African Guarantee Fund (AGF) is a specialized guarantee provider whose mission is to facilitate economic development and poverty reduction in Africa. To achieve this, AGF increases access to finance for small- and medium-sized enterprises (SMEs) across key economic sectors through an array of guarantee products and capacity development assistance. Since inception, AGF has unlocked $4.3 billion in SME financing, through partnerships with 250 partner financial institutions across 43 African countries.  

AGF is backed by the following shareholders and sponsors: The Government of Spain through the Spanish Agency for International Cooperation (AECID), the African Development Bank (AfDB), French Development Agency (AFD), Nordic Development Fund (NDF), Investment Fund for Developing Countries (IFU), German Development Bank (KfW), French Agency for Private Sector (PROPARCO), West African Development Bank (BOAD), Global Affairs Canada (GAC), USAID's West Africa Trade & Investment Hub (WATIH), The Norwegian Agency for Development Cooperation (Norad) and TechnoServe. 

We spoke with AGF’s Group Chief Executive Officer, Jules Ngankam, about how AGF works to achieve their mandate of facilitating access to finance for SMEs, enabling them to drive the growth of African economies.

The total financing gap for Africa's 50 million SMEs, which form the backbone of Africa's economies, is estimated to be $330 billion. Tell us about the gaps AGF aims to bridge when it comes to SME financing in the context of Africa.

AGF is committed to bridging the $330 billion SME financing gap by addressing several critical gaps in Africa’s budding business landscape. These gaps are related to: information, collateral, tenor, skills, product, and perception gaps.

Below is an analysis of the gaps AGF aims to bridge.

Source: African Guarantee Fund

AGF offers intentionally designed products to bridge these gaps and address the needs of African SMEs, as well as to support financial institutions in serving these businesses. How do your products enable you to do this?

By renewing and enhancing existing guarantee lines and targeting new prospects, AGF alleviates the challenges SMEs encounter in accessing finance.

We offer tailored guarantees that reduce the risk for financial institutions, making it easier for them to extend credit to SMEs without stringent collateral requirements.

Our products support all the funding needs of the SMEs, from debt to equity; working capital to capital expenditure; short term to longer-term financing solutions, as well as addressing the tenor gaps that hinder the growth of SMEs. We provide capacity development for financial institutions, ensuring they have the tools and knowledge to assess and manage their SME portfolio effectively. Additionally, we encourage the creation of innovative financial products that align with the unique business cycles and needs of SMEs, ensuring they receive adequate and appropriate financing.

By showcasing the success and potential of SMEs through our guarantee products, we help shift the perception of these businesses as viable and attractive financing prospects.

Tell us about your suite of guarantee products and how you determine when to deploy them.

AGF offers a suite of guarantee products designed to address specific financing challenges faced by SMEs, while also empowering financial institutions to extend their lending capabilities. Our Loan Portfolio Guarantees (LPGs) provide a 50-75% risk cover for on-lending to increase lending to SMEs with higher risk cover for Green SMEs and Women SMEs (WSMEs). This gives significant comfort to partner financial institutions (PFIs), encouraging them to increase their exposure to SMEs and WSMEs and take on risks they are not typically comfortable with. Below is a breakdown of our key products and how we determine their deployment:

1. Loan Portfolio Guarantee: Covers multiple loans within a specified portfolio, helping PFIs scale up SME lending where collateral requirements are unmet. We use this when targeting a broader segment of SMEs, enabling PFIs to support more businesses simultaneously.

2. Loan Individual Guarantee: Covers a single loan made by a PFI to a specific borrower. It is applied when a particular SME needs support, allowing PFIs to provide targeted assistance.

3. Equity Guarantee: Covers the risk associated with equity investments by private equity or venture capital funds in SMEs, and it strengthens SMEs’ capital base by mitigating investment risks.

4. Bank Fundraising Guarantees: Enables financial institutions to raise funds for scaling up credit facilities to eligible SMEs. This assists PFIs in securing long-term resources and facilitating the funding of long-term SME needs.

5. Capacity Development: Here we provide PFIs with training sessions on financial product development, diversity, equity, and inclusion, market research, and customer service. This enhances PFIs’ understanding and willingness to revamp their processes and product offerings to cater to a broader spectrum of SMEs.

