Afreximbank and CDB sign loan for Africa's SMEs

Tuesday 29 August 2023 12:44 CET | News

African Export-Import Bank (Afreximbank) and China Development Bank have signed a USD 400 million loan to support Africa’s SMEs.

The agreement requires Afreximbank to deploy the facility to support African SMEs involved in extra and intra-African trade, as well as those engaged in the productive sector in Afreximbank Member States. As per the arrangement, the provision will be extended either directly to eligible African SMEs that meet the set requirements or indirectly through local financial intermediaries.

African Export-Important Bank (Afreximbank) and China Development Bank have signed a USD 400 million loan to support Africa’s SMEs.

According to officials, African SMEs continue to face issues in accessing appropriate and affordable financing for expanding their businesses, and, through CDB’s facility, the level of funding available would be increased. Afreximbank received the facility as medium to long-term funding and it would transfer the financial advantage in pricing and tenor to end beneficiaries. Moreover, the strategic partnership initiated with the China Development Bank will be strengthened, on top of the previously made interventions made by CDB. The two institutions will be able to achieve their respective mandates and developmental outcomes, which include job creation, increased economic activity, and improved African trade with China. 

Africa’s SME sector

The SME sector contributes to Africa’s inclusive socio-economic development, as they generate work opportunities, income, and wealth creation, therefore reducing the levels of poverty. Moreover, approximately 80% of businesses in Africa are small or medium-sized enterprises, furthering the economic growth of the region, with 90% of the African population in countries such as Uganda, Ethiopia, and Kenya being employed within SMEs.

Mostly, SMEs provide pre-incubation, incubation, introduction, and commercialisation of innovation and technology into the market, creating a platform for developing and testing new products before they can be introduced to the larger industry through macroeconomic systems. Furthermore, through SMEs, new markets are identified and created, offering a foundation for new companies and enabling wealth creation by increasing the demand for goods, services, investments, innovation, technology, and trade.

Although African SMEs bring several advantages to the region, access to financing varies between African countries, with only 3% of enterprises in Guinea-Bissau having a formal loan, while in Mauritius the number reaches 53%. Financially developed economies also have more businesses with a loan, however, the association is not linear, and outliers exist. For example, South Africa, seen as one of the most advanced economies in the region, has only 34% of enterprises with a formal bank loan, in comparison to 35% in Burundi, which has an undeveloped banking system. 

The main drawbacks in SME development

Even with the efforts to increase finance for SMEs, including lines of credit from development agencies and international finance institutions, there are still impediments to making this sector succeed in Africa, including inadequate skills within banks for SME risk assessment, deficiencies in the regulatory environment, and lack of management to utilise available capital. Moreover, the discrimination against SMEs with certain attributes, including women-owned enterprises, new businesses, and rural companies, also negatively influences the growth of the industry.

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Keywords: SMEs, SME lending, partnership, financial inclusion, trade finance
Categories: Banking & Fintech
Companies: Afreximbank, China Development Bank
Countries: Africa
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