Expert commentary by Judith Karl, Executive Secretary, United Nations Capital Development Fund
This is an exciting time for companies in Africa. At United Nations Capital Development Fund (UNCDF), an aid agency dedicated to making finance work for the poor, we have seen first-hand the tremendous potential of companies across the continent. We’ve supported a number of businesses to expand, as was the case with Josa Green Technologies, a Uganda-based company, which creates biomass briquettes for use in clean cookstoves. High-growth companies like these, which seek both development impact and profit, are essential for African economies to be resilient and inclusive. We were thrilled when Josa Green and two other UNCDF partners were included in the Companies to Inspire Africa report, a testament to the dynamism of African businesses.
However, UNCDF also knows that too many small and medium-enterprises (SMEs) in Africa face severe limits on their ability to access working capital and long-term finance. This problem is particularly acute in the poorest countries. There, SMEs typically seek credit ranging from $50,000 to $1m from local banks. But with little collateral and no credit histories for their early-stage businesses, these entrepreneurs are often seen as too risky. Many domestic banks also lack specific products to serve this market segment. In our experience, many small firms, particularly those with fewer than 10 employees, face daunting challenges as they seek to grow into middle-size enterprises. Too often, the lack of financing means that opportunities to generate wealth, employment and impact are lost.
Addressing this problem of ‘missing middle’ finance is essential for creating jobs, empowering women, and generating opportunities for young people across Africa. Where possible and appropriate, UNCDF helps SMEs access commercial investments by deploying early-stage finance and technical assistance to help them improve their business models and strengthen their management teams. UNCDF can also use grants, concessional loans or guarantees to share project risks, incentivise investors to provide financing, and ensure that businesses secure the resources they need to grow.
I commend the Companies to Inspire Africa report and similar publications for highlighting some of the many inspiring business stories coming out of Africa. I hope that our collective efforts will result in many similar companies joining their ranks in years to come.