Senegalese private equity firm Teranga Capital has closed a strategic €1.5 million portfolio guarantee from Proparco, the private sector financing arm of France’s development agency AFD, marking a significant step in addressing West Africa’s chronic SME financing gap.
The agreement, signed on December 4, will support Teranga’s deployment of a €3 million investment portfolio targeting small and medium-sized enterprises in sectors that traditional banks typically avoid: agribusiness, renewable energy, and technology services. The deal utilizes Proparco’s ARIZ PRIME mechanism, a risk-sharing tool designed to encourage investment in higher-risk market segments across emerging economies.
Targeting the “Missing Middle”
The partnership directly addresses what development finance experts call Africa’s “missing middle” problem. In markets like Senegal, microfinance institutions serve businesses needing loans under €10,000, while large commercial banks and pan-African private equity firms focus on deals exceeding €5 million. Companies requiring between €100,000 and €2 million—the growth capital that separates startups from scale-ups—often find themselves shut out entirely.
The financing gap for SMEs across sub-Saharan Africa is estimated at $331 billion, with these businesses accounting for roughly 90% of the private sector and providing 80% of employment across the continent. Despite their economic importance, 51% of African SMEs lack access to the capital they need to grow.
“The deployment of the ARIZ PRIME guarantee is proof of our commitment to reducing inequalities in access to financing,” said Sadio Dicko, Proparco’s Regional Director for West Africa, in a statement.
How the Guarantee Works
For Teranga Capital, the guarantee functions as a financial buffer, covering a portion of potential losses on its investments. This risk-sharing arrangement allows the firm to deploy capital into businesses that might otherwise be considered too risky, while also making future fundraising easier by improving risk coverage for the firm’s limited partners.
Mohamed Ngom, Deputy Director General of Teranga Capital, noted that the mechanism “improves risk coverage” for investors, potentially smoothing the path for raising future vehicles.
The ARIZ mechanism, launched by AFD in 2008, has become a favored tool for development finance institutions seeking to unlock local capital without deploying cash directly into companies. Portfolio guarantees like ARIZ PRIME have been deployed across multiple African markets, from South Africa to Nigeria, as DFIs work to catalyze private investment in underserved segments.
Fresh from a $3.4 Million Raise
The Proparco deal follows a period of significant activity for Teranga Capital. Founded in 2016, the firm recently closed a $3.4 million funding round as part of a broader capital raise targeting between $5 million and $6 million. The round included backing from:
- FONSIS: Senegal’s sovereign wealth fund
- I&P (via IPDEV2): Pan-African impact investor Investisseurs & Partenaires
- CFYE: The Netherlands’ Challenge Fund for Youth Employment
- Private investors: Including co-founders Olivier Furdelle and Omar Cissé
As a member of the I&P network, Teranga typically executes equity and quasi-equity investments ranging from CFA 50 million to CFA 1 billion (€75,000 to €1.5 million). Following shareholder approval in March 2024, the firm increased its maximum ticket size to CFA 1 billion to accommodate larger SMEs.
Portfolio Focus and Regional Ambitions
Teranga Capital has built a portfolio of eight companies since its founding, spanning agribusiness, health, logistics, and technology. Recent investments include Solarbox, a Senegalese solar-powered mobility startup that raised $1 million in pre-seed funding in December 2024, and Afrikamart, a food-delivery logistics platform that secured $850,000 in equity financing.
The firm has supported approximately a dozen companies in Senegal to date and is now eyeing regional expansion into Mauritania, Guinea-Bissau, and Cape Verde—markets that remain largely overlooked by larger institutional investors despite growing entrepreneurial activity.
“As competition for deals heats up in Lagos and Nairobi, regional funds are looking at the ‘corners’ of the map,” noted industry observers, with frontier markets like those in Francophone West Africa offering untapped opportunities despite infrastructure and regulatory challenges.
Why This Matters
The Proparco-Teranga partnership represents more than just a single deal. It exemplifies a broader shift in how development finance institutions are approaching Africa’s SME financing challenge. Rather than deploying capital directly into companies, DFIs are increasingly using risk-sharing tools to mobilize local private capital, creating sustainable financing ecosystems that can outlast donor involvement.
With Teranga Capital’s expanded capacity and improved risk profile, the firm is positioned to fill a critical gap in Senegal’s entrepreneurial ecosystem—providing not just capital but also strategic support and capacity building to businesses with high growth potential. The firm’s model combines minority equity stakes (typically held for around five years) with hands-on operational support tailored to each portfolio company’s needs.
For Senegal’s entrepreneurs operating in the missing middle, the deal offers a rare pathway to growth capital that could help transform promising startups into employment-generating, economy-building businesses.
