In addition, AfDB has announced that it may increase its stake in other credit guarantee enterprises in Africa to ensure better financial access and economic growth. This is intended to be an enabling environment for the businesses, especially the small and medium-sized ones.
AfDB President Akinwumi Adesina explained the significance of such credit guarantee initiatives in off-loading risk from financial institutions that lend to SMEs: "Guarantee schemes represent critical access to finance tools as they compensate, under agreement, a partial amount of the lender's loss when the borrowers default.". These schemes are envisaged to play a critical role in stimulating economic activities by providing loans to those companies lacking collateral, which is a prerequisite for conventional banks.
Currently, AfDB invests in only a few credit guarantee schemes. However, these first investments' positive outcome has obligated the Bank to contemplate increasing its investment in similar ventures. This is with the ultimate goal of increasing the scale and coverage of financial services offered to African enterprises, especially the hard-to-reach ones by conventional finance services.
It further aims at the increase in involvement in more credit guarantee projects, which will align with AfDB's larger strategy to foster sustainable development and find solutions for socio-economic challenges of African countries. The scaled-up participation in these schemes places AfDB in an excellent position to trigger the growth of local enterprises, thus helping to improve employment and poverty alleviation.
Besides that, the bank is contemplating leveraging its investments to attract other financings from various financial bodies and multinational agencies in a bid to ensure that the benefits of credit guarantee schemes are increased. This is also part of increasing efforts towards resource mobilization that can be injected into major developmental projects around the continent.
AfDB has continued to weigh options and strategies for investing in new credit guarantee ventures, while remaining committed to transparency and operational efficiency. By partnering with member countries and working in concert with the economic development objectives of each country, the bank aspires to make its investments lasting and transformational.
This initiative would continue to empower more African entrepreneurs and thus create a more inclusive, robust economic landscape for the continent. As investments within credit guarantee ventures are likely to grow, AfDB will be in a position to play a key role in unlocking Africa's financial potential toward a more inclusive growth and ever-brighter future.
The new areas of investment underpin the commitment of AfDB to creative financial solutions addressing peculiarly African challenges and, therefore, fast-track the pace of development of the continent.
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Author: Megan Clarke
