BII, African Guarantee in a Sh9.2 billion program to fund African SMEs

Small and Medium Enterprises in Kenya are set to benefit from part of a new credit guarantee scheme that will unlock Sh18.4 billion ($150 million) of credit over eight-year period.

British International Investment (BII), the UK’s development finance institution and impact investor and African Guarantee Fund (AGF) unveiled the $75 million (Sh9.2 billion) 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 per cent of the risk on SME loans, thereby increasing access to credit and reducing collateral requirements for these SMEs.

programme is expected to facilitate up to 17,300 loans to Small and Medium Enterprises (SMEs) across Africa

the Deputy Group Chief Executive Officer and Group Chief Risk Officer at African Guarantee Fund Constant N’zi, said financing 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,” said N’zi.

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. This partnership will also encourage lending to SMEs that are women-owned or led as well as SMEs that are climate-focused.

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 record in serving this market segment.

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.

Investment Director & Head of Intermediated Credit, British International Investment Jo Fry added that 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.”