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AU mulls guarantee scheme for small businesses to spur economic transformation

The AU is prioritizing development of MSMEs because of their significance in the region

Nairobi, Kenya | XINHUA | The African Union (AU) is planning to put in place a guarantee scheme for micro, small and medium-sized enterprises (MSME) to speed up the continent’s economic transformation, an official said on Wednesday.

Amine Idriss Adoume, director in charge of delivery program and coordination at the African Union Development Agency (AUDA-NEPAD), told a virtual meeting that one of the biggest impediments for the expansion of small businesses in Africa is the lack of affordable finance.

“The scheme will be developed jointly with partners and seeks to unlock access to affordable finance for the continent’s small businesses,” Adoume said during the launch of the Pan-African MSME Academy for Kenya.

The academy plans to launch across Africa with country-specific content in line with local business environments.

Adoume said the academy has been positioned to enable small entrepreneurs to achieve sustainable growth as they emerge through the COVID-19 pandemic.

The AU is prioritizing development of MSMEs because of their significance in the region, he said.

There are currently between 95 million and 100 million MSMEs in Africa, employing some 300 million people, Adoume said.

“They are therefore a key driver of economic growth and employment in the continent,” he added.

The AU official said the credit guarantee scheme will be designed to provide comfort to banks so that they can extend loans to MSMEs.

Adoume noted that commercial banks shy away from providing credit to small businesses because they are perceived to have high default risk.

Betty Maina, cabinet secretary at the Kenyan Ministry of Industrialization, Trade and Enterprise Development, said Kenya is also developing a credit guarantee scheme that will support commercial banks to extend financial support to small businesses.

MSMEs are a critical part of Kenya’s economy as they constitute over 90 percent of all businesses and provide 30 percent of all employment opportunities, she said.

The Kenyan government has also established a list of goods that will be procured by public entities and supplied by local MSMEs, Maina said.

According to the ministry of industrialization, Kenya has so far launched three rounds of economic stimulus packages to cushion businesses and households against the effects of restrictions imposed to curb the spread of COVID-19.

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