Boon for SMEs as agency offers Sh240b loan guarantees

Thursday, May 21st, 2020 00:00 |
Loan. Photo/Courtesy

Seth Onyango @SethManex

African Guarantee Fund (AGF) for small and medium-sized enterprises (SMEs) has unveiled Sh120 billion guarantees to help struggling businesses wade through the Covid-19 economic storm.

The facility will unlock up to Sh240 billion for banks to finance SMEs in Africa and reduce the uncertainties facing financial institutions reeling from the effects of coronavirus.

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.

The move will provide more comfort to financial institutions to restructure facilities that could fall delinquent because of the virus.

It also offers commercial stimulus to the financial sector with the aim of mitigating the deterioration of SMEs’ perceived risk.

Felix Bikpo, AGF Chief executive officer said consequences of Covid-19 pandemic will continue to have escalating negative effects on SMEs in Africa both on the supply and demand sides. 

Financial sector

Consequently, he added, the Fund must assume that there will follow a deterioration of these SMEs’ creditworthiness.

“This is likely to increase the cost of credit for the financial sector which will surely increase their reluctance to finance the SME sector if there is no external stimulus,” Bikpo said.

“It is because of this that we must develop a commercial response in addition to the regulatory responses given by the different central banks and governments in the continent.

Therefore, in line with our mandate we have launched the COVID-19 Guarantee Facility.”

AGF will also continue to use its technical assistance support to increase the capacity of financial institutions in their risk assessment of SMEs during the crisis period.

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