The African Development Bank (AfDB) on Tuesday approved a four-year $125-million funding programme in an effort to assist in bridging Africa’s $140-billion small business funding gap.

The Africa Small and Medium Enterprises (SME) programme, in conjunction with a $3.98-million Fund for African Private Sector Assistance (Fapa) grant for technical assistance, would support small, medium-sized and microenterprises (SMMEs) on the continent.

The AfDB aimed to provide – predominantly in low-income countries – standardised lines of credit and longer-term resources to thousands of SMMEs, as well as technical assistance to targeted financial institutions.

Currently, more than 70% of SMMEs lacked access to medium- to longer-term finance, while the local SMME-focused financial institutions lacked access to longer-term resources from depositors, capital markets or other potential funders.

“Financial institutions also often lack adequate knowledge and systems to assess and monitor SMME projects and compensate for this by relying on excessive – but mostly unavailable – collateral,” the AfDB pointed out.

The SME programme would provide a platform for about 25 targeted financial institutions to mitigate constraints through longer-term finance and technical assistance, including operational efficiencies, such as credit assessment and risk management.

The $3.98-million grant from Fapa, which is financed by the government of Japan, the AfDB, the Austrian Development Bank and the government of Austria, is the highest amount approved in the history of the multidonor thematic trust fund.

The development bank reaffirmed the importance of small businesses, which contributed more than 45% to employment and 33% to gross domestic product, in Africa.

The funding programme would contribute to job creation ambitions, assist in poverty reduction and enable increased social inclusion, it said.

“Improved access to financing among members of the majority of urban and rural dwellers who depend on smaller-scale business activities will allow further support to their living and that of their families and communities,” the development bank concluded.