African Guarantee Fund receives US$20m capital injection from IFU for green SME financing

AFRICA – The African Guarantee Fund has received a capital increase of US$ 20 million from the Danish Investment Fund for Developing Countries (IFU) to facilitate green SME financing in Africa.

The capital increase is partially financed by the Danish Government, as part of the Danish “COVID-19 Development Assistance” package.

Inclusive of the additional US$20 million, the total Danish investment in AGF amounts to US$71.8 million.  

The capital increment into the African Guarantee Fund will increase the Fund’s capacity to unlock financing for Small and Medium Enterprises (SMEs) in Africa.

SMEs in the continent have experienced a deterioration in their creditworthiness as a result of the economic impact of Covid-19.

The United Nations Economic Commission for Africa 2020 survey reports business closure, lack of operational cash flow and a drop in demand as the top challenges facing African SMEs as a result of the pandemic. 

“The initial Danish capital injection into the African Guarantee Fund not only generated economic and social impact but also helped to attract more capital from other Development Finance Institutions,” said AGF’s CEO, Jules Ngankam. 

With this capital increment, our capacity to offer more green guarantees to financial institutions is enhanced and will facilitate sustainable financing for green transition in Africa”

Jules Ngankam – CEO, AGF

With this capital increment, our capacity to offer more green guarantees to financial institutions is enhanced and will facilitate sustainable financing for green transition in Africa,” he said

“Private SMEs are vital for creating and safeguarding decent jobs in Africa, but they face huge challenges in the Covid-19 crisis. We are confident that our investment will attract other investors to exploit the proven potential of SMEs in Africa,” said IFU’s CEO, Torben Huss.   

Despite the internationally recognized importance of SMEs, African small businesses often have difficulties accessing financing for growth and innovation from the formal financial sector.

SME financing is often considered by many financial sector players in Africa to be a risky activity as promoters quite more often than not, fail to come up with the collateral levels required to secure bank facilities. Enterprises (SMEs) are widely recognized as big drivers of economic growth, innovation, regional development and job creation.

Through its guarantee facility, AGF assists financial institutions partially cover the risks associated with SME financing and thus enables them increase their portfolio in that asset class.

AGF’s key objective is to reduce the SME financing gap currently estimated at more than US$300 billion. With IFU’s capital increase, AGF will be able to achieve even more economic and social impact, given the investment will unlock more than US4 400 million of financing for SMEs.

Liked this article? Subscribe to DealStreet Africa News, our regular email newsletter with the latest news, deals and insights from Africa’s business, economy and more. SUBSCRIBE HERE

Other Recent Posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.