African small and medium enterprises (MSMEs) are often described as the backbone of the economy.
The continent’s 600,000 formal MSMEs and 40 million+ micro-businesses account for approximately 90% of all businesses, provide about 80% of employment, and contribute 40% to Africa’s GDP, highlighting their central role in Africa’s economy.
Despite their significance, according to the World Bank Enterprise Surveys, about 40% of MSMEs in Sub-Saharan Africa cite access to finance as a significant constraint, compared to 25% of large firms. Additionally, 41% of SMEs in least developed countries (LDCs) report financing
Country-level analysis: Market Size, Growth & Segmentation
Estimating the market size for Africa’s MSME sector is particularly challenging because most MSMEs are informal and rarely engage with formal financial services. To address these data gaps, we use the total economic output of MSMEs, indicated by their GDP contribution, as a proxy. While this method offers an alternative perspective, it is not directly comparable to the actual financing market size.
Our analysis distinguishes between MSMEs (Micro, Small, and Medium Enterprises) and SMEs (Small and Medium Enterprises). While MSMEs include micro-enterprises, SMEs specifically refer to small and medium-sized enterprises. This report aims to provide a comprehensive understanding of the financing needs across different business scales. Although MSMEs are our primary focus, we use the term 'SMEs' when specific data or policies pertain exclusively to small and medium-sized enterprises.
Ghana
Market Size
Ghana, a stable democracy with a growing economy, has a thriving MSME sector that contributes significantly to the country's GDP. Ghana’s MSME sector contributes approximately 60% to GDP—$46 billion—and employs about 80% of the workforce.
In 2023, the total value of loans disbursed to MSMEs in Ghana was estimated at $5.2 billion, representing a 15% year-on-year growth, yet this remains insufficient to meet the sector’s needs, as 84% of Ghanaian firms still struggle to access finance due to limited collateral, high costs, informality, risk perception, and lack of financial literacy.
Coincidentally, this financing gap displays a “valley” effect, where the two ends of the spectrum—micro and large enterprises—feel it most acutely.
Micro-enterprises, which make up 80% of the MSME sector in Ghana, receive only 2% of the total credit available. In stark contrast, large corporates, accounting for just 4% of the business population, secure a disproportionate 60% of total credit. This imbalance suggests that while financial institutions heavily favour large corporates, they remain unsatisfied with the rigid and inflexible loan terms that do not fully address their specific financing needs. Data is consistent with this conclusion since 77% of Ghanaian bank loans, with tenors of less than five years, further complicate access for medium-sized and larger corporate businesses needing larger, long-term loans.
One critical factor exacerbating this financing gap is Ghana's high interest rates.
In May 2024, Ghana's lending rates were 29%, among the highest in key African economies, compared to Kenya's 13% and South Africa's 8.25%.
The Bank of Ghana has aggressively raised interest rates to combat soaring inflation and support the beleaguered cedi, which has seen a steep drop in value. The policy rate reached an all-time high of 30.00% in July 2023 before tapering slightly to 29.00% in May 2024. These elevated rates pose significant challenges for Ghanaian businesses, instilling apprehension over repayment and access to credit.
Key Players
The MSME financing market, though still nascent, features a diverse array of providers.
Commercial banks, the most prominent providers by asset size, typically confine themselves to secured lending to medium or larger corporates. At the same time, non-bank financial institutions, mostly fintechs, savings and loans companies, credit unions, and microfinance institutions are more willing to take on risk by issuing unsecured credit to underserved businesses and micro-entrepreneurs.
Ghana's industrial and service sectors are the primary drivers of its economic growth, collectively accounting for 74% of its GDP. The industrial sector, contributing 32% to GDP, is heavily influenced by manufacturing, where small enterprises drive 85% of employment, making it a critical subsector within the MSME landscape. The services sector, contributing 42% to GDP, is driven by high-growth areas such as transportation, mobile communications, and healthcare.
Notably, women-led MSMEs represent a significant demographic segment. Recent data from the World Bank reveals that 44% of micro, small, and medium enterprises (MSMEs) in Ghana are led by women. Moreover, Ghana stands out on the African continent, ranking second only to Uganda in the proportion of women entrepreneurs, as highlighted in the 2019 MasterCard Index of Women Entrepreneurs.
