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US$33-million injection for Africa's SME development

By , ITWeb
Africa , 10 Jan 2020

US$33-million injection for Africa's SME development

Finance-focused industry organisation The African Guarantee Fund (AGF) has received an additional US$33-million financing from German lender KfW Development Bank.

In announcing the capital, the AGF stated that this would boost efforts "to enable African SMEs continue to play their critical role in driving Africa's economy."

According to information off its website, AGF was established in 2011 by the governments of Denmark and Spain, as well as the African Development Bank (AfDB).

The AGF said this new financing comes at a time when the continent's SME sector has been singled out as a key driver of growth.

Its objective is to provide financial guarantees for over 10,000 SMEs annually through partner financial institutions and as a trickledown effect, create 30,000 jobs per year.

Felix Bikpo, Group chief executive officer of AGF, said: "We are excited about the confidence our shareholders and partners have in what we are doing in Africa. This capital injection will go a long way in ensuring that we continue to make a positive impact in the continent. So far, we have cumulatively issued more than US$1-billion worth of guarantees making available about US$ 1.7- billion for SME financing through our partner financial institutions. This has led to the creation of more than 100,000 additional jobs."

The organisation says that out of the 20,000 African SMEs from various economic sectors that have so far benefited from AGF guarantees, 60% of these are owned by youth and 30% owned by women, both being demographics that heavily impact Africa's economy.

Bikpo added, "Our experience traversing Africa has shown us that Women in Africa are tenacious entrepreneurs, even though they face a gender financing gap of US$ 42-billion. The capital increase from KfW will largely be used to increase financing of women owned or led businesses. This is in addition to our partnership with the African Development Bank through the recently launched Affirmative Finance Action for Women in Africa (AFAWA) which currently has a US$251-million commitment from G7 countries."

SME contribution to SA

In August 2019 Dov Girnun, Founder and CEO of Merchant Capital said: "In South Africa SMEs have the greatest potential to reduce unemployment and raise the country's GDP, which recently showed the biggest decline in a decade (3.2% in the first quarter of 2019). According to South Africa's National Treasury, South Africa has an estimated 2.8m SMEs. One million of these are formally registered. In the new world of FinTech, funding credibility is a big thing. The trust around a fast funding FinTech model is still relatively new for SMEs, but there will be an exponential shift as this alternative moves to mainstream in the next few years."

In May 2019 global cloud-based accounting platform Xero partnered with South African digital lenders Bridgement Retail Capital and LulaLend, to secure additional funding for small business customers.

In a thought leadership piece published on Independent Media online, Kumaran Padayachee, chief executive of Spartan SME Finance, advised businesses to plan early for funding needs and manage expectations.

"It's not going to be easy, but the funding is there – in abundance – and you must be 100 percent prepared and on top of your game for when those opportunities arise."

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