Enabling access to investment finance for micro, small and medium-sized enterprises is essential for economic growth to continue in Africa
Small and medium-sized enterprises (SMEs) are widely recognised as big drivers of economic growth, innovation, regional development and job creation. A strong and vibrant SME sector provides a strong foundation to increase standards of living and to reduce poverty. Indeed, Africa’s small enterprises, from trading to farming, contribute more than 80 percent of output and jobs in most African nations. They also offer the best opportunities for growth, diversi?cation and job creation. But SMEs are constrained by limited access to stable energy services, business management, skilled labour and especially ?nance for investment.
Successful developing countries have seen their SMEs ?ourish, moving from informal to formal production and becoming the backbone of growth in production and employment. Such processes of development support the creation of a strong middle class and also tend to strengthen democratisation and the rule of law.
Despite the internationally recognised importance of SMEs, African small businesses often have difficulties accessing financing from the formal financial sector. Almost 50 percent of African companies identify lack of access to finance as a major constraint to doing business. The cost of ?nance, including investment ?nance, is higher in Africa than any other part of the world, and the access for SMEs is particularly limited. Very few commercial banks do small-enterprise banking in Africa. Furthermore, SME financing is often considered by many financial sector players in Africa to be a risky activity as promoters quite more often than not, fail to come up with the collateral levels required to secure bank facilities.