Market Opportunities: Mobile Money, Agri-Tech and Regulatory Drivers
Despite the high interest rate environment, Ghana stands on the brink of a potential credit revolution. The exponential growth of mobile money platforms fuels this transformation. The volume of mobile money transactions in Ghana jumped 26%, from 4.26 billion in 2021 to 5.36 billion in 2022. Mobile wallets provide lenders a unique opportunity to slash the costs of customer acquisition, distribution, and collections costs.
Drawing inspiration from Kenya's success, where the mobile wallet ecosystem has significantly boosted lending activities, Ghana is poised for a similar transformation. Major collaborations between telcos and bank lenders, such as MTN Ghana and Ecobank in 2018 and Letshego Ghana in 2017, lead the charge with innovative mobile credit solutions tailored to the Ghanaian market.
Remarkably, 68% of Ghanaian firms have adopted mobile money, with larger and medium-sized enterprises in the lead. This widespread adoption highlights the market's readiness for innovative financial solutions, paving the way for significant growth and improved access to credit. While mobile money use is mostly payment-based, Kenya's example shows widespread connectivity is the first step towards credit inclusion. As mobile money becomes ubiquitous, it becomes a preferred platform for lenders to disburse and collect loans, facilitating last-mile distribution and unlocking immense potential in Ghana’s credit landscape.
However, it's essential to acknowledge that while formal businesses have readily embraced mobile money, there’s an observable adoption gap among informal enterprises (formal: 14% vs informal: 6%). MSME lenders and their investors can unlock additional value by targeting niche mobile credit solutions for informal enterprises, especially in major trading hubs like Kejetia, Kaneshia, and Makola markets. These hubs, known for fast-moving consumer goods, have traders with short cash cycles that could support more reliable loan repayments.
Another notable innovation is the rise of agri-tech platforms offering verticalised products, which address the chronic liquidity issues for agri-SMEs. In 2022, Ghana attracted 10% of all funding into African agri-tech startups. Agriculture accounts for 21% of Ghana’s GDP, and agri-tech startups like AgroCenta, Farmerline, and Esoko have attracted foreign investments worth $15 million between 2019 and 2023. These agro-platforms will continue to grow the demand for MSME credit in Ghana.
The Ghanaian government is increasingly recognising the pivotal role of MSMEs in driving economic growth and fostering job creation. In 2020, the government launched the Ghana Enterprises Agency (GEA) to provide crucial advocacy and capacity-building support. Furthermore, introducing targeted tax incentives for MSMEs aims to encourage entrepreneurship and attract investment to this vital sector.
Market Risks: High Interest Rates and NPLs
Despite these milestones, Ghana faces macroeconomic hurdles, including rising inflation and an unstable cedi, which could derail growth. Businesses are feeling the impact of these macroeconomic conditions. Additionally, Ghana's credit information infrastructure is still maturing, complicating credit risk management due to limited access to reliable financial data. This contributes to Ghana’s higher Non-Performing Loans (NPLs) rate, which stands at 15%, higher than in Kenya and Nigeria.
Complete NPL data for 2024 isn't available for all markets, but as of April 2024, Ghana’s NPL rate reached 25.7%, significantly higher than the 15% recorded in 2022 and exceeding Kenya’s 16.1% in April 2024.
Furthermore, Ghana’s interest rate caps, currently set at 32.17%, stifle lenders' margins. While intended to protect consumers, rate caps can reduce the incentive for banks and NBFIs to extend credit, particularly to higher-risk MSMEs.
Ghana’s MSME financing market presents significant opportunities, especially with digital and mobile innovations. Effective management of the macroeconomic environment and the evolving credit information infrastructure will be crucial to its growth and sustainability. For investors, the blend of mobile-savvy MSME consumers, innovative financial solutions, and governmental support make Ghana a promising market, albeit with challenges that require strategic navigation.
Nigeria
Market Size
Nigerian Micro, Small, and medium enterprises (MSMEs) are critical engines of its economy. They account for over 90% of businesses, contribute more than 50% of GDP, and employ 63% of the workforce.
