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African Guarantee Fund

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AGF was set up to significantly increase the access of African Small and Medium Sized Enterprises (SMEs), to finance from the financial sector.

AGF has two lines of activity, viz:

• Partial Credit Guarantees: Provision of partial guarantees for financial institutions in African countries to incentivize them to increase debt and equity investments into SMEs. Based on an assessment of the needs of financial institutions and SMEs in the region, AGF will offer three types of guarantees with different fee structures: a) portfolio and individual loan guarantees, b) Bank fund raising guarantees; and c) equity guarantees.

• Capacity Development: A separate entity will help financial institutions develop their capacity to appraise and manage SME portfolios. AGF will allocate a portion of its budget to capacity building, with financial institution partners covering most of the costs. Additional grants are being sought to supplement AGF’s capacity development trust of USD 2.5 million committed by Danida for this purpose. Capacity development of SMEs will be managed and implemented through existing local service providers.

AGF’s products are expected to have a scalable positive impact in the following three ways:

– Improve SME financial product offerings: by helping banks to better address working capital and long-term financing needs of SMEs.
– Expand bankable SME segments: by changing Bank’s perception of bankable SMEs and permanently increasing their exposure to SMEs.
– Increase Banks’ capacity to appraise SMEs: by providing technical assistance and strategies to further develop SME engagement.

TARGET BENEFICIARIES

As the definition of SMEs varies across countries and financial institutions, AGF will not prescribe qualifying characteris

tics for SMEs other than the one defined by the banking sector of the countries where AGF will operate. Within these limits, AGF will target all African SMEs with a valid operating license regardless of sector, industry, location, and ownership. AGF will have a rigorous partner selection process, with partner financial institutions demonstrating a clear commitment to growing their SME portfolio and improving financial product offerings to this segment.

AGF products will be rolled out in nine to fourteen countries in Africa within the first two years with the objective to cover the entire continent by year 2016.

AGF will roll-out its operations in these regions in three phases. Phase I countries have been identified through the AGF preparation phase and are characterized as ‘transition economies’ in terms of economic diversification and export orientation, including: Ghana, Mali and Senegal in West Africa, Cameroun in Central Africa, Kenya, Tanzania and Uganda in Eastern Africa, and Mozambique and Zambia in Southern Africa.

ACTIVITIES AND OUTCOMES

AGF began its operations in the second half of 2011, based on a guarantee capital of USD 50 million already approved by the three founding shareholders (Denmark, Spain and the African Development Bank). The AGF will be a permanent regional conduit for channeling guarantees and technical assistance to financial institutions in Africa with the objective of generating enhanced growth in the SME sector, thereby creating increased employment opportunities in the economy, particularly for the youth.

The AGF provides:

– Loan portfolio guarantees to Partner Lending Institutions (PLIs),
– Financial guarantees to PLIs,
– Capacity development support for PLIs, and
– Capacity development support for SMEs.

Through the supply of these products and services, the AGF will help improve access to credit for SMEs as they start and grow their businesses. It will also contribute to address the issue of limited technical capacity of both PLIs and SMEs.

The AGF will mobilize substantial financial resources for African SMEs thus contributing to private sector development, job creation and ultimately poverty reduction. It will provide countercyclical support to financial institutions through easing access to liquidity and strengthening their capacity to create credit.

It will also provide capacity development support for both PLIs and SMEs thus increasing productivity and competitiveness. The AGF will finally contribute to increasing aid effectiveness in the context of shrinking development support for SMEs through channeling financial assistance into a regional conduit.

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