The partnership aims to play a role in bridging the estimated $74bn annual financing gap facing agri-SMEs in sub-Saharan Africa
The African Guarantee Fund (AGF) is providing a loan portfolio guarantee facility of $5m for a vehicle managed by Swiss-based impact investor responsAbility that aims to support small and medium sized enterprise (SME) financing in Africa’s agricultural sector.
The partnership aims to play a role in bridging an estimated $74bn annual financing gap facing agri-SMEs in sub-Saharan Africa by increasing financing of SMEs in the agricultural value chain with a focus on activities related to crops and farming products or commodities.
The guarantee facility will also be used by responsAbility to increase lending to women-owned and led agri-businesses, along with climate-focused businesses involved in energy efficiency, renewable energy, natural resource management and climate insurance.
AGF said SMEs operating Africa’s agricultural sector faced numerous challenges, including a lack of access to financing appropriate to their needs, qualified and skilled employees, and wider support from public, private, and financial institutions.
Jules Ngankam, AGF Group CEO, said its backing was needed because agri-businesses tended to have higher risk profiles and more limited cash flow than SMEs in other sectors.
“Our risk-sharing partnership will allow responsAbility to scale up lending activities to agribusinesses across Africa enabling agri-SMEs to play a bigger role in connecting different components along the food production value chain,” he said.
Michael Fabbroni, country director, Kenya and head of financial institutions debt Africa at responsAbility said the partnership reflected the aligned values of the two institutions in fostering a sustainable agricultural sector. “Additionally, [AGF] shares our vision of Africa’s key role in future global food production.” he added.
In September, responsAbility said the US International Development Finance Corporation (DFC) and the US Agency for International Development (USAID) provided a credit guarantee of up to $19m to a climate-related food systems fund launched by the impact investor earlier in 2022. The guarantee increased the credit loss protection for investors in the blended finance fund, which was established to support long-term investments in food systems transformation, reducing waste and minimizing CO2 emissions. The fund has a target size of $200m.
AGF was set up in 2011 Danish and Spanish governments, and the African Development Bank to facilitate access to finance for African SMEs. They have since been joined as shareholders by French development agency AFD and the Nordic Development Fund.