British International Investment

African Guarantee Fund

AfricaFinancial services

African Guarantee Fund is a specialised guarantee provider with the mandate to increase African SMEs’ access to financing. It does this by providing partial guarantees or risk sharing facilities to SME lenders.

Our investment

Description of the investment.

British International Investment (BII) and African Guarantee Fund (AGF) are partnering to provide up to $75 million in credit re-guarantee agreements for small and medium-sized enterprises (SMEs) across Africa. We will provide $37.5 million in risk cover, with AGF matching this amount. Through this partnership, AGF and BII will typically provide up to 75 per cent of credit guarantee coverage to partner financial institutions for SME loans, increasing access to credit and reducing collateral requirements for these businesses.

Impact information

Applies to investments made from 2019 onwards. The tabs in this section define what we expect to achieve through the investment, assessing the potential impact of the investment against six dimensions of impact. You can find more details on our methodology of assessing impact here.

What?

Impact

Improved economic opportunities created directly and indirectly from SME growth (SDG 8).

How?

Primary Secondary
  • Economic enabler: By extending $75 million in guarantees to partner financial institutions, the programme supports new lending - and increases overall lending - to SMEs. This in turn supports their operations and growth, and results in direct and indirect economic opportunities.
  • Catalysing markets: Guarantees can help reduce perceived higher risk associated with lending to SMEs. Coupled with technical assistance, guarantees can enable partner financial institutions to sustainably increase lending to SMEs including in the long term (after the guarantee ends). Signposts of success would be an increase in lending to SMEs above and beyond the guarantee, as well as a broader demonstration effect across the market.

Who?

Stakeholder Geography Characteristics
Owners and employees

Pan-Africa

Average SME loan size of $52,000 (“small” enterprise as per IFC) to businesses primarily in infrastructure, manufacturing, wholesale, and retail.

How much?

Scale Depth/Duration

The programme is expected to contribute to the generation of more than 10k loans to SMEs over the lifecycle of the programme.

  • Depth: Expected to be deep given: (i) exposure to ‘A’ countries i.e. fragile/low-income states; (ii) the prolonged effects of COVID-19 in Africa causing a 5 per cent contraction in GDP per capita and a recession after 25 years.
  • Duration: Three years.

Contribution/additionality

Contribution/additionality
  • Financial additionality: Capital is not offered in sufficient quantity. This remains a primarily DFI-driven initiative, with no commercial capital and lending in the market is limited. AGF’s financing has contributed to increased loan book growth, enhanced risk-taking abilities and product development for PFIs, leading to increased lending for SMEs.
  • Value additionality: Improvement of processes and standards. AGF is expected to trial BII’s client protection tool on the re-guarantee programme

Grid score

Grid Score

To help us direct our investments, we previously used a tool called the Development Impact Grid. It scored investments out of four, based on two factors: the difficulty of investing in a country and the propensity of the sector to generate employment. This tool was used for investments until the end of 2021. Since 2022 it has been replaced by the Impact Score.

N/A

Risk

Evidence Risk
  • Visibility on the impact on ultimate borrowers depends on the partner financial institutions’ ability to provide data on underlying borrowers.
Execution Risk
  • Efficacy: There is a risk that the instrument does not Increase loans to the targeted segment.

Environmental and social information

  • Environmental and social summary

    A high-level description of the environmental and social aspects of the investment. This may include a summary of key environmental and social risks identified during environmental and social due diligence (ESDD); key elements of an environmental and social action plan (ESAP); or ways in which we plan to support the investee improve environmental and social standards, such as through their environmental and social management system (ESMS); as well as any other priority areas agreed with the investee.

  • Environmental and social risk

    A risk category rating, which indicates the level of environmental and social risk associated with an investment. For an explanation of the categorisations used, see here. We consistently provide an environmental and social risk category for all investments screened from 2023 onwards.

Environmental and social summary

We agreed an ESAP focused on ensuring implementation of the fund manager's ESMS to financial institutions and Small and Medium Enterprises (SMEs) under the facility. AGF will also update its HR policies.

Reporting and Complaints Mechanism

The Reporting and Complaints Mechanism allows anyone outside BII to report alleged breaches of the business integrity or environmental and social provisions of BII’s Policy on Responsible Investing. This includes breaches made by BII, a BII investee, or a portfolio company of a fund in which BII has invested. The Reporting and Complaints Mechanism Rules are available here. Reports and complaints can be submitted by email to [email protected] or by mail. See more details on our Reporting and Complaints Mechanism here.

For any other general enquiries contact us at [email protected]

  • Key facts

    Last updated

    When the last quarterly update of the website database occurred.

    :
    January 2024
    Project number

    An identifier number shared by investments in the same project.

    :
    D4727
    Status

    The current status of the investment (green flag for active and red flag for exited).

    :
    Active
    Region

    The geographical region where the country is located. We currently invest in Africa, South Asia, South East Asia and the Caribbean. In 2023, BII’s investment mandate was extended allowing it to invest in regional funds linked to Ukraine, with the majority of activity expected to begin post-war. Investments outside these regions were made prior to 2012 under previous investment mandates.

    :
    Africa
    Country

    The countries from which we derive the value of our investment. Where value is derived from multiple countries, this is indicated.

    :
    Africa
    Sector

    We prioritise those sectors that facilitate development and need our capital the most. Our priority sectors contribute towards many of the Sustainable Development Goals. They range from investing in the power infrastructure that will provide people with better access to electricity, to investing in financial institutions that direct capital to the individuals and businesses that need it the most.

    :
    Financial services

    We provide capital in the following ways: directly – through direct equity, direct debt, guarantees and other non-intermediated financial instruments; and indirectly – principally through investment funds.

    For direct investments and fund investments, this is the date BII committed capital to the investments. This is typically the date on which legal agreements are signed by all parties.

    For the portfolio companies of our fund investments, this is the date (either the month or the quarter) on which the fund committed capital to the portfolio company.

    For direct equity investments, this is the date at which British International Investment exited the investment.

    For debt investments, this is the date at which the final debt repayment was made.

    For funds, this is the date at which the fund was terminated.

    For underlying fund investments, this is the date at which the fund manager exited the investment.

    The total amount committed, per financial instrument, per investment, on the date BII becomes subject to a binding legal obligation to provide funding or assume a contingent liability. This information is provided in US dollars.

    For direct investments, this is the amount that BII has committed to the business or project. For fund investments, this is the amount BII has committed to the fund.

    The currency in which the investment was made.

    Investment type :
    Guarantee
    Start date :
    November 2022
    Amount :
    $37.5m
    Currency of investment :
    USD
    Domicile

    The company or investment fund’s place of incorporation.

    :
    Africa
    2X Gender Finance

    Indicates whether the investment is ‘2X qualified’ using the 2X Challenge criteria. You can find out more here. It only applies to investments made from 2018 onwards, when the 2X Challenge was first launched.

    :
    Fully qualified

Subscribe to receive our latest news and updates