AGF plans guarantee product to ease SME lending

Jules Ngankam, Chief Executive Officer (CEO)-African Guarantee Fund (AGF)

The African Guarantee Fund (AGF) is set to unveil a tailored guarantee product designed to alleviate the challenge of high-interest rates faced by Small and Medium-sized Enterprises (SMEs) in Ghana.

This move comes amid persistently exorbitant interest rates hindering the growth potential of these businesses.

During an exclusive interview with B&FT at the 2023 African Financial Industry Summit, Jules Ngankam, CEO-AGF, highlighted Ghana’s strategic importance for the fund; emphasising its position as one of the top-ten countries in transaction volume.

He expressed AGF’s commitment to expanding its operations within the country, revealing imminent plans for a groundbreaking programme.

“Ghana holds significant importance for us. We are gearing-up to announce a programme very soon,” Mr. Ngankam stated. Shedding light on the pressing issue faced by Ghanaian SMEs, he highlighted excessively high interest rates – exceeding 30 percent when borrowing from banks and other financial institutions – impeding the growth prospects of these enterprises.

To confront this challenge head-on, AGF is developing a tailor-made product aimed at facilitating affordable lending specifically tailored to the Ghanaian market. Mr. Ngankam emphasised the organisation’s dedication to risk-sharing as a pivotal catalyst for encouraging banks to extend their support for SMEs across Africa.

“The crux of the matter lies in the risk-sharing aspect crucial for banks supporting SMEs. Mitigating these significant risks is essential for them,” Mr. Ngankam asserted. He further underscored the absence of adequate risk mitigation instruments across the continent as a significant impediment to growth, stressing the critical role of such instruments in securing financing and fostering economic development.

AGF’s collaboration with Ecobank has been instrumental in unlocking over US$1billion in SME financing across 45 countries, serving as a benchmark for its upcoming initiative in Ghana. Ngankam reiterated the Fund’s expansive reach and its goal to cover the entire continent, citing the escalating demand for risk-sharing instruments and their pivotal role in providing security to commercial banks.

“We’ve facilitated up to US$5billion in lending to SMEs over the past decade, and we aim to double this amount in the next five years, given Africa’s rapid growth,” Mr. Ngankam disclosed.

With the backdrop of soaring interest rates posing a deterrent to lending in Ghana, AGF’s forthcoming guarantee product seeks to instil confidence in banks and invigorate financing to propel the country’s SME sector.

AGF, as a specialised guarantee provider, remains steadfast in its mission to foster economic development and reduce poverty across Africa by enhancing SMEs’ access to finance. Since its establishment, AGF has catalysed over US$3.5billion in SME financing through collaborations with 200 financial institutions across 45 African countries.

Ecobank’s trajectory showcases remarkable growth and expansion. Initially initiated at US$50million in guarantee transactions a decade ago, the partnership was renewed in 2018 – maintaining the same value but encompassing more countries. From its inception in seven countries, it now spans 27 – with a guaranteed coverage of US$250million marking a four-fold increase in exposure. This collaboration is poised to catalyse close to US$1billion in financing for SMEs, pivotal drivers of growth in African economies.

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