Providing SMEs Access to Credit AfDB Approves USD 10 Million to African Guarantee Fund

Tunis, 20 October -The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, 20 October 2010 in Tunis, a USD 10-million loan to the African Guarantee Fund (AGF) to enable small and medium enterprises (SMEs) gain greater access to credit.

The AGF is an AfDB 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 USD 50 million, with a forecast of several future capital increases, which will raise the capital to USD 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.

With a special focus on deepening the financial sector and financial integration, this project is consistent with the Bank's strategy for the development of private sector operations. It is also consistent with the countries' strategies for SME development as a means of creating jobs and reducing poverty.