Guarantees: an instrument to mobilize local instruments
ARIZ: Risk-sharing
ARIZ: why?
Small and medium-sized enterprises (SMEs) make up the bulk of the economic base in developing and emerging countries. To set up and develop their activity, they need medium and long-term financial resources. But as they are often perceived as high-risk clients, their access to financing remains extremely limited.
AFD’s response is to provide financial institutions with a risk-sharing mechanism: ARIZ.
ARIZ (Support for the Risk of Financing Private Investment in AFD's Areas of Operation) is a final loss guarantee offered to financial institutions by AFD to cover 50% to 75% of an individual loan or a loan portfolio for SMEs and microfinance institutions (MFIs).
It allows:
- Companies, from small business owners to structured SMES, to access investment loans
- Microfinance institutions to finance their operations and deploy their lending activity
- Our financial partners to share the credit risk, reduce the level of collateral required, be assisted in the development of a strategy and products for SMEs, and increase their lending capacity thanks to the improvement in their solvency ratio and AFD’s signature.
AFD has now established partnerships with over 100 financial institutions. The mechanism is used in 37 countries.
ONE TOOL, TWO PRODUCTS
- ARIZ single deal guarantee: risk-sharing allocated on a loan-by-loan basis;
- ARIZ portfolio guarantee: risk-sharing for a loan portfolio.
FASEP
The FASEP guarantee (Private Sector Study and Aid Fund) supports the establishment and development of French SMEs abroad. It guarantees investments against the economic risk of the failure of their establishment.
FASEP guarantees cover:
- Equity investments made by the French parent company in its foreign subsidiary;
- Investments by venture capital companies (VCCs) or mutual funds.
The funds guaranteed may take several forms:
- Share subscriptions (or securities convertible into shares);
- Shareholders’ advances blocked for over 3 years;
- Equity loans.
To be eligible, the foreign subsidiaries must be established outside the European Union, Norway, Iceland, Liechtenstein and Switzerland.
AFD allocates different types of loans. Their terms are determined by the nature of the project and its environment (political, economic, social, environmental impact and context) and the quality of the borrower (sector of activity, rating, guarantees).
AFD uses grants to finance actions in the social sector (health, education), rural and urban development initiatives, and infrastructure projects.
The Debt Reduction-Development Contract (C2D) is a tool to restructure the debt of certain countries. In practical terms, once a Heavily Indebted Poor Country has signed a C2D with AFD, the country continues to service its debt until repayment. At each payment on the due date, AFD transfers the equivalent amount to the country in the form of a grant. This amount is used to finance poverty reduction programs.
The direct financial cooperation between AFD and CSOs today covers a wide range of instruments tailored to the specific characteristics of CSOs and their added value: support for innovation (Sectoral Innovation Facility for NGOs, financing from the French Facility for Global Environment, FFEM), financing for operations in fragile, crisis and post-crisis contexts (APCC), and support for their initiatives, via the CSO Initiatives mechanism.
FEXTE meets the development needs of middle-income countries, feeds into dialogue on public policies, and promotes French expertise.
Following the Paris Climate Agreement, AFD has launched Adapt’Action to support countries seeking technical assistance for the institutional, methodological and operational implementation of their commitments to the fight against climate change.