Development finance bodies ‘key for African SMEs’

Development finance institutions are crucial for small and medium-sized enterprises (SMEs) across Africa who struggle to gain access to finance for building and expanding their operations, according to Meshach Aziakpono, professor of development finance at the University of Stellenbosch Business School and programme head of the MPhil in Development Finance.

Aziakpono said such businesses often suffered as they were not big enough to raise capital on the stock market or liquid enough to be able to issue bonds to obtain financing. The opening up of finance for these businesses would help to unlock the investment potential in Africa.

In terms of training, financial programmes often tended to focus only on traditional financial systems comprising of banks, insurance companies and stock and bond markets, while the majority of the population and businesses in Africa did not have access to these markets.

Key to improving economic efficiencies on the continent was the development of financial structures that stimulated the “middle space” in the economy, said Aziakpono.

He explained that on one side, where traditional financial systems operate, the level of cost recovery was very high, and at the other end, where the cost recovery was very low, one would find “survivalist” enterprises that were not registered businesses with extremely high levels of risk that could hardly be financed by any profit-driven institution.

The middle space
In between these two extremes is what Aziakpono refers to as the development finance niche — the “middle space” in an economy, populated by self-employed, salaried workers, micro enterprises and SMEs.

“There’s a real need to develop financial vehicles that are specifically tailored to the African reality, it’s not practical to have a purely academic solution, we need to engage with industry and learn from them,” he said.

Aziakpono added that a challenge for financial schemes, however, was to overcome underdevelopment in the African environment.

Firstly, there was a lack of collateral due to poorly defined property rights — with most of the property and land in Africa communally owned, a very small percentage of people have the ability to offer their property as collateral for a loan.

Secondly, weak accounting standards throughout the continent posed a significant barrier to assessing the viability of a company as an investment opportunity, while weak legal systems made the enforcement of contracts difficult.

And lastly, Aziakpono said, the significant income inequalities between the poor and wealthy populations in Africa not only limited the pool of savings available in many economies but also the number of individuals who had access to them.

“Dealing with this inequality by improving access to finance for all levels of business is essential to the further development and growth of Africa,” he added. — I-Net Bridge

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Zeenat Moorad
Zeenat Moorad works from Johannesburg, South Africa. Markets, finance&business. Mostly. Once editor, journalist, columnist-Financial Mail&Business Day,Views all my own, I’d follow me, Currently @Discovery_SA Zeenat Moorad has over 4602 followers on Twitter.

Related stories


Subscribers only

Poachers in prisons tell their stories

Interviews with offenders provide insight into the structure of illegal wildlife trade networks

Covid-overflow hospital in ruins as SIU investigates

A high-level probe has begun into hundreds of millions of rand spent by the Gauteng health department to refurbish a hospital that is now seven months behind schedule – and lying empty

More top stories

Bitcoin rules take edge off crypto-nite

New regulations for cryptocurrency exchanges could boost investor confidence in such assets

An experiment in what school could be

Two Limpopo principals will be helping to create radically reimagined communities of learning: schools as living systems

Covid-19 on the rise in Zimbabwe

The South African variant of the virus is ‘clinically present’, while a lockdown tries to limit new infections

The inefficiency of the Gini coefficient

To simplify complex inequality into a single statistic doesn’t address how to accurately assess (or reduce) South Africa’s large wealth divide

press releases

Loading latest Press Releases…