Despite the internationally recognized importance of SMEs, African small businesses often have difficulties accessing financing for growth and innovation from the formal financial sector. SME financing is often considered by many financial sector players in Africa to be a risky activity as promoters quite more often than not, fail to come up with the collateral levels required to secure bank facilities.Enterprises (SMEs) are widely recognized as big drivers of economic growth, innovation, regional development and job creation. A strong and vibrant SME sector provides a strong foundation to increase standards of living and to reduce poverty.
Studies done by the World Bank and other organizations have revealed very low levels of bank financing to SMEs in Africa compared to other developing countries. Apart from risk considerations, these studies have attributed low levels of bank financing to SMEs in Africa to among other reasons, relatively very low levels of SME banking capacity.
It is in response to the two related challenges that AGF was created. Through its guarantee facility, AGF assists financial institutions partially cover the risks associated with SME financing and thus enables them increase their portfolio in that asset class. Through its capacity development facility, AGF assists financial institutions enhance their SME financing capabilities and thus be able to execute their growth strategies in that sector with ease. A combination of AGF’s guarantee and capacity development facilities enables partner financial institutions bring their SME financing business to the required scale that would not only enable them bring down transaction costs significantly, but also increase returns on investment.
For us, AGF is the missing link that enables partner financial institutions execute their SME financing strategies effectively, while bringing their businesses to the required scale and thus enabling SMEs to play their expected role in fostering African economic development.
Felix A. Bikpo
Chairman of the Board