The Board of Directors of the African Development Bank Group has approved an equity investment of €18 million in the Africa Guarantee Fund (AGF) and another €1.2 million to support youth and women entrepreneurs engaged in agricultural value chains in Kenya.
The funding, approved on June 6, 2023, was provided by the European Union (EU) under its partnership with the African Development Bank Group.
Mrs. Nnenna Nwabufo, the Bank Group’s Director General for East Africa, noted the approval as “another milestone in the implementation of the partnership with the EU, which also signals the importance given to the role of women and youth in the agricultural sector in Kenya.”
The demand for Micro, Small, and Medium Enterprises (MSME) financing remains unmet in Kenya and has been aggravated by the disruptions of the Covid-19 pandemic. The International Finance Corporation (IFC) estimates an SME finance gap of US$19.38 billion, representing 30 percent of the country’s GDP.
The World Bank’s Covid-19 Business Pulse Survey (BPS) shows that many potentially viable firms are still struggling. The agriculture sector employs the largest share of the population, especially in rural areas, and accounts for 60 percent of Kenya’s export. According to data by the Kenya Youth Agribusiness Strategy 2017-2022, 64 percent of the unemployed Kenyans are youth (18 to 35 years old), with the majority moving away from agriculture to fast-growing non-agricultural sectors in urban areas.
Women face many constraints hampering their access to finance and the growth of their businesses. These include a lack of business management skills, legal, social, and policy barriers, poor access to networks and information, and inadequate financing options catering for their specific needs.
Banks often perceive women-led businesses as risky due to the low quality or number of assets for collateral and the generally smaller business sizes. Therefore, supporting women entrepreneurs and catalyzing private investment in this segment are crucial measures to foster inclusive economic growth in Kenya.
According to the 2017 Economic Survey by the Kenya National Bureau of Statistics, commercial bank lending to the sector in 2016 stood at a mere three percent, as the risk level of this customer segment is deemed high.
AGF is a private limited liability pan-African non-bank financial institution headquartered in Nairobi, Kenya. Its objective is to boost SMEs’ access to finance and capacity development, thereby increasing employment and reducing poverty.
The total share capital amounts to $225 million, with investments from the German state-owned investment and development bank, KfW (28.74 percent); Danish Investment Fund for Developing Countries and DANIDA) (33.52 percent); Spanish Ministry of Foreign Affairs and Cooperation (9.31 percent); African Development Bank (9.3 percent); Nordic Development Fund (7.96 percent); French Development Agency, AFD (6.51 percent); and Proparco (4.65 percent).
Since its inception, AGF has cumulatively issued $1.56 billion of guarantees to 189 Partner Financial Institutions (PFIs) in 40 African countries.
This article was originally published by AfDB.