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Investment Finance


Provide access to investment finance for small and mediumsized enterprises to expand production and employment.

Africa’s small enterprises, from traders to farmers, contribute to more than 80 percent of output and jobs in most African nations. They offer the best opportunities for growth, diversification and job creation. But SMEs are constrained by limited access to stable energy services, business management skills, skilled labour and especially finance for investment.

Almost 50 percent of African companies identify lack of access to finance as a major constraint to doing business. The cost of finance, including investment finance, is higher in Africa than any other part of the world, and the access for SMEs is particularly limited. Very few commercial banks do small enterprisebanking in Africa. Furthermore, the global financial crisis is likely to squeeze access to finance for these enterprises more than for bigger companies for some years to come.

Causes of the problem are found in both supply and demand. While the lack of effective business plans and adequate skills within SMEs are a problem on the demand side, the supply is constrained by lack of capacity in the financial sector to do business with smaller companies; inadequate information resulting in high-risk assessments; lack of collateral and collateral registries; poor protection of creditors; and lack of availability of longer-term funds.


Small and medium-sized enterprises play a pivotal role in creating jobs, growth and poverty reduction in Africa. We must ensure that SMEs are given the best possible basis for expansion and growth

Donald Kaberuka,
Member of the Africa Commission

Graph: Share of firms identifying access to finance as a major constraint

The share of firms identifying access to finance as a major constraint to doing business is higher in Sub-Saharan Africa than in any other part of the world

Source: World Bank Enterprise Surveys (2009)


Successful developing countries have seen their SMEs flourish, moving from informal to formal production and becoming the backbone of growth in production and employment. Such processes of development support the creation of a strong middle class and also tend to strengthen democratisation and the rule of law.

The Africa Commission calls for the following policy actions on access to finance:

  • R14: The financial sector in African countries must scale up access to finance, in particular investment finance, for SMEs and develop the necessary capacity. For their part, African governments, supported by international development partners, must provide a predictable regulatory framework, facilitate capacity development of financial institutions and enterprises, and provide effective market-based instruments that increase access to investment finance.

  • R15: African governments must facilitate a better business environment for small enterprises. This requires basic infrastructure (which may be financed through aid and public-private partnerships), the registration and protection of property rights, a less burdensome regulatory framework, and incentives, rather than punishment in the form of extra costs, for businesses that formalise their operations.

Illustration: The Missing Middle

While micro-financing and large loans are available to a certain degree, there is an evident lack of access to finance for small enterprises in Sub-Saharan Africa

Source: Confederation of Danish Industry in cooperation with ESA BMO Network based on Thierry Sanders, NCDO

The Initiative: Access to Investment Finance for SMEs


The Africa Commission will develop an African Guarantee Fund (AGF) in partnership with the African Development Bank to foster the growth of financial resources available for the investment needs of SMEs and for capacity development of financial institutions. Furthermore, the Commission will launch a complementary facility for enterprises to improve their business management and technical skills in order to gain access to investment finance. This capacity development facility will draw on national resources, including consultants, training institutes etc. By sharing the risk of this type of loan, and doing it in coordination with other activities that build the recipient’s capacity, this initiative would also create more productive employment, especially for young people.

The AGF will make available “partial portfolio credit guarantees”: Agreements with financial institutions, under which the AGF takes on some credit risk on investment projects financed by them. It could also do counter-guarantees, which allow for more funds to be available for investments, bridge any collateral gap and help reduce the risk faced by the lender. Only sound financial institutions that have the potential to appraise and effectively monitor SME loan/ lease portfolios, and that are willing to absorb at least half of any realised losses, should be considered as partners.

The AGF will also address the need to raise long-term finance by making available institutional guarantees. These guarantees would ensure the partial repayment of investments (such as lines of credit, capital allocations, or bond purchases) made by major fund providers (such as pension funds, insurance companies, or equity/venture funds) to financial institutions and equ ity funds that use those funds to provide loans and equity, or other financial facilities, to SMEs.

This page forms part of the publication 'Realising the Potential of Africa’s Youth' as chapter 10 of 25
Version 1.0. 09-06-2009
Publication may be found at the address


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