UK-based BII, African Guarantee Fund ink $75m pact to fund SMEs across Africa

UK-based finance institution British International Investment (BII) and the African Guarantee Fund (AGF) have signed a $75 million re-guarantee agreement for small and medium enterprises (SMEs) across Africa, Zawya reports.

The fund, according to BII, will provide credit guarantees to partner financial institutions for up to 75% of the risk on SME loans, thus increasing access to credit and reducing collateral requirements for these SMEs.

The agreement to last eight years will see $150 million in loans given to 17,300 SMEs through partner financial institutions. A keen attention will be lent to SMEs that are owned or led by women, as well as SMEs that are climate-focused.

BII said in a statement that African SMEs 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.

“The partnership, which will target funding at climate-focused businesses as well as SMEs owned and led by women, will contribute toward increasing inclusive and sustainable development for Africa,” Jo Fry, Investment Director and Head of Intermediated Credit at BII, said.

Jo Fry expects the investment to increase access to finance for SMEs across the African continent, focusing on those in the most challenging contexts.

AGF is a Pan-African financial institution that promotes economic development, increases employment and reduces poverty in Africa by providing financial institutions with guarantees and other financial products specifically intended to support Small and Medium-sized Enterprises in Africa.