A consortium of European development finance institutions, including Sweden’s Swedfund, Norway’s Norfund, and France’s Bpifrance, have joined forces with the International Finance Corporation (IFC) and the UK’s Foreign, Commonwealth & Development Office (FCDO) to inject $75 million into a new private credit fund aimed at bolstering distressed but viable small and medium-sized enterprises (SMEs) across Africa. The capital represents the first close of the TLG Africa Growth Impact Fund II (AGIF II), managed by London-based investment firm TLG Capital.

The fund is targeting a total raise of $200 million and is designed to address a critical financing gap faced by African SMEs, particularly those navigating challenging macroeconomic conditions.

African SMEs form the backbone of the continent’s economies, accounting for an estimated 80 percent of the workforce and driving the creation of nine out of ten new jobs. However, access to appropriate and flexible financing remains a significant hurdle. According to TLG Capital, approximately one in four SME loans in Africa is currently under stress, exacerbated by recent global economic shocks, inflation, and currency volatility.

AGIF II proposes an innovative approach to this challenge by providing tailored, long-term debt financing combined with elements of equity participation and, crucially, guarantees issued by local African banks. This structure allows TLG to offer loans with tenors and interest rates better suited to the recovery and sustainable growth needs of struggling businesses, which often find traditional bank financing to be too short-term or restrictive.

Jakob Larsson, Senior Investment Manager at Swedfund, highlighted the strategic importance of the investment: “To protect existing jobs and to create new ones is crucial for poverty reduction. For African SMEs to survive and grow, it is important that there is a functioning market with the right, fit-for-purpose financial services addressing diverse local challenges. Through this investment, we help achieving that, generating long-term impact.” Swedfund is committing $15 million to AGIF II, building on an existing relationship with TLG Capital.

The fund’s structure, which involves partnering with African banks, is designed to leverage local market knowledge and de-risk investments. By requiring guarantees from partner banks, TLG aims to enhance the predictability of outcomes for fund investors while channeling much-needed capital to businesses already known to the local financial system but requiring a different type of support. This collaborative model also seeks to strengthen domestic banking sectors by providing solutions for their stressed asset portfolios.

AGIF II will focus its investments on viable SMEs across essential sectors, including manufacturing, healthcare, agriculture, and telecommunications. The fund has a deliberate focus on the UN’s least developed countries and conflict-affected situations, aiming to promote inclusive growth, gender equality, local ownership, and sustainable industrialization. Beyond providing capital, the fund intends to offer strategic and operational advisory services to portfolio companies, partnering with firms like McKinsey, BDO, ESS, and Ndarama Works to enhance their resilience and growth prospects.

The participation of multiple European development finance institutions alongside the IFC underscores a shared commitment to fostering private sector development and job creation in Africa. These institutions typically have mandates that prioritize both financial returns and measurable development impact, aligning with AGIF II’s stated objectives.

The $75 million first close, anchored by the IFC through its Distressed Asset Recovery Program (DARP) with a commitment of up to $20 million, signals investor confidence in TLG’s strategy and the potential for impactful investing in Africa’s SME sector. The fund’s successful deployment is expected to provide a lifeline to businesses facing temporary distress, enabling them to recover, retain and create jobs, and contribute to the continent’s economic recovery and long-term development.