Pan-African finance institution launches Covid-19 guarantee facility for SMEs

The African Guarantee Fund (AGF) has launched a Covid-19 guarantee facility worth CFA725 billion to enhance access to credit for…

The African Guarantee Fund (AGF) has launched a Covid-19 guarantee facility worth CFA725 billion to enhance access to credit for SMEs and micro-enterprises on the continent.The Pan-African financial institution’s Covid-19 mechanism in the form of guarantees, should enable banks to finance SMEs up to at least CFA1,449 billion ($2.4 billion).

 According to the institution, all Small and Medium Enterprises (SMEs) in Africa are eligible for the facility which will be available to banks for a period of two years.

 The Covid-19 health crisis has affected the economies of African countries, households and SMEs. 

AGF estimates the impact of the pandemic on SMEs in Africa at “a loss of turnover between $20 and $40 billion in 2020.”

 AGF’s response strategy to Covid-19 is based on the need to develop business solutions in addition to the regulatory measures already implemented by the continent’s various central banks and governments.

 Mr. Felix Bikpo, AGF’s CEO, a seasoned expert in the field of finance noted that “the Covid-19 pandemic will continue to have an increasing negative impact on SMEs in Africa, both on the supply side of credit and the demand side.”

 He said, “we anticipate a deterioration in the creditworthiness of SMEs…this is likely to increase the cost of credit for the financial sector, which will certainly increase its reluctance to finance SMEs in the absence of external stimuli”.

 This context, according to Bikpo, makes it necessary to set up a trade regime that would complement the purely regulatory measures taken by various central banks and governments on the continent to contain the crisis. 

This explains the rationale behind the guarantee mechanism.

 The African Guarantee Fund’s response lays the foundation for stabilizing the continent’s economies. 

It aims is aiming to revive the economies of countries through the Covid-19 guarantee mechanism which should enable financial institutions to restructure their loans that have reduced performance.

 The Covid-19 guarantee facility is also intended to provide a commercial incentive to the financial sector by mitigating the deterioration of perceived risk to SMEs, micro-enterprises and start-ups in Africa.

During this period, AGF is committed to providing technical assistance to develop the capacity of financial institutions and to assess the risks of SMEs, which should enable the impacts of the pandemic on financial institutions to be analysed and appropriate responses to be provided.

 For the third consecutive time since November 2017, the African Guarantee Fund has just been rated AA- by the rating agency Fitch Ratings. 

According to Bikpo, “this outstanding rating is a mark of confidence and an act of faith in AGF’s operational excellence.”

Through its leverage, the pan-African financial institution provides a guarantee to SMEs to lend more. 

For Bikpo, SMEs hold the key to the economic rebound in their respective countries.