The UN Capital Development Fund (UNCDF) and FINCA Zambia Limited, a microfinance institution, launched a new partnership to increase access to credit for micro-, small-, and medium-sized enterprises (MSMEs). The facility is a loan portfolio guarantee that will de-risk FINCA’s lending to a substantial number of underlying borrowers.

The financing agreement is in the amount of local currency equivalent to US$ 360,000 and is expected to unlock at least US$ 600,000 in financing for Zambian MSMEs. The funding for this portfolio agreement has been made available through the BRIDGE Facility under the “financial innovation” window of UNCDF’s Last Mile Finance Trust Fund. These types of structures are usually provided to a financial institution or set of financial institutions but can also be issued to specialized funds or innovative finance mechanisms, such as crowdfunding platforms.

This is UNCDF’s first portfolio guarantee in any of the 46 least developed countries (LDCs) in which the organisation implements its capital mandate unique to the UN system— complementing traditional grant funding and technical assistance with mainstreamed use of financing capabilities and instruments. UNCDF’s guarantees respond to the need to generate meaningful employment and improved livelihoods, while advancing women’s economic empowerment, sustainable agriculture and financial inclusion for underserved groups.

Using its capital mandate and financial instruments, UNCDF in Zambia will support the implementation of the two portfolio guarantees that are intended to strengthen FINCA Zambia’s capacity to provide loans to qualifying borrowers within all eligible business sectors. Anticipated borrowers comprise MSMEs owned and led by women (at least 50% ownership by women), youth (persons aged between 18 and 35 years), small scale cross-border traders and persons with disabilities. FINCA Zambia was selected as a partner after a comprehensive due diligence was concluded and will manage the due diligence, disbursements and collections to be undertaken for each loan.

 Through this financing agreement, UNCDF supports the growth and strengthening of the MSME sector by increasing access to credit. UNCDF in partnership with FINCA Zambia is able to support recovery from the COVID-19 pandemic among other challenging economic conditions in the country. Such work contributes to the advancement of the SDGs, particularly around the promotion of inclusive and sustainable economic growth, full and productive employment for all and the eradication of poverty.

The portfolio agreement will also demonstrate UNCDF’s ability to utilize and leverage development financing through financial institutions that work within the private sector. UNCDF can deepen its impact across a range of sectors while addressing digital inclusion for those who are typically excluded, enabling more equitable access to digital products and services, enhancing their participation in the growing digital economy.

Isaac Holly Ogwal, UNCDF Country Lead celebrates these new partnerships, stating that: “The Zambian Government aims to spur economic growth so more people can participate in the economy and meet their needs and aspirations. Being that a large number of businesses in Zambia are small businesses, emphasis must be made to support their growth and success in the market. This can be done by availing much-needed credit. We are confident that this financing facility and this digital solution will be well-utilized to impact the success of small businesses in Zambia.” 

 Chris Kizza, FINCA Zambia Chief Executive: “FINCA Zambia welcomes this milestone partnership with UNCDF that is aligned with our mission to alleviate poverty through lasting solutions that help people build assets, create jobs and raise their standard of living. As the country takes on the challenge to re-build the economy post the COVID-19 pandemic, FINCA is alive to the critical role that the MSMEs play in this process and their need for financing to achieve this goal."

"This partnership will go to augment the efforts that FINCA Zambia has been making in achieving its mission over the years it has been in operation. This partnership will allow for increased access to financing by the targeted groups being the women, the youth, ‘small scale cross-border traders’ and persons with disabilities from FINCA Zambia who have had challenges in accessing financial services. Through this partnership, FINCA Zambia will be able to increase its outreach to the community and promote financial inclusion which remains a key component of FINCA Zambia’s institutional DNA. FINCA Zambia acknowledges the impact of efforts made by UNCDF in promoting financial inclusion and believes that this partnership will be key in ensuring that our shared goals are achieved for the benefit of the community and Zambia at large.”

UNCDF partnered with FINCA Zambia previously to improve agent liquidity using credit-scoring data to improve agent activity and profitability. The guarantee facility is another instrument along with technical assistance and grants from project such as this, that UNCDF uses in its market development approach to build inclusive digital economies that leave no-one behind.