The British International Investment and African Guarantee Fund, have jointly rolled out a Sh7.5 billion re-guarantee facility aimed at easing access to credit for SMEs in Africa.
Through this facility, the two will provide credit guarantees to partner financial institutions for up to 75 percent of the risk on SME loans, thereby reducing collateral requirements for the SMEs.
The eight-year partnership is expected to facilitate disbursement of up to Sh15 billion in loans to 17,300 SMEs through partner financial institutions. At least half of the overall facility will specifically target SMEs in the most fragile African economies.
The facility is also expected to benefit SMEs that are women-owned or led as well as SMEs that are climate-focused.
Small and Medium Entreprises 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.
“Our partnership with British International Investment marks our first engagement with a UK Development Finance Institution and is the beginning of a journey that 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 African countries wherein our guarantee products are utilized,” noted Constant N’zi, Deputy Group Chief Executive Officer and Group Chief Risk Officer, African Guarantee Fund.
