African Guarantee Fund To Guarantee The Restructuring Of Loans For African SMEs

June 1, 2020

African startups and small businesses who borrowed from banks but are unable to pay back as a result of the coronavirus pandemic may now heave a sigh of relief as the African Guarantee Fund (AGF) a non-bank financial institution jointly owned by the Danish and Spanish governments as well as the African Development Bank (AfDB), have agreed to guarantee small and medium enterprises (SMEs) to have their loans with commercial banks restructured.

“African Guarantee Fund for Small and Medium-sized Enterprises (AGF) has announced its Covid-19 response aimed at reducing the uncertainties facing financial institutions in Africa as a result of the global coronavirus pandemic.

“AGF’s Covid-19 response is built on the imperative need for commercial solutions over and above the regulatory efforts already provided by the various central banks and governments in the continent,” said the AGF in a statement.

Here Is All You Need To Know

  • The AGF Covid-19 Guarantee facility will allow SMEs to pay less over a given period than what they had been paying and therefore cope better in the face of the Covid-19.

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“The African Guarantee Fund’s response sets the platform for economic stabilisation, followed by an economic revival through AGF’s newly developed Covid-19 Guarantee Facility that will, firstly, provide more comfort to financial institutions to restructure facilities that become non-performing because of Covid-19 and, secondly, provide commercial stimulus to the financial sector with the aim of mitigating the deterioration of SMEs’ perceived risk.”

For banks, as Figure 1 shows, lack of collateral and high default rates are the main challenge in lending to SMEs. Credit information gaps and high cost of monitoring borrowers together are cited by 16 percent of banks in the survey. Outside of SME specific constraints, increasing bank lending to the public sector in recent years has crowded out private sector lending in some countries, affecting SME lending in particular.
  • The AGF, however, did not reveal the amount set aside for guaranteeing the SMEs nor did it give any criteria to be used in determining which entities qualify.
  • The AGF, designed and funded by the AfDB in partnership with the governments of Denmark and Spain, usually provides financial guarantees to financial institutions to stimulate financing to SMEs and unlock their potential to deliver inclusive growth in the region.

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For more enquiries, click on this link: https://africanguaranteefund.com/contact-us/

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

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