Small and medium-sized enterprises play a key role in economic growth and job creation. They need financial resources to develop their activity, but their access to financing remains limited, often because banks consider them as risky clients.
To facilitate their access to credit and thereby promote their development, AFD Group has launched the EURIZ guarantee scheme, with financial support from the EU and Organization of African, Caribbean and Pacific States (OACPS).
The objective of EURIZ is to facilitate access to credit in the Africa, Caribbean and Pacific (ACP) region for SMEs with a high development impact and any type of SME in fragile countries.
The EURIZ guarantee allows partner financial institutions (public and private banks, specialized financial institutions), to which SMEs in the ACP region could apply to obtain a loan in local currency, to call on PROPARCO or AFD to guarantee part of the risk associated with the loan.
The EURIZ guarantee scheme makes it possible to either:
- Support access to financing for SMEs in fragile countries (Chad, DRC, Ethiopia, Guinea, Mali, Niger…) by offering a guarantee covering up to 50% of the loans proposed by partner financial institutions to all types of SME;
- Support access to credit for SMEs with a high development impact by offering a guarantee covering up to 70% of loans.
SMEs with a high development impact are those operating in the agriculture, health, education, digital and inclusive economy sectors, but also young start-ups, companies majority-owned by women or young people under 25 and green SMEs, which are facing increased difficulties in obtaining financing.
Through the EURIZ guarantee scheme, a maximum of EUR 181m of guarantees may be allocated to local public banks, via AFD, or private banks, via PROPARCO, that want to finance key players in their local economies.
The scheme also comprises a technical assistance component which helps financial institutions develop a range of services tailored to the specific needs of SMEs. Similarly, technical assistance may be proposed to MSMEs to help them with the financial structuring of their projects. A total of EUR 4.5m will be earmarked for technical assistance to banks and MSMEs.
Through EURIZ, in the coming years, over 6,200 SMEs should benefit from loans to create their project or develop their activity, including 1,200 in fragile countries and 5,000 companies with a high development impact.
The EURIZ scheme was set up in 2019 with support from the European Union, under the EU’s Thematic Blending Framework of the Development Cooperation Instrument (DCI) and European Development Fund, and the Organization of African, Caribbean and Pacific States (OACPS). EURIZ benefits from EUR 25.8m of financial support from the European Union.
This guarantee is also part of the Choose Africa initiative.
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In 2008, the European Commission launched the Neighborhood Investment Facility (NIF), an innovative financial instrument to support the development of the private sector, particularly for small and medium-sized enterprises (SMEs).
The MENA Facility has been operational since 2021 and is one of the projects from this “NIF” Initiative. It aims to support the financial inclusion and financing of SMEs in seven Mediterranean countries: Algeria, Egypt, Jordan, Lebanon, Morocco, Palestine and Tunisia.
The EUR 23.2m MENA Facility makes it possible to set up guarantees adapted to the risks associated with SME finance, in particular in sectors with a high development impact, and absorb part of the additional cost generated by hedging mechanisms implemented to deploy credit lines in local currency.
This facility targets private financial institutions, via PROPARCO, and public institutions, via AFD, with the objective of easing the constraints, especially financial constraints, which are inherent to SME finance.
EUR 2m of resources for technical assistance are also available to build the capacities of the financial institutions to be targeted and serve SMEs, while strengthening the capacities of SMEs to access financing.
Finally, a strong ambition of the MENA Facility is to target high-impact players and sectors, which are faced with difficulties in accessing formal credit, such as women entrepreneurs, start-ups and the renewable energies and agriculture sectors.
For example, this objective is achieved through an incentive mechanism, in the form of an “impact premium”, which encourages financial institutions to position themselves more in these segments.
The MENA Facility benefits from EUR 26m of financial support from the European Union.
Find out more: Read the MENA brocure
The economic consequences of the Covid-19 pandemic are severely affecting MSMEs in Africa and exacerbating the problems they have in accessing finance, which they already faced before the crisis.
In response to the pandemic, in 2020, the European Union refocused the guarantees of the External Investment Plan (EFSD) to support small businesses affected by the crisis and encourage local banks to finance them more.
PROPARCO has obtained a EUR 68m EFSD guarantee under the EU’s External Investment Plan for new financing dedicated to SMEs in Africa, and a EUR 3.7m technical assistance grant to allow it to help financial institutions and their SME clients manage the impacts of the crisis and restart their activity.
With support from the European Union, AFD Group has strengthened the Choose Africa initiative with a new “Resilience” component, with an additional EUR 1bn dedicated to SMEs in Africa from now until 2022.
Through a set of customized solutions, this new “Resilience” component, which is implemented by PROPARCO, is addressing the needs of MSMEs in Africa hard hit by the health and economic crises related to the Covid-19 pandemic.
- The EUR 68m of EFSD guarantees will allow PROPARCO to cover part of the risk associated with the loans it allocates to certain key financial institutions, such as microfinance institutions, leasing institutions and banks specialized in the SME segment which will play an essential role in helping microenterprises overcome this crisis.
- The EUR 3.7m of technical assistance grants will be dedicated to technical assistance (administrative, financial or technical) to financial institutions and their SME clients for the management of the crisis or adaptation to the new conditions created by the crisis.
The European Union is thereby allowing PROPARCO to play its countercyclical role and continue to support financial institutions that provide or will provide small businesses with the financing that is essential for restarting and developing their activities.