Lifeline for SMEs through French risk-sharing instrument
Credit flow to small and medium scale enterprises (SMEs) in the country is set to improve provided banks embrace a risk-sharing instrument introduced by the French Development agency (AFD) to underwrite part of the risks of funds lent to SMEs.
The instrument dubbed, the Support for the Risk of Financing Private Investment (ARIZ) is a guarantee instrument that underwrites part of the risks banks incur in lending to SMEs in the operational areas of AFD.
This means SMEs in agriculture and agribusiness, industry and other private sector businesses can access the guarantee through their banks.
The 100-million euro fund meant for developing economies, especially Africa, can guarantee up to 50 per cent of risk when it comes to portfolio guarantees and up to 75 per cent in single deal guarantees.
Ghana’s manufacturing industry has welcomed the facility describing it as a good initiative.
The Resident Manager of AFD, Ms Amélie July and the Deputy, Mr Xavier Muron, told the GRAPHIC BUSINESS that the instrument which started in Ghana earnestly about two years ago, had been running well with current portfolio of guarantees standing at €5.8 million.
Since AFD signed its first guarantee agreement with Societe Generale Ghana a couple of years ago, 140 SMEs have benefited from the portfolio guarantee, while five companies have accessed loans under the individual (single) guarantee.
The loans are restricted to capital investments such as purchasing equipment, expansion works and other such expenditures.
However, it is only the local French banking subsidiary, SG-SSB, which has taken advantage of the financial instrument at the moment and AFD is hoping to scale up the reach of banks.
Short term funds
One of the challenges holding back banks include the fact that local banks mainly have access to short term funds and are unable to channel them to SMEs which require medium to long term funds for it to serve any purpose.
This means that to effectively access and leverage ARIZ, local banks must match the 1.6 per cent per annum rated guarantee with medium term funds, which they lack.
To help mitigate the challenge, banks can equally take advantage of medium to long term facilities offered by AFD’s private sector lender, PROPARCO, which has been identifying and assisting banks with appetite for SMEs with the senior loans to enable them to channel them to SME financing.
The AFD country office said it had identified some banks which it would like to work with.
“We have identified a few second quartile and medium size banks as well as one first quartile bank which have appetite for SMEs and we want to work with them,” Mr Muron, who is also in charge of the private sector explained.
He said the aim of AFD was to court one banks each year that would use the ARIZ facility.
What the facility represents
ARIZ is a response to the lack of access in developing countries such as Ghana, where the challenge has consistently featured among the top five challenges facing industry in the AGI Business Barometer Index.
The instrument is to support SME development and also help build their capacity to enable them to grow and create jobs.
Since 2000 when it started across 34 AFD operational countries, ARIZ has guaranteed loans to over 2,000 companies. About 44 per cent of the guarantees were in West Africa, with Central, East and Southern Africa accounting for 35 per cent.
For the banks
Ms July and Mr Muron told the GRAPHIC BUSINESS that banks that wanted to access the AFD facility must have robust risk management policies, loan and credit procedures including compliance with anti-money laundering procedures to ensure that the wrong businesses are not financed.
For SMEs
SME that qualify to access the guarantee on their loans must have a turnover of not less than GH¢5 million, with risk exposure (debt stock) not more than GH¢800,000.
ARIZ covers loans up to €300,000 in a single guarantee, but can guarantee a portfolio up to €2 million.
Industry’s largest grouping, the Association of Ghana Industries (AGI), has said although it was not fully aware of the instrument, it was prepared to engage the AFD to understand it.
“The instrument sounds good and we will contact the French agency for details on procedures and circulate it to our membes,” the Executive Director of the AGI, Mr Seth Twum-Akwaboah, said.