Despite their significance, Nigerian MSMEs face a financing gap of over $236 billion. Only 4% of Nigeria’s 40 million MSMEs access formal bank loans. The rest largely depend on the benevolence of close relatives and friends.
Several macroeconomic factors and systemic challenges exacerbate this financing gap.
At the macro level, Nigeria's struggle to control runaway inflation has prompted the Central Bank of Nigeria (CBN) to adopt a hawkish stance. In April 2024, Nigeria's inflation rate soared to 33.7%, a 28-year high, leading the CBN to hike the monetary policy rate by 150 basis points to 26.25% in May from 24.75% the month prior.
This surge in borrowing costs has increased non-performing loans (NPLs) and heightened investor caution.
Additionally, weak digital infrastructure, limited SME financial literacy, and inadequate cyber risk management further constrain MSMEs' access to finance. The absence of a universal credit scoring system and a weak criminal justice system exacerbate these challenges, creating a landscape where bad borrower behaviour is insufficiently deterred.
Key Players
Nigeria’s MSME financing market features a diverse array of providers.
Tier 1 commercial banks like Access, Zenith, and GTB offer tailored products through dedicated SME units, primarily to medium-sized firms with collateralised assets. Meanwhile, microfinance institutions such as Accion, Grooming, and LAPO provide small loans to informal micro- and small businesses and cooperative members. Digital lenders like Moniepoint, Carbon, and FairMoney leverage technology and use alternative, typically transactional and social data, to target underserved micro- and small enterprises with quick, collateral-free loans.
Development finance institutions like the Bank of Industry, Development Bank of Nigeria, and Bank of Agriculture play a pivotal role in Nigeria's SME financing landscape, offering concessional financing and technical support to empower MSMEs and drive economic growth. While positioned as more affordable alternatives to microfinance banks with exorbitant interest rates ranging from 78% to 89%, these institutions have faced criticism for occasionally imposing high interest rates exceeding those of commercial banks and providing short loan tenors that can hinder the growth potential of MSMEs.
Market Opportunities: FMCG Value Chain
Nigerian MSMEs are segmented across various industry sectors as follows:
Nearly 60% of businesses operate in trade, manufacturing or education.
Fast-moving consumer goods (FMCG) trading serves as a vital avenue for employment, particularly for informal micro- and small entrepreneurs seeking opportunities in small-scale retail and wholesale outside the formal economy where job prospects are often limited, and access to higher education remains challenging for many. Recognising the importance of these traders, innovative SME lenders are increasingly focusing on this segment.
For instance, Credlance, a digital lending platform, experienced a remarkable threefold increase in loan disbursements by targeting FMCG traders, owing to their commendable repayment track record compared to durable goods retailers with longer sales cycles. Moreover, numerous players in the market capitalise on informal cooperative networks, which serve as robust organising mechanisms for market traders and are utilised not only for marketing purposes but also for efficient collections. This pragmatic approach of integrating credit products with existing social structures is pivotal for efficient scaling in this sector.
Market Risks: Poor Recollection Infrastructure
Despite these opportunities, significant challenges persist in Nigeria’s MSME financing landscape, particularly with the country's porous loan repayment infrastructure.
The existing infrastructure in Nigeria's MSME financing landscape relies heavily on cards and direct bank integrations, making it vulnerable as borrowers can quickly shift their funds when repayment is due. We see the damaging consequences of these infrastructure gaps in the recent challenges faced by BlackCopper, an SME lending startup founded in 2020, which now has an outstanding debt of ₦1 billion from unrecovered loans to 60,000 MSMEs. While weak risk assessment protocols undoubtedly exacerbated BlackCopper’s challenges, Nigeria’s weak repayment engines make it difficult to recoup loan proceeds.
The Central Bank of Nigeria’s (CBN) ineffective implementation of a Global Standing Instruction (GSI) in 2020, designed to allow lenders access to all accounts where a user has funds, has been fraught with delays.
Also, as Babatunde Akin Moses, CEO of Sycamore, an MSME lender, notes, restricting non-bank fintech lenders from full access to this solution exposes them to high fraud risk, as borrowers can evade loan repayments by changing their cards or moving money between accounts. Non-bank fintech lenders, who are more willing to take risks on SMEs than traditional banks, are thus disproportionately affected. The CBN’s lacklustre efforts to address this issue leave a critical gap in the system, undermining investor confidence in the robustness of the repayment mechanisms.