Each product deployment begins with a thorough assessment of the specific needs and challenges faced by the SME or financial institution. Products are customized to address identified gaps, ensuring they provide maximum support and impact. There are also continuous monitoring and feedback loops to ensure the effectiveness of the deployed products and allow for adjustments as needed.

We also have structured guarantee products for specific sectors or unprecedented occurrences:

Green Guarantee Facility

With support from the Nordic Development Fund (NDF) and the Danish Investment Fund for Developing Countries (IFU), AGF has designed an innovative pan-African financing program, the Green Guarantee Facility (GGF) to support sustainable private-sector led economic growth in Africa. The GGF is a platform which combines a guarantee facility with a capacity development program to unlock greater financing for SMEs advancing climate change mitigation and adaptation efforts, as well as those working in climate-smart industries. The GGF is a market leader in green financing that crowds-in other financial institutions (FIs) to provide greater financial and/or capacity development supports.

AFAWA Guarantee for Growth

With support from the Group of Seven (G7) countries, the Netherlands and Sweden, and the African Development Bank (AfDB), AGF has created an innovative pan-African financing program, Affirmative Finance Action for Women in Africa (AFAWA) Guarantee for Growth (G4G), to encourage financial institutions to bridge the continent’s $49 billion gendered financing gap. AFAWA G4G is a gender-lens investing platform which combines a risk sharing mechanism with a capacity development program to unlock up to $2 billion in financing for African WSMEs and develop specialized WSME products.

You have a blended capital structure with a tranche for concessional capital providers such as donor agencies as well as private commercial capital. Why was this structure necessary and how does it enable AGF to achieve its mandate of scaling SME financing?

AGF’s blended capital structure is essential for scaling SME financing effectively. It features a waterfall structure with tranches for concessional and private capital providers. This accommodates the diverse risk and impact profiles of various investors, offering flexibility to meet their unique needs and requirements. In terms of why this structure is necessary, summarily, it allows for diverse investor needs and risk mitigation. The waterfall structure allows us to tailor investment options, making it attractive to a wide range of investors, based on their varying risk tolerance and impact goals. By structuring investments in tranches, AGF also offers preferred positions to meet investor needs and address their constraints.

This layered approach distributes risk appropriately, making it feasible to secure significant capital from diverse sources. This is how AGF attracts investments to achieve its mandate of scaling SME financing across Africa, driving inclusive economic growth and sustainable development.

What about your work with donor agencies outside of your capital structure? You have partnered with Global Affairs Canada (GAC) on the Affirmative Finance Action for Women in Africa (AFAWA) program and with the Nordic Development Fund (NDF) on the Green Guarantee Facility. Tell us more about these programs and how these donor agencies are supporting in order to reduce the effective cost of the guarantees issued.

Partnerships with organizations such as GAC and NDF enhance AGF’s ability to provide cost-effective guarantees and drive sustainable development across Africa.

Under the Green Guarantee Facility, for example, our partnership with NDF launched in 2016. This climate-focused initiative supports SMEs engaged in sustainable energy, cleaner production, climate-smart agriculture, natural resource management, and green services. By aligning with the Paris Agreement’s Nationally Determined Contributions (NDCs), AGF and NDF work together to enhance sustainability, stimulate green job growth, increase income, and improve the quality of life for low-income communities across Africa. Since then, other partners, such as IFU have joined AGF to contribute to the program.

With the AFAWA program, originally supported by the G7 nations and the African Development Bank, our aim is to improve women’s access to financing through innovative financial instruments and risk-sharing mechanisms. GAC contributed capital to support AFAWA, which aims to unlock up to $3 billion in financing for women-owned SMEs. The program also includes a risk-sharing instrument and a capacity development grant. AFAWA focuses on gender equality and financial inclusion, helping women entrepreneurs access the funding they need to grow their businesses and contribute to economic development.

Through strategic partnerships and collaboration like these, AGF’s capacity to issue guarantees increases, making financing more accessible and affordable for SMEs.

An important feature of a guarantee is to reduce the difference between the perception and reality of risk. Can you give us a success story of an institution that you worked with that increased provision of credit to an asset class/segment?

