The African Guarantee Fund (AGF) has unveiled the Mission 300 Local Currency Guarantee Facility, a $5 billion initiative aimed at improving access to financing for small and medium-sized enterprises (SMEs) in Africa’s Distributed Renewable Energy (DRE) sector. The move comes as inflation and currency volatility threaten investment in clean energy, exacerbating Africa’s already significant energy access gap.
The facility aligns with an ambitious drive led by the African Development Bank (AfDB) and the World Bank Group to provide electricity to 300 million Africans by 2030. With nearly 600 million people still lacking electricity as of 2023, achieving universal energy access will require an estimated $25 billion in annual investment. AGF’s guarantee facility aims to mobilize much-needed private capital by de-risking SME lending and encouraging local financial institutions to participate in the sector.
African Distributed renewable energy firms, particularly SMEs, often struggle to secure financing due to high collateral requirements, currency mismatches, and a lack of long-term funding structures. AGF’s Mission 300 Local Currency Guarantee Facility will leverage concessional financing from the African Development Bank, the World Bank Group, and other development partners to make it easier for African banks to lend to the DRE sector.
“The facility will enable African financial institutions to scale their involvement in financing distributed renewable energy solutions, ultimately accelerating electrification efforts across underserved communities,” said Wale Shonibare, Director for Energy Financial Solutions, Policy, and Regulations at the AfDB and a non-Executive Director at AGF.
AGF has previously played a pivotal role in bridging Africa’s financing gap for green SMEs through its Green Guarantee Facility, backed by the Nordic Development Fund and the Investment Fund for Developing Countries. By mitigating risks within loan portfolios, the initiative has helped financial institutions lend with more confidence, particularly to projects focused on clean energy and climate resilience.
Through its guarantees, AGF has facilitated key renewable energy projects across the continent. A notable example is its involvement in a credit guarantee syndication for a 40 MW solar plant in Madagascar, which improved electricity access for 285,000 people while reducing carbon emissions by 34,000 tonnes of CO2 annually. This project demonstrated the viability of local currency financing in the renewable energy sector and helped diversify Madagascar’s power generation mix away from thermal energy.
“AGF’s leadership in financial innovation for SMEs aligns with the goals of Mission 300. By addressing financing gaps and fostering public-private partnerships, AGF is playing a crucial role in accelerating the energy transition and reducing carbon emissions across Africa,” said Jules Ngankam, Group CEO of AGF.
Mission 300 is a flagship initiative by the African Development Bank and the World Bank Group, designed to drive investment into clean energy solutions across the continent. The initiative leverages strategic partnerships, de-risking tools, and innovative financing mechanisms to unlock private sector capital for DRE solutions. As inflationary pressures and macroeconomic volatility persist, such initiatives will be crucial in safeguarding Africa’s energy transition efforts.
The African Guarantee Fund, rated AA- by Fitch Ratings, is a specialized financial institution dedicated to enhancing access to financing for African SMEs across various economic sectors. Since its inception, AGF has unlocked more than $5 billion in SME financing through partnerships with 250 financial institutions across 44 African countries.
AGF’s key shareholders and sponsors include the Danish International Development Agency (DANIDA), Spanish Agency for International Cooperation, African Development Bank, French Development Agency (AFD), Nordic Development Fund, Investment Fund for Developing Countries (IFU), German Development Bank (KfW), Proparco, West African Development Bank (BOAD), Global Affairs Canada, USAID’s West Africa Trade and Investment Hub, TechnoServe, NORAD, and the Mastercard Foundation.
How It Will Work
Essentially, the Mission 300 Local Currency Guarantee Facility is designed to de-risk lending to African SMEs in the Distributed Renewable Energy (DRE) sector by providing partial credit guarantees to local financial institutions. Here’s how it would function in practice:
1. Risk Mitigation for Local Banks
Local banks often hesitate to lend to renewable energy SMEs due to perceived high risks, such as:
- Currency mismatches (borrowing in USD but earning revenue in local currency)
- Collateral requirements (many SMEs lack sufficient assets)
- Loan repayment uncertainty (due to unstable power markets)
The guarantee facility mitigates these risks by partially covering potential losses if a borrower defaults. This makes financial institutions more willing to lend to SMEs operating in off-grid and mini-grid energy projects.
2. Mobilization of Local Currency Financing
Instead of relying on external debt denominated in foreign currencies (which exposes borrowers to exchange rate fluctuations), the facility ensures that loans are issued in local currency. This reduces repayment risks for SMEs and enhances financial stability in the energy sector.
3. Partnership with Banks and Financial Institutions
AGF collaborates with local commercial banks, microfinance institutions, and impact investors to deploy the guarantees. Banks screen and approve SMEs based on eligibility criteria, while AGF acts as a backstop by covering a portion of the credit risk.
4. Enhancing SME Creditworthiness
Many renewable energy firms struggle to meet traditional lending criteria. The guarantee facility also supports SMEs by:
- Providing technical assistance to improve their financial management
- Offering capacity-building programs to help them structure bankable projects
- Encouraging flexible repayment terms for loans, reducing pressure on early-stage companies
5.Real-Time Operations & Implementation
- SME applies for a loan from a participating bank.
- Bank assesses the risk and determines loan terms.
- AGF provides a partial credit guarantee, reducing required collateral and making the loan more accessible.
- SME receives financing in local currency, avoiding foreign exchange risks.
- Bank lends with confidence, knowing AGF will absorb part of the loss if the borrower defaults.
- Loan repayments proceed, with AGF stepping in only in case of non-repayment.
As Africa navigates a complex energy and economic landscape, AGF’s Mission 300 Local Currency Guarantee Facility stands out as a major step toward ensuring reliable and affordable energy access for millions.