Exclusive Trusted Magazine Q&A with Jules Ngankam, Group Chief Executive Officer of the African Guarantee Fund
How has AGF established a value-creating ecosystem in the region?
The development of Small and Medium-sized Enterprises (SMEs) is seen as one of the major factors in addressing the challenge of economic growth. SMEs have emerged in all modern economies as one of the key drivers of growth, innovation, development and job creation. The African private sector is mainly made up of SMEs, and these represent nearly 90% of African businesses. The African private sector mainly consists of SMEs; these represent nearly 90% of businesses within Africa.
Unfortunately, African SMEs continue to face a number of constraints that delay or even prevent their development. These constraints can be classified into four broad categories:
The standard and quality of infrastructure;
The business environment, particularly the legal and judicial environment;
Access to markets;
Difficulty in accessing financing.
African Guarantee Fund (AGF) seeks to address the difficulties SMEs face in accessing financing. It is estimated that only 20% of African SMEs have obtained a credit facility from a financial institution. The financing gap for SMEs in Africa is estimated at $300 billion.
AGF has been able to bridge part of this gap by providing financial guarantees as well as technical assistance to address the inability of SMEs’ access to financing.
The financial guarantees offered by AGF have enabled our partner financial institutions:
To reduce the risks associated with SME lending;
To improve their regulatory ratios and thus optimally leverage their capital;
To mobilize medium or long-term resources to finance the medium or long-term needs of their SME customers;
To confidently expand their business with SMEs;
To make equity investments in SMEs with promising prospects that need to increase their equity capital.
The tailored AGF capacity development program has enabled partner financial institutions to mitigate their risks when lending to SMEs by improving their management capacities, particularly in the areas of governance, human capital management, financial management and marketing.
To date, AGF has unlocked nearly $3 billion of financing to SMEs in 40 African countries through more than 150 financial institutions. More than 20,000 SMEs have received guarantees from AGF and we estimate that they have created approximately 150,000 jobs.
Could you please give an example of a high-impact initiative that AGF has undertaken in the region? What are the highlights of this initiative?
AGF has launched two innovative, high-impact products:
The Green Guarantee
The AFAWA (Affirmative Finance Action for Women in Africa) guarantee, in partnership with the African Development Bank.
The objective of the Green Guarantee is to encourage financial institutions to support green transition by reducing the financial and technical barriers to financing green investments. The Green Guarantee is combined with a technical assistance program for financial institutions and SMEs that contribute to Africa's sustainable development.
AGF’s "Green Guarantee" was a first of its kind in Africa and was designed to meet the financing needs of players in the renewable energy sector.
We focus on promoting climate finance in Africa through:
Greenhouse gas mitigation. This involves supporting activities aimed at:
Reducing greenhouse gas (GHG) emissions or improving the storage of these gases,
Producing renewable energy
Improving energy efficiency
Adapting to climate change. This involves supporting activities aimed at:
Reducing the vulnerability of human and natural systems to the impacts of climate change
Maintaining and enhancing the resilience of human and ecological systems to the negative impacts of climate change
To date, AGF has unlocked $200 million in green financing and aims to reach $1 billion over the next five years.
Our second-high impact product is the AFAWA Guarantee. Our experience across Africa shows us that women on the continent are tenacious entrepreneurs, even though they face a $42 billion financing gap. This is due to lack of access to collateral in the form of land and property as well as knowledge, mentoring, and networks to develop their businesses, which are generally in the informal sector.
The Affirmative Finance Action for Women in Africa (AFAWA) program, managed in partnership with the African Development Bank, promotes the mobilization of funds for women entrepreneurs. The program aims to unlock $2 billion in loans to women-owned small and medium-sized enterprises (SMEs) in Africa by working with financial institutions to improve their capacity to lend to women through risk reduction measures and technical assistance. To date, SMEs in Cameroon, the Democratic Republic of Congo, Kenya, Rwanda, Tanzania and Uganda have benefited from the program. Thanks to this program, we have observed an increased appetite from banks for this innovative product that seeks to support women entrepreneurs.