For several years, the European Commission has shown its commitment to scale up its financing for the private sector.
This objective has been reaffirmed with the new €14.3bn guarantee tool for development finance institutions from the European Fund for Sustainable Development+ for 2021-2027.
In 2015, the Commission accredited PROPARCO to manage European funds for development, among other players. This partnership has since allowed PROPARCO to mobilize additional resources to its own financing in order to extend its range of services for the private sector and the achievement of the SDGs. The mobilization of funds delegated by PROPARCO provides greater additionality and increases the impacts of its financing, by exploring new sectors and/or new markets, which have high impacts but are riskier, and by increasing PROPARCO’s non-financial contribution to the private sector.
European funds can be mobilized in several forms depending on the objectives: grants, in particular to deploy technical assistance programs, or guarantees, which are systematically associated with PROPARCO’s financing.
The concessionality of this type of blending makes it possible to diversify and extend PROPARCO’s range of services to support the private sector’s role as an accelerator of transitions and a contributor to the Sustainable Development Goals.
European funds are mobilized in three main sectors: financial inclusion, climate finance and renewable energies.
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.
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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.
AFD Group has made the implementation of the Paris Agreement central to its mandate. It is also a priority commitment for PROPARCO.
In December 2021, PROPARCO signed a €11.5m fund delegation agreement with the European Union to continue the SUNREF Palestine project, launched with AFD. SUNREF is an AFD Group product and label which aims to facilitate investments in the green energy sector by working on an approach targeting both supply and demand.
SUNREF II Palestine is the first partnership between PROPARCO and the European Union on climate finance.
This project is giving PROPARCO the opportunity to strengthen AFD Group’s fruitful partnership with the European Union on this major issue of the fight against climate change.
This second phase of the SUNREF Palestine project has been designed to give priority to strengthening the energy efficiency market, which is still much less mature than the renewable energies market in Palestine.
- The SUNREF II Palestine project is fully in line with the European Union’s investment priorities in Palestine. These investments are managed by the EU-Palestine Investment Platform, which AFD Group contributes to.
- The €11.5m of funds delegated to PROPARCO by the European Union will be used to finance investment premiums. This will help build complex investment projects and technical assistance for the two banks participating in the program, the project initiators (SMEs as a priority), and the local ecosystem, including the other market players and public authorities.
The activities of the SUNREF II Palestine project will be implemented from early 2022 to 2026.
This SUNREF II Palestine financing comes in addition to two credit lines signed by PROPARCO with two Palestinian banks to finance projects in the energy efficiency and renewable energy sectors.
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The “African Renewable Energy Scale-up” (ARESUF) facility has been set up by AFD Group with support from the European Commission (EC) to promote private sector investments in on-grid and off-grid renewable energies in Africa. The facility has been divided into two projects: (i ) a technical assistance component totaling EUR 16.3m managed by AFD, and (ii) a guarantee fund totaling EUR 22.35m managed by PROPARCO. Its operational meeting took place on 26 September 2016 and it is being implemented under the 2015 thematic annual action program on global public goods and the challenges.
The objective of the guarantee mechanism managed by PROPARCO is to support the growth of players in the mini-grid and off-grid industry, by reducing the risks of equity financing in these pioneering companies and preparing access to commercial investors and financing through large-scale borrowing. To this end, the ARE-GF will provide:
- Partial guarantees for PROPARCO’s equity financing in the off-grid and mini-grid sectors. This financial instrument benefits from EUR 10.2m of support from the European Commission;
- Technical assistance services for the mobilization to support the implementation of the guarantee facility, the development of a pipeline of projects and build the capacities of prospective clients and beneficiaries (EUR 2.15m).
Since the start of operations in 2018, a total of EUR 10.6m has been invested in three African companies in the energy sector and some EUR 0.98m of technical assistance has been provided under the ARESUF.
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The Transferability and Convertibility (T&C) Facility is a guarantee product financed by the EU and managed by EDFI Management Company.
The T&C mechanism aims to contribute to the development of new renewable energy generation capacity in developing countries facing major constraints in terms of foreign currency reserves. The risks of non-convertibility and non-transferability are particularly high for the energy sector, as electricity is sold in local currency, whereas the power plants are generally financed in USD or EUR and local governments sometimes do not guarantee these risks.
Concretely, T&C facility offers an additional liquidity reserve in case of an investor's inability to convert his income into foreign currency and/or to transfer his currency out of the host country.
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Cultural and Creative Industries
The creative economy is today recognized as a driver of development: it boosts innovation, promotes knowledge transfers and contributes to more inclusive growth.
According to UNESCO, Cultural and Creative Industries (CCIs) account for about 3% of world GDP and 30 million jobs.* Yet their growth is often hindered by difficulties in accessing finance.
The sectoral specificities of the creative economy, such as the size of its companies (often SMEs and start-ups) and the intangible nature of their assets, can be a blocking factor for financial intermediaries which lack expertise in this sector.
To address this issue, PROPARCO has partnered with the European Commission to launch “CREA Fund” which targets financial intermediaries keen to explore the opportunities offered by this sector in Africa and the Caribbean. CREA Fund provides two main types of support:
- A guarantee to cover the investments made by these financial intermediaries in companies in the creative sector
- Technical assistance for financial intermediaries in the target countries to give them a better understanding of the specific features of Cultural and Creative Industries (involving dedicated market research, training or recourse to sectoral expertise) and/or to help them support the growth of the companies they wish to finance
CREA Fund is deployed as part of the CreatiFI initiative launched by the European Commission in 2019.
* UNESCO Global Report 2018: Reshaping Cultural Policies.
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