African Guarantee Fund
This is the first second loss portfolio re-guarantee facility that AGF has entered into. The portfolio re-guarantee transaction allows AGF to leverage USD 6 million of its capital into USD 75 million of guarantee capacity that will be deployed into Infrastructure projects developed by African SMEs. The facility allows AGF to fulfil its current 5-year strategic cycle goal of increasing investments in the infrastructure sector and allows AGF to enter into larger local currency Infrastructure transactions that are beyond its USD 1 million single obligor limit. The second loss structure of the re-guarantee facility allowed for the allocation of risk between AGF and GuarantCo at a cost that was agreeable to both parties.
This collaboration between two local currency focussed guarantors allows local financial institutions and investors to participate in the financing of the entire value chain of African infrastructure projects.
By supporting AGF in its mission and focus on Infrastructure focused SMEs accessing financing; the re-guarantee facility is contributing to the financing of infrastructure in local currency while stimulating job creation and helping alleviate poverty. SMEs are key to poverty reduction and in aggregate are among the largest employers, creating four out of five new jobs in emerging markets. Formal SMEs contribute up to 60 percent of total employment and up to 40 percent of national income (GDP) in emerging economies. However, access to finance is a key constraint to SME growth. Without access to capital, many SMEs languish and stagnate.
The portfolio guarantee is a model that can be replicated with other financial intermediaries to leverage their capital bases efficiently.