One of our success stories is our collaboration with a financial institution in East Africa that has been able to increase its women customer base from 28% to 40% through a tailormade product that addressed the specific needs of women entrepreneurs.

The bank utilized AGF's guarantees and capacity development to mitigate risk concerns and confidently offer loans to this underserved segment. Over time, as the institution witnessed the robust performance and repayment rates of these loans, it gained a deeper understanding and appreciation of the true risk profile of women-owned SMEs. The success and positive impact of the program transformed the bank's perception as women accessing loans from this lender increased from 10% to 38%.

Our partnership has so far enabled the bank to:

• Grow its loan portfolio by supporting financing of businesses that lack required collateral who are mostly women SMEs.
• Improve the quality of the business portfolio for both the bank and customer through capacity development support especially for women entrepreneurs resulting in improved business operations.
• Grow its customer base as customer financing needs are adequately addressed through structured financing based on the facilities under the partnership.

Through the AGF guarantee and capacity development program the institution has developed enough confidence and expertise to sustainably provide credit to women entrepreneurs. Today, it has expanded its lending portfolio to include a significant share of women-owned SMEs, driving growth and empowerment in its community. This success story exemplifies how AGF's guarantees not only bridge financing gaps but also create lasting change in the financial landscape.

AGF applies a stringent Monitoring and Evaluation (M&E) framework to measure impact across strategic, beneficiary, and operational levels. Tell us about this framework and what are some key indicators to this end? Has your M&E approach evolved since inception?

Our comprehensive approach to measuring impact allows us to gauge the effectiveness of our interventions in enhancing SME financing in Africa.

The purpose of our macro-level impact indicators is to assess long-term effects on financial markets and SME-targeted products. Some key metrics include: loan tenor, cost of loans, collateral requirements, and the share of loan portfolios favoring SMEs in countries of exposure. We take this measure every 3-5 years through surveys. Our goal is to demonstrate how sustained support triggers broader adoption of similar initiatives, contributing to economic growth and poverty reduction, aligning with the SDGs.

We also have outcome indicators at the beneficiary/SME Level. The purpose is to track direct effects on PFIs’ behavior and socioeconomic impacts on SMEs benefiting from guaranteed loans. This is measured by the number of SMEs accessing financing, effects of capacity development support, the share of PFIs’ loan portfolios to SMEs, non-performing loans among trained PFIs, SME revenue growth, job creation, gender distribution in SME ownership, and other socioeconomic changes. We do this using annual surveys and case studies focusing on primary data collection at the SME level, supplemented by data from AGF systems and field visits.

To monitor the direct activities and inputs from PFIs and AGFs output and input indicators, data on PFIs’ activities is reported monthly and quarterly to AGF, and the input data is retrievable from AGF’s database.

Since its inception, AGF’s M&E approach has evolved to become more comprehensive and data-driven. Initially focused on basic output tracking, we now include sophisticated impact assessments and outcome measurements, ensuring a holistic view of our interventions' effectiveness. This evolution has enabled us to fine-tune our strategies and better support the SMEs we serve, ultimately driving more meaningful and sustainable economic development. By continuously refining our M&E framework, AGF ensures that our initiatives not only provide immediate financial support but also contribute to long-lasting positive changes in the African SME landscape.

AGF now has a presence across 43 countries in Africa and has cumulatively unlocked $4.3 billion in SME financing since inception. Where does the organization go from here in terms of achieving scale and how can blended finance help you get there?

AGF's journey to scale is ambitious and inspiring. We aim to grow our capital to $500 million by 2028, unlocking an additional $5 billion financing for SMEs across Africa. In achieving scale, we’ve sought to expand our reach with plans to deepen our presence in existing markets while exploring new ones, ensuring that more SMEs across Africa have access to financing. We are also developing and introducing new financial products tailored to the unique needs of African SMEs, so we can continue to address critical financing gaps.

On the role of blended finance in catalyzing investments, blended finance combines concessional capital from donors with private capital to mitigate risks and attract more investors. We leverage resources to maximize the impact of each dollar invested, enabling AGF to significantly unlock more funding for SMEs. Ultimately, blended finance encourages collaboration between the public and private sectors, fostering partnerships, and aligning interests and resources to achieve optimal impact and support sustainable economic growth.

By Karolyn Xie, Interim Head of Communications