Small and medium-sized enterprises (SMEs) throughout Africa proceed to face tighter lending situations, increased collateral necessities, and restricted entry to formal commerce finance regardless of proof displaying that their credit score threat profile has remained comparatively secure.
In line with a brand new African Improvement Financial institution (AfDB) report launched in Brazzaville on Could 27, SME-related default charges, averaging between 8 and 10 per cent, have proven restricted volatility over time.
The report, Commerce Finance Provide in Africa: Put up-COVID Traits and Rising Alternatives, notes that SMEs account for at the very least 80 per cent of companies and employment on the continent and contribute greater than half of Africa’s GDP.
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Nonetheless, SMEs’ share of banks’ commerce finance portfolios fell from about 34 per cent in 2019 to 19.5 per cent in 2020 in the course of the Covid-19 shock, earlier than stabilising at round 21-22 per cent between 2023 and 2024.
Regardless of their financial significance, SMEs are nonetheless extensively categorised as high-risk debtors, a notion that continues to form lending choices.
The report exhibits that SME defaults rose from 8 per cent in 2020 to simply beneath 10 per cent in 2023 earlier than easing to eight.8 per cent in 2024, whereas approval charges for SME commerce finance purposes remained regular at about 63 per cent over the identical interval.
The AfDB says this notion of threat has translated into stricter lending phrases, together with increased rates of interest, shorter compensation durations, and harder collateral necessities, limiting SME participation in formal commerce finance techniques.
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Nonetheless, the report notes that many SMEs continued repaying loans constantly even in periods of forex volatility and tighter international credit score situations, suggesting the sector’s threat profile could also be extra secure than generally assumed.
Martin Fregene, the Appearing Vice President for Agriculture, Human and Social Improvement Advanced at AfDB, warned that restricted SME financing may undermine Africa’s means to create jobs for its quickly rising youth inhabitants.
“Yearly, 11 million younger Africans enter the labour market, however solely three million get formal jobs,” he stated, stressing the necessity to broaden financing for SMEs and agriculture-driven enterprises.
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The report says defaults are largely pushed by exterior pressures akin to delayed funds, weak money buffers, restricted working capital, and alternate price volatility somewhat than poor enterprise administration.
Nonetheless, many lending fashions proceed to categorise SMEs broadly as high-risk debtors with out totally contemplating compensation historical past, sector efficiency, or export monitor information.
In line with the report, restricted entry to commerce finance is limiting funding in manufacturing, logistics, and export capability, notably in agriculture and light-weight manufacturing, doubtlessly slowing intra-African commerce and industrialisation.
The AfDB known as for reforms together with stronger credit score data techniques, expanded commerce assure schemes, and improved risk-sharing mechanisms to align lending practices extra carefully with precise SME default behaviour.
