De-risking African enterprises key to financial inclusion

Small and medium-sized enterprises (SMEs) play a vital role in driving economic growth and creating job opportunities across Africa. However, the high cost of credit coupled with the perceived risks associated with these businesses often hinder their ability to scale and thrive. In a recent interview with Nishdeep Sethi, Group Director of Structured Finance and Products at the African Guarantee Fund, the focus was on exploring ways to de-risk SMEs and provide them with access to affordable capital, particularly emphasizing the challenges faced by women entrepreneurs in the region. Tackling these obstacles is essential for promoting financial inclusion and fostering sustainable development in African markets. The situation for women entrepreneurs in Africa is dire, with significant hurdles in accessing finance, contributing to a staggering US$42 billion funding gap that continues to widen. This gap, if left unaddressed, would take at least two centuries to close, highlighting the urgent need for intervention. Women form half of the population in most countries, underscoring the importance of empowering them economically to drive productivity and economic growth. Despite the challenges, opportunities are emerging through capacity development and partnership programs that bring women together and provide them with the necessary support. Collaborations with entities like the Africa Guarantee Fund, alongside partners such as Sweden and Netherlands, the African Development Bank, and various governments, are instrumental in seeking solutions to enhance financial access for women entrepreneurs. The impact of empowering women-led enterprises extends beyond individual businesses; it has a ripple effect on economies. Michelle Obama's quote emphasizing the unrealized growth potential when a significant portion of the population is excluded from economic participation resonates strongly. Studies indicate that integrating women into the economy can lead to double-digit growth figures in African countries, underscoring the transformative power of financial inclusion. As programs like the African Guarantee Fund work to bridge the funding gap and bolster the capacity of SMEs, the ensuing economic growth and job creation are expected to benefit communities and contribute to overall prosperity. Efforts to de-risk SMEs involve preparing both financial institutions and entrepreneurs to engage effectively in the credit market. Capacity-building initiatives aim to equip women entrepreneurs with the necessary financial literacy and credit readiness to access funding successfully. This collaborative approach ensures alignment between the needs of entrepreneurs and the services provided by financial institutions, ultimately facilitating a more conducive environment for lending to SMEs. By addressing the real risks associated with SMEs, rather than relying on perceived risks, the cost of capital can be reduced, making credit more affordable and sustainable for women-led businesses. While progress is being made in enhancing access to finance and de-risking SMEs, challenges persist, particularly concerning the regulatory environment and the cost of doing business. High-interest rates and tax burdens continue to pose obstacles to growth, necessitating a comprehensive approach to address systemic issues. Initiatives like the AFAWA program, with its three-pronged strategy focusing on access to finance, technical assistance, and enabling environments, aim to create a supportive ecosystem for SMEs and women entrepreneurs. By engaging with regulators and fostering partnerships across various sectors, these programs seek to make the business environment more favorable for entrepreneurs to thrive and expand. The journey towards financial inclusion and scalability for African enterprises is ongoing, with a growing emphasis on empowering women entrepreneurs and SMEs to tap into global markets. While progress has been made, there is still untapped potential waiting to be harnessed, particularly among micro and small businesses. The youth demographic in Africa presents a vast pool of entrepreneurial talent, with opportunities for businesses to scale up and compete internationally. By continuing to de-risk SMEs, improve credit access, and create an enabling business environment, African enterprises can unlock their full potential and contribute meaningfully to economic growth on a global scale.