By Linda Kwanjana

Shared Interest’s Partial Credit Guarantee is a Game Changer for African Businesses
US-based nonprofit guarantee fund is dedicated to supporting black female entrepreneurs and small businesses
MALAWI, Africa, June 18, 2023 .

Entrepreneurs need financial resources to start, expand and innovate their businesses. However, a 2018 World Bank report revealed that merely 13% of small businesses in Malawi have access to formal financial services.

Consequently, a significant portion of the entrepreneurs leading small businesses lack access to credit. The report further reveals that women, rural entrepreneurs, and individuals involved in the agricultural sector are disproportionately disadvantaged in terms of financial inclusion.

The primary reason behind this exclusion is the lack of assets typically required as loan collateral among small businesses in Malawi.

This is why organizations like Shared Interest, a US-based nonprofit guarantee fund, are dedicated to helping black women entrepreneurs and other small and medium-sized businesses.

They provide these businesses that are leading the way in driving innovative solutions for agribusiness, women’s entrepreneurship, green jobs and inclusive housing with credit guarantees.

A credit guarantee is a financial arrangement in which a third party, often a financial institution or government agency, assures a lender that a borrower will repay a loan.

They are typically used to support lending to small and medium-sized businesses, along with other borrowers who may lack sufficient collateral or credit history to qualify for a loan independently.
Dorcas Onyango, the Global Director for Programs, Shared Interest said, “Shared Interest unlocks local resources for entrepreneurs who can drive entrepreneurship, job creation, community well-being, and national economic growth and development.

In 2020, we guaranteed a loan of US$ 459,000 from Malawi Agriculture and Industrial Investment Corporation (MAIIC) to Lenzimille, an animal feed producer, to set up a fish meal production facility in Blantyre that has potential to contribute to increased earnings by soya and maize farmers who will provide inputs well as to import substitution.

Shared Interest offers partial credit guarantees, covering up to 75 percent of the loan. The terms of the guarantee, including the amount, duration, and the circumstances that would activate it, are negotiated with the lender and specified in a formal agreement.

Shared Interest is encouraging and enabling lending to small businesses in Malawi, with a focus on black female-owned enterprises that may have been deemed high-risk. In 2022, Shared Interest offered FDH Bank and MAIIC a partial credit guarantee of US$1,000,000 each.

For credit guarantees to be most effective, businesses must be operating at their best. Shared Interest goes the extra mile by offering technical assistance to both lenders and borrowers.

They help lenders build their knowledge in SME banking while assisting small businesses in adopting strategies that reduce perceived risks. Recognizing the breadth of challenges that emerging entrepreneurs face,Shared Interest collaborates with other organizations that offer complementary support programs to assist small businesses in scaling their enterprises and increasing their community impact.

Shared Interest’s work in Southern Africa, including Malawi, is made possible thanks to the support of many impact investors and donors based in the US including faith based communities, corporate foundations and individuals.

These organizations provide the necessary resources to back up a letter of credit issued by CitiBank on behalf of Shared Interest.

Locally, its ability to reach and assist eligible small businesses is strengthened through partnerships with lenders, civil society organizations, and umbrella bodies. For example, The Joyce Banda Foundation is empowering women with the needed skills and information to start and manage businesses. Eligible entrepreneurs may benefit from the availability of loans guaranteed by Shared Interest.
After signing a credit guarantee agreement, the lender can proceed with processing loans and disbursing funds to eligible borrowers who can generate the impact desired by the guarantor and impact investors. Should the borrower default on the loan, the lender can seek reimbursement from the guarantor by filing a claim to recover the outstanding amount. Provided the lender meets the conditions stated in the guarantee agreement, the guarantor will make a payment to cover the remaining balance.

Credit guarantees require ongoing monitoring of the loan portfolio and reporting of borrowers’ financial performance to minimize risk for the guarantor.

Shared Interest engages local SME banking experts to evaluate borrowers’ creditworthiness, track loan portfolio performance and the social impact of the guarantee since its primary goal is to maximize community impact by scaling and strengthening profitable businesses that can deliver measurable social value as part of their core model.