‘We have supported 8,000 SMEs that created 80,000 additional jobs’

Felix Adahi Bikpo is the chief executive officer of African Guarantee Fund (AGF), an organisation that assists financial institutions increase their financing to small and medium sized enterprises (SMEs) through the provision of loan, fundraising and equity guarantees. In this interview with JOSEPHINE OKOJIE, he speaks about AGF’s funding support for Africa’s small and medium scale businesses.

Funding has remained one of the major challenges facing entrepreneurship in Africa. How can the AGF ensure entrepreneurs across Africa get adequate funding for their businesses?

In order for entrepreneurs to have increased access to financing, we focus on two lines of activity. Our guarantee facility which assists financial institutions in partially covering the risks associated with SME funding, and our capacity development facility which assists financial institutions by enhancing their SME financing capabilities in order to be able to execute their SME growth strategies with ease.

How much has AGF invested so far in African SMEs, and how many entrepreneurs have benefitted from its funding initiative so far?

Over the past six years, AGF has led the guarantee market in Africa by issuing financial guarantees to the tune of $700 million. This has enabled our Partner Financial Institutions (PFIs) to issue loans estimated at $800 million while still making available financing of $1 billion for SMEs.

Through the loans issued by our PFIs, about 8,000 SMEs have been supported and, in turn, these SMEs have been pivotal in the creation of more than 80,000 additional jobs.

We also encourage active participation of women and youths in ownership and management of SMEs. At the end of 2016, 30 percent of the SMEs that we supported were owned or led by women, while 60 percent were owned or led by youth.

Africa has huge infrastructure gap, and inadequate storage facility has continued to limit the continent’s agricultural potential. What is AGF doing to bridge the huge gap?

The development of our continent relies a lot on infrastructure as well as other sectors such agro-industry. It is for this reason that AGF approved infrastructure as a priority sector in our strategic plan. This implies that we work very closely with our financial institutions to see how we can increase their loan issuance to SMEs in this specific sector.

SMEs in infrastructure have high financing needs and this requires a specific structuring to be able to handle them. That is the reason we are working with strategic partners such as GuarantCo to increase the size of our support to individual SMEs.

We are also structuring our support to the entire value chain around infrastructure. The sustainability of our infrastructure is highly linked to the sustainability of SMEs working along the entire value chain to ensure the overall quality.

African countries like Nigeria and Angola are looking at diversifying their economies through agriculture. What is AGF doing to assist these countries in terms of infrastructure?

AGF has seen the uptake of its guarantee products grow spontaneously in Nigeria over the last four to five years. The potential still remains to expand our business partnership from the current four partner financial institutions to at least 10 in the next five years. We are also very keen to engage in infrastructure, agro-industry and energy, which are among the leading sectors for Africa’s economic development.

We are yet to penetrate the Angolan market and we look forward to partnering with their financial institutions in the very near future.

There has been so much talk about smart city and it has to do with building the skills of incubations and accelerators. What is AGF doing in this regard?

Green Economy is the pathway to achieving sustainable development in contemporary times. AGF’s Green Guarantee Facility, with the support of our shareholders and particularly Nordic Development Fund, introduced a specialised green finance instrument designed to unlock finance for SMEs investing in low carbon, green growth and climate resilient development.

Why is it still difficult for SME operators in Africa to get funding for their businesses despite all the various financial institutions on the continent?

Despite the internationally recognised importance of SMEs, SME financing is often perceived by many financial sector players in Africa to be a risky activity as promoters quite more often than not fail to come up with the collateral levels required to secure bank facilities. It is in response to this that AGF was created.

With the current challenges facing most economies in Africa, what is the outlook of entrepreneurship’ in Africa?

Africa has indeed had a challenging past as far as its economy is concerned. The outlook is however projected to improve with positive growth in output. The economic recovery is expected to be driven by a gradual improvement in the continent’s largest economies and commodity prices stabilisation.

A good performance is expected in 2020, but at 3.2 percent a year, growth will be below the level needed to propel average incomes and living standards rapidly. Indeed, by 2020, GDP per head at purchasing power parity exchange rates will have barely improved from 2015 levels in many countries. A possible global recovery at the turn of the next decade driven by domestic demand will certainly boost African economic growth, but with probably less intense scale than during the previous decade.

In this environment, the role of the AGF becomes more than crucial. Since our incorporation, our purpose has been clear. We are here to help the private sector, mainly the SMEs, to really play the role of engine drivers of sustainable growth and to be a source of employment, skills and wealth creation. In turn, this will help to reduce poverty throughout the continent. We are confident that properly funded SMEs can help drive the economies of African countries to greater heights.