As part of its mandate to strengthen the entrepreneurial fabric of the region, the Eastern and Southern African Trade and Development Bank (TDB) SME Programme has signed an initial 4-year senior/ mezzanine debt facility of USD 1 million to be managed by Grassroots Business Fund (GBF), to finance agribusiness SMEs in Kenya, Tanzania and Uganda.
The facility will focus on women or youth-led missing middle SMEs operating in the agricultural sector agribusinesses with solid managerial foundations and a high potential for social impact.
The transaction is enhanced with a partial risk guarantee from the African Guarantee Fund (AGF) of 50% with up to 75% in the case of women-led SMEs.
The facility will be blended with two technical assistance contributions from TDB and AGF totalling USD 110,000 for the execution of mutually agreed upon co-funded investee capacity building activities.
With the blend of mezzanine and senior debt, the technical assistance will be specifically focused on improving SMEs’ financial management systems.
The TDB SME Programme finances agribusiness through the provision of working capital, funding for expansion and support for value addition.
Missing middle SMEs are typically unable to access medium to long term patient capital from conventional borrowing – a challenge which is overcome through this transaction’s structure.
Grassroots Business Fund (GBF) is a global impact organization that utilizes the power of blended capital to invest in traditionally under-financed businesses.
More specifically, GBF extends structured mezzanine finance, senior debt, and business advisory services to viable, sustainable and inclusive businesses, which provide sustainable economic opportunities to millions of people at the base of the economic pyramid. GBF has over a decade’s experience investing all across Africa through its regional office based in Nairobi.
The African Guarantee Fund for Small and Medium-sized Enterprises (AGF) is a non-banking financial institution that contributes to the promotion of economic development in Africa through the provision of partial guarantees and capacity development to financial institutions, in view of facilitating access to finance for SMEs.
This facility builds on various partnership agreements and transactions which have been signed since the launch of TDB’s SME Programme in 2018 and is the first of its kind with its focus on mezzanine finance.
The SME Programme’s approach consists in leveraging TDB’s seed capital, blending it, and directing it through partner financial institutions, such as GBF, who target SMEs – from micro-enterprises to missing middle SMEs – as their client-base.
In Kenya, Tanzania and Uganda, agriculture contributes respectively to approximately 30% of GDP, while employment provides, correspondingly, between 55 and 70% of all jobs, and as much as 77% of all female jobs.
Furthermore, the SME financing gap is valued in Sub-Saharan Africa at USD 331 billion for formal SMEs, including USD 49 billion for women entrepreneurs. It is indeed mostly accessed to finance, alongside other challenges, which hinders SMEs from flourishing and even surviving.
With emerging market SMEs contributing to up 40% GDP and 70% of all employment, and both SMEs and agriculture featured high on each government’s development agenda, transactions such as this one have the potential to meaningfully impact the sustainable socio-economic development of targeted countries at grassroots levels.
“Rolling-out our SME Programme has enabled TDB to impact further a business segment which makes a massive contribution to the livelihoods of our peoples,” says Admassu Tadesse, TDB President and Chief Executive.
“We are therefore delighted with the signing of this blended finance transaction with GBF and AGF, together with which we are implementing a targeted regional approach to increase our support to SMEs, which are central to the realization of sustainable development goals in East Africa and indeed, globally.”
“Our programme is focused on exploring new innovative business models and products in the SME space” adds Gloria Mamba, TDB Coverage Executive for Southern Africa.
“GBF is a leader in supporting agribusinesses, which form the backbone of the economy in our region and AGF is committed to facilitating access to finance for SME’s. This transaction allows us the opportunity to extend mezzanine debt to agribusinesses who often struggle to find the appropriate finance to fund their growth.”
“We are all excited about this transaction with TDB and AGF, which serves to connect local businesses with domestic and international capital, markets, and business development assistance.
In so doing, it highlights business-linked models that can lift large numbers out of poverty, while also building support for a peaceful, equitable and market-based system” says Harold Rosen, GBF Chief Executive Officer.
AGF’s Acting Group CEO Jules Ngankam said “our objective as we issue this loan portfolio guarantee to Grassroots Business Fund is to mitigate the deterioration of SMEs’ perceived risk.
“Agribusinesses, in particular, have been highly disrupted due to the imposed restrictions to curb the spread of COVID-19. AGF is pleased to be part of this partnership that will strengthen and rebuild the East African SME community, which is the region’s growth engine.”
This transaction is timely. It comes in a period marked by disrupted supply chains, higher perceived risks and constrained availability of liquidity – all brought about by the Covid-19 crisis.
In response, TDB and its partners have together added quivers to their bows to continue driving triple-bottom-line impact into the region.