By Smart Farmer Writer
The Board of Directors of the African Development Bank Group has given its approval for an equity investment of €18 million in the Africa Guarantee Fund (AGF) and an additional €1.2 million to support agricultural value chain entrepreneurs who are youth and women in Kenya.
The funding, which was granted on June 6, 2023, originates from the European Union (EU) through its partnership with the African Development Bank Group.
Mrs. Nnenna Nwabufo, the Bank Group’s Director General for East Africa, described the approval as a “significant achievement in the implementation of the EU partnership” and emphasized its recognition of the importance of women and youth in Kenya’s agricultural sector.
The demand for financing Micro, Small, and Medium Enterprises (MSMEs) in Kenya remains unmet and has been further exacerbated by the challenges posed by the Covid-19 pandemic. According to the International Finance Corporation (IFC), there is an estimated SME finance gap of US$19.38 billion, equivalent to 30 percent of the country’s GDP.
The World Bank’s Covid-19 Business Pulse Survey (BPS) reveals that numerous potentially viable firms are still grappling with difficulties. Given that the agriculture sector employs a significant portion of the population, particularly in rural areas, and accounts for 60 percent of Kenya’s exports, it is essential to address these challenges. Data from the Kenya Youth Agribusiness Strategy 2017-2022 indicates that 64 percent of unemployed Kenyans are youth aged between 18 and 35, with many transitioning from agriculture to rapidly growing non-agricultural sectors in urban regions.
Women encounter numerous obstacles that hinder their access to finance and impede the growth of their businesses. These obstacles include a lack of business management skills, legal, social, and policy barriers, limited access to networks and information, and insufficient financing options tailored to their specific needs.
Financial institutions often perceive businesses led by women as risky due to the scarcity or low value of assets available for collateral, as well as their generally smaller business sizes. Consequently, supporting women entrepreneurs and catalyzing private investment in this sector are crucial steps toward promoting 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 accounted for only three percent, primarily due to the perceived high risk associated with this customer segment.
AGF is a privately held pan-African non-bank financial institution based in Nairobi, Kenya. Its objective is to enhance SMEs’ access to finance and capacity development, thereby fostering employment and reducing poverty.
The total share capital of AGF amounts to $225 million, with investments from various entities, including the German state-owned investment and development bank, KfW (28.74 percent); the Danish Investment Fund for Developing Countries and DANIDA (33.52 percent); the Spanish Ministry of Foreign Affairs and Cooperation (9.31 percent); the African Development Bank (9.3 percent); the Nordic Development Fund (7.96 percent); the French Development Agency, AFD (6.51 percent); and Proparco (4.65 percent).
Since its establishment, AGF has issued cumulative guarantees worth $1.56 billion to 189 Partner Financial Institutions (PFIs) across 40 African countries.