International Business Loans For Small Businesses In Africa

By | April 7, 2023
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International Business Loans For Small Businesses In Africa – A few years ago, more than half a century after the concept was first proposed, the Ivorian government completed the construction of the Henri Konan Bédié Bridge, which spans the Ebrière Lagoon connecting the north and south of Abidjan, the capital of the city of Kotri . The project became a reality after the government secured financing from development banks and private capital.

Similarly, the Dakar-Diamniado highway in Senegal, although a public structure, was built and operated by private companies.

International Business Loans For Small Businesses In Africa

International Business Loans For Small Businesses In Africa

Increasing difficulty in obtaining traditional financing, including bank loans for public infrastructure such as roads, railways and dams, is forcing African countries to explore alternative financing methods.

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Building and managing private sector infrastructure, repaying its investment, and then transferring the infrastructure to the government is one way to make up for the lack of ODA and the reluctance of banks to lend.

Aid to least developed countries, most of which are in Africa, fell 3.9 percent in 2016, according to the Organization for Economic Cooperation and Development, which promotes policies that improve economic and social well-being in rich countries.

At this time, governments come up with innovative financing strategies, while large companies rely on investments or bank loans to develop and expand their businesses. However, it is difficult for African SMEs to obtain financing.

Governments seeking financing from private partners such as the African Development Bank (AfDB), International Finance Corporation (IFC), World Bank, or international financial institutions, or international financial institutions, often realize that the financing needs of SMEs cannot be met with available funds.

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“In Ghana, SMEs can be safely considered the backbone of the economy, employing thousands of people,” said Ghanaian Finance Minister Ken Ofori-Atta at a gathering of Ghanaian entrepreneurs in Je.

Small and medium enterprises account for 92% of all local businesses in Ghana, provide up to 85% of the region’s manufacturing jobs, and contribute about 70% of the region’s GDP.

In Nigeria, 37 million SMEs employ about 60 million people and account for about 48% of the country’s GDP.

International Business Loans For Small Businesses In Africa

The Republic of South Africa (the most developed economy south of the Saharan) has more than 2.2 million SMEs, about 1.5 million of which are in the informal sector. Some 43% of South African SMEs are involved in trade and accommodation, according to the South African Small Enterprise Development Agency (SEDA), which, among other functions, implements the government’s small business strategy.

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However, according to these figures, 8 out of 10 jobs and 9 out of 10 businesses in sub-Saharan Africa are associated with small businesses.

SMEs, especially those in the informal sector, find it difficult to obtain bank loans. Most African SMEs rely on personal savings or seed money from friends and family.

“Even if the banks are willing to lend them some money, the collateral and guarantees they need, sometimes even an advance payment, is too much for a small company like ours,” said Alec Moore, head of business and projects at Togo Bank. Alex Treku said. base company. LOGOU Concept Togo (LCT).

LCT has created an electric food mixer (Foufou Mix) that replaces the traditional mortar and pestle and saves the energy women use in pudding pits for fufu, a West African staple.

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“Foufou Mix enables quick and hygienic preparation of sweet potatoes in about 8 minutes,” said the Africa Innovation Foundation (AIF) in announcing LCT’s 2014 Africa Innovation Award.

AIF added: “Picking sweet fruit is traditionally done by women; this innovation offers a solution that is not currently considered by international manufacturers. It also opens up opportunities for a whole new industry producing such equipment on the African continent.”

A third of Nigerians reportedly eat fufu, making the country of 170 million people an extremely attractive market for the gadget. However, according to Mr. Trek, LCT can only produce about 1 hdred mixer per month. reason? “We cannot get bank loans or term deposits to grow our business,” he said. LTC currently has 19 employees.

International Business Loans For Small Businesses In Africa

Operational capacity and market access are other challenges facing African SMEs, but access to finance is paramount.

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As the world celebrates the first MSME Day on June 27, the African Development Bank has called for new and affordable financing schemes to be added. Both the African Development Bank and the International Finance Corporation want SMEs to have greater access to finance. Last year, the African Development Bank reported that it assisted 156,000 small and medium-sized business owners through financial intermediaries such as commercial banks, development investments and guarantees. That’s a good start, but not enough, experts say.

