Evaluation of the African Guarantee Fund and Denmark’s contribution

The African Guarantee Fund - for Small and Medium-sized Enterprises Ltd (AGF) is a non-bank financial institution established to enhance access to finance for small and medium-sized enterprises (SMEs) across Africa. Its activities include the provision of guarantees to financial institutions and capacity development support to both lenders and SMEs. AGF was one of five concrete initiatives recommended by the Commission on Effective Development Cooperation with Africa in 2010, and has now been in operation for almost 15 years. Denmark was a founding shareholder and has supported the AGF through a combination of shareholder capital, grant financing, and representation on the board. A 2016 evaluation of the results of the Africa Commission included an early assessment of AGF, which found the AGF to be relevant, innovative, and on a promising path, with rapid portfolio growth, strong interest from partner banks, and early indications that participating banks had increased the SME lending portfolio. At the same time, the evaluation noted that AGF was still at an early stage of implementation, and that systematic data on SME-level outcomes, employment effects, financial additionality, and long-term sustainability were not yet available, limiting the scope for assessing broader impacts. It also highlighted a key strategic challenge going forward: balancing the goal of becoming a self-sustaining, market-oriented guarantee fund with the need to expand into higher-risk markets and partner with lower-tier banks in order to maximise development impact. Since then, the AGF has expanded significantly in scale and geographical reach, and has progressively developed its monitoring and evaluation systems, while a longer operational time horizon now provides a much stronger basis for assessing outcomes, additionality, sustainability and longer-term impacts. To document results and draw lessons from AGF’s experience and the Danish support hereto, the Department for Evaluation, Learning and Quality (LEARNING) of the Danish Ministry of Foreign Affairs (MFA) has therefore decided to commission an evaluation. The overall purposes of the evaluation are to document and assess: (1) The contribution of the AGF to improving access to finance for SMEs in Africa and to generating associated development outcomes; and (2) The contribution and added value of Danish support to the AGF. And, based on this, draw lessons for AGF’s future strategy and operations, for future Danish support to the AGF specifically, and for future Danish support to SME development in Africa through blended finance instruments. The objectives of the evaluation are to: (1) Establish a structured and analytically grounded mapping and characterisation of AGF’s institutional model, blended finance architecture, portfolio evolution and positioning within the broader SME finance ecosystem as well as of Danish support to the AGF; (2) Assess, across time and geographical contexts, AGF’s relevance in addressing SME financing constraints; coherence with other initiatives in the SME finance space; success in mobilising private capital to support SME finance; and financial sustainability; (3) Assess the contribution and added value of Danish support, including capital, concessional grant funding, and governance engagement; (4) Generate credible quantitative evidence on the results of AGF-supported guarantees and capacity development in two country contexts, considering both financial and development additionality, and outcomes at both SME, PFI and broader SME finance market level; (5) Identify contextual, institutional, and design factors that explain observed results and variation across countries, instruments, and institutional settings; (6) Formulate lessons learned and forward-looking, evidence-based recommendations to inform AGF’s future strategy and Denmark’s future engagement with the AGF and guarantee-based blended finance instruments more broadly.