The newly launched Green Guarantee Fund says it will work with financing institutions to help cover the risks associated with financing of small and medium enterprises SMEs in the hope of encouraging growth of the sector in the Africa region.
Speaking on the sidelines of the launch at the African Development Bank Annual Meetings underway in Zambia, African Guarantee Fund (AGF) Chief Executive Officer, Felix Bikpo, said AGF intends to bring its services to Malawi before the end of the year.
Bikpo said it is unfortunate that despite SMEs being considered as critical to economic growth, access to finance still hinders growth of the sector in many African countries.
“We have been guaranteeing loans for SMEs in over 30 countries in Africa. SME financing is often considered by many players in Africa to be a risky activity as promoters often find it difficult to come up with the collateral levels required to secure loan facilities from banks,” he said.
Bikpo further said a strong and vibrant SME sector provides a strong foundation to increase standards of living and to reduce poverty.
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. Apart from risk considerations, these studies have attributed low levels of bank financing to SMEs in Africa to among other reasons, relatively very low levels of SME banking capacity.
“It is in response to the two related challenges that AGF was created. Through its guarantee facility, AGF assists financial institutions partially cover the risks associated with SME financing and thus enable them increase their portfolio in that asset class. AGF also assists financial institutions enhance their SME financing capabilities and thus be able to execute their growth strategies in that sector with ease.
“A combination of AGF’s guarantee and capacity development facilities enables partner financial institutions bring their SME financing business to the required scale that would not only enable them bring down transaction costs significantly, but also increase returns on investment,” said Bikpo.
The Green Guarantee Fund launched on Wednesday will enable financial institutions to finance African SMEs whose investments ensure a sustainable growth and climate resilient development in African economies.