Small and medium enterprises in Kenya, Uganda, Tanzania, Rwanda and 23 other African countries will soon be able to access cheaper, unsecured loans from Ecobank after it signed a new $200 million risk-sharing deal with African Guarantee Fund (AGF).
The guaranteed agreement, signed on the sidelines of the African Financial Industry Summit (Afis) in Lomé, Togo on Thursday, is so far the largest risk-sharing deal on the continent, and is aimed at boosting access to finance for SMEs and green businesses on the continent.
Under the agreement, the Nairobi-based private sector credit guarantor, AGF, will cover up to 75 percent of guarantees for loans given to women-led and green businesses and 50 percent for lends to SMEs on the continent, making credit more accessible and cheaper to them.
Ecobank projects that its loans under the program could be slightly shy of $1 billion across the 27 countries over the next five years. This is more than its current loan book size, which is just over $792 million, based on its financials for the year ended.
Jeremy Awori, Ecobank Group CEO, said by boosting their credit extension to SMEs in 27 out of the 35 markets they operate in, the risk-sharing deal will support job creation, business growth, innovation, and green solutions for the continent.
“Through this partnership, we are taking bold steps to enhance green financing and gender financing. In doing so, we aim to eliminate the rigorous restrictive requirement for collateral, particularly hindering women-focused businesses’ access to credit,” Mr Awori said during the signing of the agreement in Lomé on Thursday.
“This partnership will catalyse close to $1 billion of financing for SMEs, who are the real drivers of growth in African economies,” said AGF CEO Jules Ngankam.
The risk-sharing deal between the Lomé -headquartered banking conglomerate and AGF started in 2013, covering 7 countries with just $50 million of the bank’s portfolio covered. It was renewed in 2018 and extended to 14 countries, and has now been renewed for the third time, covering more countries.
Mr Ngankam said the renewal is “proof of the importance of risk-sharing mechanisms that banks should leverage to grow their SMEs portfolio.”
Frank Adjagba, director of business development at AGF, told The EastAfrican that while the deal will boost SMEs access to concessional financing for their business, the $200 million is “a drop in the ocean” compared to what is needed.
“The SMEs funding gap in Africa is estimated at $350 billion dollars, so $200 million for 27 countries is a drop in the ocean, but as the guarantee is revolving, in five years I think it will be catalysed more in the economy,” Mr Adjagba said.