s initial capital is $50 million, with a forecast of several future capital increases, which will raise the capital to $300 million in the medium_term.
By leading the conceptualization and implementation of the initiative, the Bank has brought its long-standing experience in assisting SMEs, thus serving a sector highly_linked to development, which traditionally had limited access to external financing, and consequently help improve private sector development results which is the primary objective of this investment.
Institutionally, the AGF will be an innovation in the African financial market. It is further envisaged that the AGF will contribute significantly to aid effectiveness by attracting donor funds dedicated to SME financing that would otherwise be channeled through separate projects thus giving rise to fragmentation and high transaction costs. The mobilization of financial resources through the AGF for African SMEs will significantly promote Africa’s economic growth, the creation of new job opportunities and financial market development.