AGF and Equity Bank join forces to unlock $1bn in SME financing

“You got it right from the very start. AGF will continue standing firmly with you,” Bikpo told the management of Equity Bank, led by managing director and CEO, James Mwangi.

Equity Bank has established itself as a major force in SME financing in Africa. It has utilised branchless banking, mobile banking, and agency banking to reach underserved SMEs and households in Kenya.

Bikpo urged Equity Bank to keep up the tempo and expand to even more African countries. “Push into west and southern Africa. What you are doing here can be transferred to the continent,” he said.

In his address, Mwangi said that the bank’s move to renew its partnership with AGF was informed by the need to sustain the strong growth momentum achieved in its SME portfolio, which he said accounts for 72% of the bank’s loan book. He expressed confidence that, following the guarantee agreement, the bank was better positioned to grow its lending to SMEs even more aggressively.

“This is as a guarantee that allows us to amplify many more times, to do as much as ten times in terms of disbursement of loans. This capacitates us and is a form of credit risk sharing guarantee, giving us confidence to accelerate lending,” he explained.

“It enhances our risk appetite in credit so that more people can be able to access credit. Credit allows people to leverage and wealth is created by leveraging capital through debt, so we are opening opportunities for our people.”

Discussing why Equity Bank is doubling down on SMEs, Mwangi said SMEs held the key to sustainable wealth creation.

“Africa has 19% of the world’s population but only 3% of global production. This means we’re nearing 20% of the world’s population but only have 3% of the world’s wealth,” he said.  “African capital formation is SMEs. As an African institution we focus on African entrepreneurship, so there’s a huge rationale.

Opportunity to make a difference

Mwangi said that Equity’s agreement with AGF provides “an opportunity to make a difference,” emphasising that it delivers a host of broader economic and social benefits beyond mere financial returns.

“When we give people access to credit and a chance to have skin in the game, they are actively engaged in the economic activities of their country. We are promoting peaceful existence, promoting greater integration…we are excited about DRC because this keeps the population engaged in economic activities,” he said.

He highlighted agriculture as a key sector poised to benefit from the increased lending made possible by the agreement. The partnership will also focus on supporting women-led businesses, with Equity Bank committing not only to funding these enterprises but also to implementing training programs aimed at building capacity for women business leaders.

“The need for global food security gives us an opportunity to focus on agriculture. The issue of creating job opportunities gives us an opportunity to focus on women. So, we don’t see a huge challenge of utilising this guarantee,” he noted.

He noted that Equity was focused on expanding its partnership with AGF even further and that the lender was eyeing a $2bn package in a few years in view of its ambition to become a pan-African banking leader.

Welcoming the ambition

Jules Ngankam, Group CEO at AGF, welcomed Equity Bank’s ambition and reaffirmed AGF’s continued support for the lender’s SME initiatives, arguing that it was imperative to adequately fund African SMEs to address pressing challenges such as unemployment, the continent’s growing dependence on food imports, and the energy access gap.

“Africa spends around $35bn annually importing food. If this continues, we will reach $110bn by 2030. The continent represents only 3% of global energy transactions yet our population is close to 20% of the world’s population. We have only exploited 5% of our energy potential. Moreover, every year we have 12m young people entering the job markets and only 3m jobs are created,” he enumerated.

The solution to tackling these challenges will come from the SMEs, he argued. “We need to ensure that our SMEs are well capacitated and well-funded. Those SMEs contribute 30% of GDP and create more than 70% of new jobs.”

Mindset shifting

“This deal is a historic transaction as it is the largest guarantee deal ever signed on the continent. We want to support SMEs so that they can play their role. Equity Bank has put SMEs at the centre of their strategy,” Ngankam told African Business in Nairobi on the sidelines of the signing ceremony.

He argued that guarantees are shaping up to become the instrument of choice for de-risking SME lending. However, even though perceptions about the risks associated with lending to SMEs are improving, a full shift in mindset has not yet fully occurred.

“The mindset about lending to SMEs is shifting but what we are doing is still small. Agriculture for example is 30% of Africa’s GDP but represents only 6% of the loan portfolio of commercial banks. So yes the mindset is shifting but we still got a long way to go,” he said.

He noted that since its establishment in 2018, the AGF–Equity partnership has unlocked over $160m in loans for nearly 2,000 MSMEs, including 500 women-led and 900 youth-led businesses.

On his part, Mwangi said he was optimistic that the partnership with AGF would inspire more lenders and financial institutions to pursue the opportunities in SME lending.  

“Over the past six years we have developed and tested a concept. That’s why we are scaling. As we scale, our partnership and collaboration will become visible to the market and demand for our joint product will grow exponentially,” Mwangi said.