The African Development Bank has established a Fund to absolve the risk of SME funding on the continent. The Fund takes on 50 percent of the risk of commercial banks in lending to Small and Medium Enterprises (SMEs) in Africa, according to the AfDB.
The Fund will address African SMEs’ and entrepreneurs’ key constraint of access to finance, an official has said.
Speaking to journalists at the Bank’s headquarters in Tunis, Tunisia, Wednesday May 2, 2012, Director of the Private Sector Department of the Bank, Tim Turner said the African Guarantee Fund was established two years ago with the help of the governments of Denmark and Spain.
The Fund which is now operational is headquartered in Nairobi, Kenya.
“The Fund will have a Pan-African mandate, and will help financial institutions that are lending to SMEs to scale up their business, ” he said.
“It was created to help commercial banks to lend to SMEs,” he said.
He said Denmark and Spain provided $40 million and the AfDB provided $10 million to start the Fund.
“We will like to mobilise $500 million for the Fund,” he said.
Mr. Turner also emphasised the importance of the private sector in Africa’s development.
Private sector development is on the Bank’s top four priorities. He mentioned infrastructure, governance, high education and private sector as the Bank’s four strategic priorities.
He says the Bank’s President Dr. Donald Kaberuka has put priority on private sector development by allowing it to be the engine of growth.
“The Bank acknowledges the role of the private sector in creating growth, particularly inclusive growth and green growth,” he said.
He said the Bank started private sector operations since 1991.
“Under Kaberuka in 2006, the private sector investment has taken off in terms of size and scale of activities. In 2000 to 2006, the Bank was doing $200 million yearly, now it has posted $2 billion a year in private sector investment,” he said.
The Private Sector Department he said operates across the continent and invests directly and indirectly in over 40 countries in Africa.
He indicated that the department identifies projects that do not have sovereign guarantee – and takes those risks so that the commercial banks will have more room to expand their business.
The department he says has invested in airports, railways, telecoms, backbone, satellite technology, industries and services, mining and refinery, agribusiness, health and education where it can be commercially viable. It also finances and manages the energy sector, is engaged in subsectors in energy, gas fired power plants and the renewable energy sector.
The Bank will showcase the Fund at its Annual General Meeting in Arusha, Tanzania May 28 to June 1, 2012.
By Emmanuel K. Dogbevi, in Tunis, Tunisia