Plugging Africa's SME Funding Gap

Is Africa different in terms of our financial and funding needs?

- St John Bungey

Africa has 400 companies with more than $1bn in revenue and 700 companies with more than $500m in revenue. Over the past five years, debt transactions totalling $110.2bn have been placed in African debt markets or by African companies on international markets, the majority of which was US dollar-denominated, according to PwC.

Taking all of this into account, the size of the corporate loan market across subSaharan Africa (excluding South Africa) is estimated to be greater than $150bn. While at face value these nominal sums may seem surprising, if not impressive, they mask a massive shortage of finance.

The International Finance Corporation estimates that the credit gap for small- and medium-sized enterprises (SMEs) in sub-Saharan Africa is between $70bn and $90bn. This implies a requirement to increase bank advances by threefold to this sector, if there is any hope of closing that gap.

The lack of access to capital is by no means unique to subSaharan Africa. It is the concentration of that funding gap in specific areas, and the economic reasons why, that make for interesting reading. When delving deeper, there is almost a “preferred habitat” phenomenon which, in this case, appears to be not loading on term structure or duration, but rather loading on type of counterparty and size of borrower.