By covering the risks associated with lending to SMEs, intermediaries such as the African Guarantee Fund (AGF) can provide credit guarantees to financial institutions that lend to businesses that would otherwise be reluctant to lend.

Yesterday, the AGF announced that through a partnership with the African, Caribbean and Pacific Group of States, the European Union and UNDP, around 5,000 Minerals for Growth SMEs in five countries will receive more affordable financing thanks to $12 million AGF credit guarantee.

Two years ago, IFC and Ecobank, a pan-African business and investment banking group, agreed a $110 million risk-sharing facility that would allow Ecobank to lend to SMEs operating in fragile and conflict-affected countries in Western and Central Africa. At present, traditional banks are increasing their loans to SMEs. Experts call on African SMEs to explore innovative financing methods such as cooperative financing and expatriate financing.

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The World Bank is said to be exploring other ideas such as crowdfunding — an innovative way of financing projects by raising money from large numbers of people — peer-to-peer loans, social impact bonds and development impact bonds.

But the African Development Bank wants lenders to increase lending by at least $135 billion to meet the needs of small and medium-sized enterprises in Africa. With the current total financing gap in developing countries ranging from $2.1 to $2.6 trillion, new strategies are needed to finance the 17 Sustainable Development Goals.

According to the World Economic Forum, “blended financing” could close this loophole. According to a March 17 study, Financing Small Business Growth and Medium Enterprises, if these FDSs were available, most SMEs still operating in the informal sector would have to “take huge steps towards formalization to increase their access to The Potential of Formal Credit” African Enterprises: What Are the Constraints to SME Financing within ECOWAS? Published in Development Finance Review.

International Business Loans For Small Businesses In Africa

The study’s authors argue that policy reform is as necessary as available funding. They also recommend requiring companies to provide creditworthiness information to boost the confidence of creditors and ensure that government-funded credit schemes are managed efficiently and transparently. Small and medium-sized enterprises (SMEs) are the backbone of the world economy, accounting for the majority of global businesses in nearly every region. In developing countries, SMEs use

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Micro, small and medium-sized enterprises are almost all micro-enterprises. For these companies to grow and prosper, create more jobs, and fuel economic growth, they need access to capital.

Credit constraints are a severe challenge for SMEs. Without a reliable source of working capital, SMEs are unable to make the investments needed for growth, leading to stagnation. Given the importance of SMEs as a source of employment, barriers to access to finance act as impediments to poverty reduction and economic growth. Blended financing can help companies fill this critical gap. Concessional debt and equity allow SMEs to expand without going bankrupt. Companies that would otherwise be stuck in the pilot phase due to lack of working capital can make headway this way. Technical assistance grants help companies expand capabilities and improve performance. In the process, they gained the trust of private financing, ultimately attracting capital without a hybrid approach.

African SMEs face two major financing challenges: access and affordability. Accessibility refers to the ability of SMEs to obtain financing. SMEs in Africa are often informal – meaning they are not officially registered as businesses – which makes it difficult for them to obtain financing. Furthermore, even those companies that are officially registered are often inaccessible. This is a serious problem because a company cannot invest and grow without sufficient working capital. Only one-third to one-fifth of SMEs in sub-Saharan Africa have bank loans or lines of credit. An estimated 28.3% of companies in the region are fully credit limited.

Affordability refers to the cost of capital, or what it costs a company to obtain a loan or receive investment. The total cost of the loan includes not only the cost of the original loan, but also the interest charged and transaction costs, such as attorney fees to perfect the collateral. This is a serious challenge in Africa, where interest rates from local banks are often in the double digits, sometimes even higher than 20-25%. Alternative financial service providers such as microfinance institutions or digital lenders (e.g. m-Shwari, Branch) may charge higher interest rates, up to 40-50%. High interest rates often deter SMEs from even trying to apply for financing. Lack of affordable financing is a serious hindrance for SMEs in Africa.

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Hybrid finance is

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