Small and medium-sized businesses (SMEs) in Africa are expected to benefit from a $500 million fund set to guarantee their borrowings from local commercial banks, Africa Guarantee Fund (AGF) chief executive Felix Bikpo said on Monday.

The fund, a joint equity venture of the Danish and Spanish governments and the African Development Bank, will cover only a tiny part of a funding gap for sub-Saharan SMEs estimated by AGF at up to $100 billion.

The AGF chief said the fund would be increased in future, but he declined to say by how much or who else might contribute.

The fund will give guarantees for loans that SMEs take from commercial banks, helping businesses to get credit and supporting their growth.

According to the World Bank, small and medium-sized businesses, which have a capitalisation of between $3 to $15 million, make up of up to 80 percent of Africa's private sector, contribute 50 percent of the new jobs in sub-Saharan Africa and add 20 percent to the continent's gross domestic product (GDP.

Small and mid-sized firms in Africa range from family-owned bakeries and fast food chains to manufacturers and developers.

Bikpo told Reuters in an interview the fund's aim was to raise SMEs' contribution to GDP to over 60 percent through sustainable growth in key industries.

“We're raising today $150 million and the other $350 million will come by the end of next year. All these will come from the initial shareholders,” Bikpo said.

“The funding gap (in sub-Saharan Africa) is estimated to be approximately $80-$100 billion, affecting up to 60 percent of formal SMEs, and an even greater share of informal SMEs.”

He said the fund will be launched in three phases, with the first comprising nine countries including Kenya, Uganda, Tanzania, Ghana, Senegal, Cameroon, Mozambique, Zambia and Mali, and the last phase coming in by 2016.

AGF is already reviewing 70 commercial banks in the nine countries and will move to guarantee up to 50 percent of the amount borrowed by the businesses from selected banks.

Bikpo said the fund would seek to develop SMEs in key industries to reduce the effects of imported inflation due to over-reliance on trade with Europe and the Middle East.

Countries such as Kenya and Uganda moved to increase commercial banks' lending rates last year to rein in high inflation and volatile foreign exchange rates, fuelled by a widening trade deficit.

“We're here to improve macroeconomic components by changing the composition of the GDP and the nature of growth. We want SMEs to be agents of growth in leading sectors” said Bikpo.

“Instead of our GDPs being driven by only trade, we need to build strong industries.” - Reuters