Small and medium sized enterprises will access about Kshs. 52 billion in low cost loans from commercial banks guaranteed by African Guarantee Fund whose rating has improved to ‘AA-‘.
Chief Executive Officer Felix Bikpo says the Fund is seeking to increase its pool of funds to Kshs. 260 billion of which 20 percent would be advanced to Kenyan SMEs through local banks. Perceived high credit risk has often denied SMEs the much needed capital to scale up operations.
This has left a Kshs 15 trillion in estimated funding gap for SMEs in Africa according to the African Guarantee Fund. Having supported 6,000 SMEs in Africa this year through bank loan guarantees, the fund is banking on its latest “very good” to increase shareholder capital for onward lending.
Bikpo said: “This is the first time a guarantee fund in Africa has been assigned this status and the second Africa-based Financial Institution – after the AAA of African Development Bank – to be recognized in this way.” The African Guarantee Fund was awarded the Insurance Financial Strength of AA- by Fitch Rating having a return on capital rate of between 2.5 and 5 percent.
“Since our establishment six years ago, AGF’s strategy has been built on implementing a proven business model, leveraging high quality technical expertise and putting in place a strong governance framework. The positive results of this approach speak for themselves, with the most recent example being the ‘AA-‘ rating,” noted the Chief Executive Officer.
Bikpo says increased capital will ensure Small and medium sized enterprises access more capital from various financial institutions to drive their growth.
The fund which currently has a pool of Kshs 100 billion, plans to approach its five shareholders to inject an additional Kshs 160 billion capital for onward lending to SMEs through commercial banks. This will enable the African Guarantee Fund plans to nearly double the number of beneficiaries of its finances next year to 10,000 SMEs.
Bikpo noted: “As AGF’s primary objective is to reduce the funding gap for African SMEs, profitability is not the main performance metric. However, the company was profitable in 2015 and 2016 – just four years after its incorporation.”
The Fund will also support capacity building of SMEs with advisory services on financial management to increase their success rate.
The African Guarantee Fund was created in 2011 by the African Development Bank (AfDB), the Danish International Development Agency (DANIDA) and the Spanish Agency for International Development Cooperation (AECID). It was recently joined by the French Development Agency (AFD) and the Nordic Development Fund (NDF).