By Aliou Maiga, IFC’s Regional Director for West and Central Africa
Ten years ago Sia Roberts saw an opportunity in Burkina Faso. People needed better access to affordable drinking water. So he had the idea to launch his own business. He started packaging clean water in plastic bags in the country’s capital.
To grow, he needed the help of Banque Atlantique, a subsidiary of Morocco’s second biggest bank BCP Group. He started with two employees and two machines. Today, he employs 200 people with plans to hire another 60 in the coming months thanks to a XOF 100 million loan ($170,000).
Sub-Saharan Africa currently requires 1.3 million jobs every month to keep pace with a growing and youthful workforce—a number that will grow larger in the decades to come.
That’s where businesses play a key role. Creating a market that enables SMEs to thrive supports individuals to achieve their ambitions, and it generates jobs and economic growth. Small businesses account for more than half of formal jobs and contribute up to 60 percent of GDP in countries across Africa.
However, access to affordable finance and to markets is a major barrier to SME growth. IFC estimates the small business finance gap in the region’s poorest countries is over $155 billion, equivalent to more than 15 percent of GDP of those economies.
Africa generally has limited financing channels for entrepreneurs that can deliver successful businesses and employ more people. There are few sources of small-scale or venture capital financing and commercial banks lend mostly to big clients. The risk, they feel, is easier to manage.
That creates a challenge for development finance institutions like IFC to change the dynamics. We need new approaches and financing tools that provide incentives to private financial institutions to expand lending in a sustainable and affordable way.
We are finding them. Two years ago, the World Bank’s International Development Association (IDA), a fund providing below-market rate loans to governments in the poorest countries, established the IFC-MIGA Private Sector Window (PSW). The facility is helping IFC and MIGA deliver sustainable private-sector investments in eligible IDA countries, with the hope that these innovative solutions will demonstrate the commercial viability of these markets over time.
One such new approach is the Small Loan Guarantee Program. We saw that banks had limited appetite for lending to small business. So we challenged ourselves to come up with a new tool to help them. With support from the IDA PSW, the Small Loan Guarantee Program shares the risk of loans commercial banks make to small businesses and provides specialized training to help the bank run sustainable risk management to keep growing their SME lending.
This has helped businesses like Sia Roberts.
And when we come up with new products, partnerships like IFC’s investment in Banque Atlantique show how it can work. IFC provided a €40 million risk sharing facility to the Banque Atlantique network to extend small business lending across eight countries in West Africa. The facility will finance a portfolio of €80 million.
Banque Atlantique can now put a priority on funding entrepreneurs in Western Africa. The Small Loan Guarantee Program provided a boost to their expansion. And we are already seeing the results.