Malawi is expected to benefit from a four-year $125 million (K43 billion) African Development Bank (AfDB) Africa Small and Medium Enterprises (SMEs) programme funding.
This is combined with a $3.98 million (K1.3 billion) technical assistance package granted by the Fund for African Private Sector Assistance (Fapa),aiming at supporting micro, small and medium enterprises (MSMEs) in Africa, according to a statement from African Press Organisation (APO).
“The programme will provide standardised lines of credit [LoCs], mostly in local currency, and technical assistance to targeted financial institutions, predominantly in low-income countries spread over all five African regions.
“The SME programme will avail important longer-term resources to thousands of SMEs including women and youth, thus contributing to job creation, poverty reduction and inclusive growth on the continent,” reads the statement in part.
In Malawi, the SMEs sector is fast growing and contribute significantly to the gross domestic product (GDP).
Executive director of Malawi Economic Empowerment Action Group (Meeag) Tenson Chinjala welcomed the AfDB’s funding, saying small entrepreneurs are likely to benefit because they mostly lack access to finance.
“This is a timely intervention and our hope is that access to the fund will be smooth as compared to other avenues for accessing finance,” he said.
The SME sector is crucial to Africa’s growth, contributing more than 45 percent to employment and 33 percent to the gross domestic product (GDP).
SMEs have continued to face significant challenges with studies indicating that more than 70 percent of SMEs lack access to medium-longer-term finance, creating an SME funding gap of more than $140 billion in Africa alone.
This them means that well-performing local SME-focused financial institutions lack access to longer-term resources from depositors, capital markets or other potential funders, hindering the provision of medium- and long-term SME finance.
Of the loans available, almost 60 percent is for less than one year and financial institutions also often lack adequate knowledge and systems to assess and monitor SME projects and compensate this by relying on excessive—but mostly unavailable—collateral.
To counter the challenges, the pan-African bank through the SMEs programme, will provide the necessary longer-term finance and a technical assistance package to address a number of the constraints faced by around 25 target financial institutions and their SME clients across Africa.
“Thus, the programme will benefit from the fund for African Private Sector Assistance (Fapa) support that will grant $3.98 million to provide technical support to building capacities of the 25 participating financial institutions to improve their operational efficiencies, in areas such as credit assessment and risk management, thereby contributing to better access to finance for African MSMEs sustainable growth,” reads the statement.
Fapa is a multi-donor thematic trust fund, financed by the Government of Japan, the AfDB, the Austrian Development Bank and the Government of Austria, that provides grant funding for technical assistance and capacity building to support implementation of the AfDB’s Private Sector Development Strategy.
The $3.98-million Fapa technical assistance grant for the AfDB Africa SME programme is the highest amount approved in the history of Fapa.
Improved access to financing among members of the majority of urban and rural dwellers who depend on smaller-scale business activities will allow further support to their living and that of their families and communities.
“Women are likely to benefit of the expanded outreach as they tend to operate more often in rural-based smaller enterprises. The social effects of the Africa SME programme will be significant given the particular support to microfinance institutions in low-income countries and fragile States, thus deepening access to finance,” says the report.
