Investing in African SMEs is Crucial for Economic Development
A recent analysis on "How Can African SMEs Mobilize More Capital? Data and Lessons from LP and GP Pioneers" sheds light on key trends and recommendations for institutional investors, fund managers, and donors. The goal is to strengthen support for SMEs and mobilize domestic and international capital.
Three market segments remain under-analyzed: early-stage SME funds, growth funds, and debt funds for SMEs. Better dissemination of data and lessons from past experiences would help investors better understand these segments.
According to the same report, investors need to reassess their evaluation criteria to support high-performing teams, including novice fund managers. A more detailed approach, beyond historical performance, is essential. It is also necessary to favor lean teams and support women's access to equal opportunities.
African capital engagement in SME financing is strategic for making the market more resilient. Although domestic investments are increasing, there is still room for progress. Catalytic donors can help facilitate access to local capital.
Development financial institutions are the main actors in SME fund financing in Africa. They prefer to invest in larger structures. To diversify their impact, they could finance funds of funds targeting smaller structures.
Over the past 30 years, the number and diversity of Africa-based funds have increased. Access to financing remains a challenge, especially for new fund managers. Development financial institutions remain the primary financiers of SME funds, investing mainly in larger structures. The allocation of African capital to the SME sector is progressing but can still be improved. Catalytic funds play a crucial role, but their action needs to be intensified.
To accelerate SME financing in Africa, it is essential to strengthen transparency and data sharing among stakeholders. It is necessary to adapt fund evaluation criteria and encourage investors to engage more. The use of innovative financial tools can help unlock new capital and support a new generation of African fund managers.
