The African Guarantee Fund (AGF) and Equity Bank have renewed their strategic partnership by signing a $500 million framework aimed at strengthening lending to small and medium-sized businesses and promoting job creation across the region.
The agreement marks the biggest guaranteed engagement in AGF's history and paves the way Equity Bank significantly expands its ability to lend to Kenya, Uganda, Rwanda, Tanzania and Dr. Congo. According to a joint statement released by the agency, the initiative is projected to unlock $1 billion in new funding for small businesses and create or maintain more than 50,000 jobs.
“The framework will be implemented in three phases starting with the first US$115 million tranche, already committed to five core subsidiaries. It will cover loans to MSMEs, focusing on women-owned, youth-led and green companies,” the statement read.
Small and Medium Enterprise Finance Laboratory
Speaking at the signing ceremony, AGF's board chairman Felix Bikpo emphasized that the updated partnership with Equity Bank was notified by the latter's track record in small business financing.
“Equity Bank is a small business funding lab,” he declared. “We have leaders who understand that we are financially sustainable and can have a good social impact. We can become financially sustainable while we fund our small business.”
Last year, AGF ticked out similar deals worth $200 million on Ecobank to support small businesses.
“You got it from the start. AGF stands firmly with you,” Bikpo told Equity Bank's management team, led by managing director and CEO James Mwangi.
Equity Bank has established itself as a major force in small and medium-sized enterprise financing in Africa. Using branchless banks, mobile banking and agency banking, we have reached underserved SMEs and households in Kenya.
Bikpo urged Equity Bank to maintain its tempo and expand to more African countries. “We're pushing it into West Africa and South Africa. What we're doing here could be moved to the continent,” he said.
Mwangi said the bank's move to renew its partnership with AGF is notified that it needs to maintain the strong growth momentum achieved in its SME portfolio, accounting for 72% of the bank's loan books. He expressed confidence that the banks are in a better position following the guarantee agreement to further increase loans to small and medium-sized businesses.
“This can do as many as 10 times in terms of loan payments as a guarantee that allows us to amplify more times. This is a form of credit risk sharing guarantee that will tolerate us, giving us confidence to accelerate our lending,” he explained.
“It strengthens the risk appetite of credit so that more people have access to credit. Credit allows people to be exploited by leveraging capital through debt and wealth is generated, so we open up opportunities for people.”
Discussing why Equity Bank is doubling small businesses, Mwangi said SMES was key to creating sustainable wealth.
“19% of Africa's population is 19%, but only 3% of global production. This means that it's close to 20% of the world's population, but only 3% of the world's wealth,” he said. “The formation of Africa's capital is small and medium-sized enterprises. As an African institution, we focus on African entrepreneurship, so there is great evidence.
Opportunities to make a difference
Mwangi said the equity agreement with the AGF provides “opportunities to bring about change” and highlights broader economic and social benefits beyond mere economic benefits.
“When people have access to credit and give the game a chance to have skin, they are actively involved in their country's economic activity. We are promoting a peaceful existence and promoting greater integration… This is what we are excited about with the DRC as this brings the population into economic activity,” he said.
He highlighted that agriculture is a key sector poised to benefit from the increased lending that was made possible by the agreement. The partnership also focuses on supporting women-led businesses, with Equity Bank working not only to fund these companies but also to implement training programs aimed at building capacity for female business leaders.
“The need for global food security gives us the opportunity to focus on agriculture. The issues that create employment opportunities give us the opportunity to focus on women. So we don't see any major challenges to use this assurance,” he pointed out.
He said Equity was focusing more on expanding its partnership with AGF, and that lenders were focusing on the $2 billion package a few years later, considering their ambitions to become African bank leaders.
Ambitions welcome
Jules Ngankam, Group CEO of AGF, welcomed Equity Bank's ambitions and reaffirmed its continued support for AGF's lender's small business initiative.
“Africa spends around $35 billion to import food each year. If this continues, it will reach $110 billion by 2030. The continent represents only 3% of the world's energy trade, but its population is only nearly 20% of the world's population.
He argued that solutions to tackle these challenges come from small businesses. “We need to ensure that SMEs are more competent and well-funded. These SMEs contribute 30% of GDP and generate more than 70% of new jobs.”
Mindset Shift
“This transaction is a historic deal as it is the largest guarantee agreement signed on the continent, and we want to support small businesses so that they can play their role.
He argued that guarantees have been formed and will be an option for lifting small businesses' lending. However, while awareness of the risks associated with lending to small and medium-sized businesses has improved, a complete shift in thinking has not yet occurred completely.
“The way we think about lending to small and medium-sized businesses is changing, but what we do is still small: agriculture is 30% of Africa's GDP, but only represents 6% of commercial bank loan portfolios.
He said since its founding in 2018, the AGF-Equity Partnership has unlocked more than $160 million with approximately 2,000 MSME loans, including 500 women-led youth-led businesses.
Mwangi said his partnership with AGF will stimulate more lenders and financial institutions to pursue small and medium-sized business lending opportunities.
“Over the past six years, we have developed and tested the concept, which is why we are expanding. As we scale, our partnerships and collaborations become market-like and the demand for joint products grows exponentially,” says Mwangi.
