Small businesses operating in Africa’s infrastructure sector are set to benefit from a new US$74mn re-guarantee facility.

The facility has been agreed between the African Guarantee Fund for Small and Medium-Sized Enterprises (AGF) and GaurantCo, which are both providers of local currency guarantees.

AGF’s mandate is to assist financial institutions to increase their financing to African SMEs, while GuarantCo’s focus is on infrastructure development in low-income countries, helping privately-sponsored infrastructure projects raise debt finance through the provision of credit guarantees.

With the new agreement, AGF has increased its guarantee capacity for SME financing, enabling it to support larger local currency transaction for SMEs in the infrastructure sector.

“This collaboration between two local currency focussed guarantors offers the potential for us to engage local financial institutions and investors in financing the entire value chain in an African infrastructure project,” says Lasitha Perara, GuarantCo’s CEO.

The transaction is also laying the groundwork for the two parties to further explore partnership opportunities, the companies say in a statement.

Felix Bikpo, AGF’s CEO, refers to the new partnership as an effort to “bridge the infrastructure financing gap”.

“This partnership aims to put in place an even stronger collaboration that will work on the entire value chain of infrastructure projects in Africa,” he says. “We are looking forward to supporting other SMEs that work with key players in the infrastructure sector.”

Over the past six years, AGF has issued financial guarantees in Africa to the tune of US$690mn, enabling its partner financial institutions to issue loans estimated at US$729mn to about 7,600 African SMEs. GuarantCo, meanwhile, has issued over US$900mn-worth of guarantees for infrastructure projects since its inception in 2005.

AGF is owned by the Danish and Spanish governments and the African Development Bank, while GuarantCo is funded by the governments of Australia, the Netherlands, Sweden, Switzerland and the UK.