Proparco, the private sector financing arm of the French Development Agency, has extended a €1.5 million portfolio guarantee to Teranga Capital, a key player in West African impact investing. This strategic financial tool is designed to unlock a €3 million investment portfolio aimed at supporting high-impact small and medium-sized enterprises (SMEs) in Senegal. The partnership directly targets the persistent financing gap known as the "missing middle," fostering sustainable economic growth and local entrepreneurship.
A Strategic Mechanism to De-Risk Investment
The agreement utilizes Proparco's ARIZ PRIME guarantee, a sophisticated risk-sharing mechanism that mitigates potential investment losses for Teranga Capital. This de-risking instrument empowers the firm to channel patient, long-term capital into promising enterprises in key sectors. These areas, including agribusiness, renewable energy, and technology, are crucial for economic development but often perceived as too risky by traditional lenders.
By providing a buffer against potential losses, the guarantee encourages investment where it is most needed, supporting businesses in their critical growth phases. This approach is fully aligned with Proparco's strategy of investing in a sustainable and resilient economy. It also reflects the goals of the French Choose Africa initiative, which aims to accelerate the growth of SMEs across the continent.
Addressing the 'Missing Middle' in Finance
This collaboration directly confronts a well-documented challenge in African markets: the "missing middle" financing gap. Many SMEs are too large for microfinance yet too small to attract capital from commercial banks or large private equity funds. This initiative provides a tailored solution, offering the necessary equity investments for these businesses to scale their operations and impact.
Sadio Dicko, Proparco's Regional Director for West Africa, emphasized the commitment to reducing financing inequalities and supporting stable job creation. He noted the project's alignment with building a more inclusive African economy. This partnership exemplifies a shared vision for empowering local entrepreneurs who are transforming the economic fabric of the region.
Fueling Regional Expansion and Growth
From Teranga Capital's viewpoint, the guarantee significantly enhances its value proposition for its own investors. Mohamed Ngom, Deputy Director General, stated that the improved risk coverage strengthens their ability to mobilize additional capital for high-impact SMEs. This ultimately reinforces their mission to cultivate a robust and sustainable entrepreneurial ecosystem in Senegal and beyond.
The partnership with Proparco comes as Teranga Capital embarks on a significant phase of geographic expansion. With nearly a decade of experience in Senegal, the firm is now extending its reach to neighboring frontier markets, including The Gambia, Mauritania, and Guinea-Bissau. This strategic move targets underserved regions with high potential but limited access to institutional investment.
This expansion is supported by a recent first close of a new fund and a strategic increase in its maximum investment size to €1.5 million. This adjustment allows Teranga Capital to support larger, growth-stage SMEs, marking a deliberate shift upmarket from its earlier seed-stage focus. The firm is positioning itself as a key partner for businesses ready for significant scaling.
Ultimately, the Proparco-Teranga Capital alliance represents a pivotal step in strengthening West Africa's entrepreneurial landscape. By combining a proven financial de-risking tool with deep local investment expertise, the partnership is set to unlock significant growth for Senegalese SMEs. This collaboration serves as a powerful model for driving inclusive economic development and fostering a new generation of successful African enterprises.