Also, restricting non-bank fintech lenders from full access to this solution exposes them to high fraud risk, as borrowers can evade loan repayments by changing their cards or moving money between accounts. Non-bank fintech lenders, who are more willing to take risks on SMEs than traditional banks, are thus disproportionately affected. The CBN’s lacklustre efforts to address this issue leave a critical gap in the system, undermining investor confidence in the robustness of the repayment mechanisms.
Addressing macro and infrastructure issues is crucial for unlocking Nigeria's SME financing market potential. With the right enabling environment, Nigeria's SME financing market can become a powerful engine for job creation, innovation, and inclusive growth, offering significant opportunities for investors.
Kenya
Market Size
Kenya's 7.4 million MSMEs are the backbone of the nation's economy, accounting for over 98% of businesses and contributing a substantial 40% to GDP—equivalent to a staggering $45.4 billion, comparable to Ghana's $46 billion MSME market.
Despite their outsized economic impact, only 16% of these vital enterprises currently access formal credit. With most MSMEs dependent on informal and often unreliable financing channels, the demand for accessible, affordable credit is high. This untapped potential could unlock a compelling investment opportunity to support the growth of Kenya's MSME sector by bridging the financing gap.
Several macroeconomic factors shape Kenya's MSME financing gap, notably the weakened shilling in 2023. The Central Bank of Kenya's interventions have stabilised the currency and brought inflation back within the target range of 5±2%. However, high collateral requirements and unfavourable interest rates—though lower than those in Ghana and Nigeria—disadvantage MSMEs disproportionately. For instance, Kenya Commercial Bank recently increased its base lending rate to 15.5%, up from 14.7% in December 2023, effective May 27th for new facilities and July 1st for existing ones.
Key Players
Kenya’s MSME market features a diverse array of providers.
Commercial banks offer business loans, trade finance, and SME-targeted credit lines. Microfinance institutions like Kenya Women Finance Trust focus on empowering women-owned MSMEs. Digital lenders leverage alternative data for credit scoring. SACCOs provide affordable and accessible credit, filling gaps left by commercial banks. The Development Bank of Kenya offers medium-to-long-term development loans, trade finance, and SME-focused credit facilities to support MSME growth and expansion.
Small and medium enterprises represent just 14% of bank loan accounts. Notably, banks are strongly inclined towards medium-sized enterprises, directing a substantial 86% of loan accounts in 2022 to this segment. Key sectors benefiting include trade, real estate, and transport.
A striking 90% of Kenyan banks' MSME loan portfolios comprise short-tenured term loans and bank overdrafts, a mismatch for long-term investments. The market's product offerings lack diversity.
While mobile money loans typically adhere to a 30-day repayment cycle, innovative strides by banks like KCB and Standard Chartered Bank in launching 2-12-month mobile loans signify progress. Yet, market demand remains for longer-tenured loans and embedded finance solutions tailored to niche MSME sectors, such as transport, construction, restaurant, and hotel chains, which traditional banking institutions historically underserve.
Market Opportunities: Mobile Money Lending
Rapid mobile money innovations, led by Safaricom, are seeing banks, like NCBA and Kenya Commercial Bank, leveraging technology to tailor niche micro-credit products for MSMEs. Banks’ MSME lending income doubled from 12% of total lending income in 2020 to 24% in 2022, increasing from Ksh 70.8 billion ($646 million) to Ksh 105.1 billion ($851 million).
As the leading mobile money platform, Safaricom is a crucial distribution channel for lenders, notably through its flagship products, Fuliza and M-Shwari, command a 59% market share. These innovative offerings result from Safaricom's strategic partnerships with prominent banks such as NCBA and Kenya Commercial Bank. Combining mobile money channels with strategic bank partnerships is increasingly essential to delivering SME credit products at scale.
Furthermore, the performance of early market pioneers in developing Kenya’s first digital marketplace-embedded finance solutions for agri and retail SMEs has presented valuable lessons for future ventures.
Market Risks: Capital Intensive Embedded Finance Models
Despite sizable funding rounds, companies like Twiga, MarketForce, and Copia Global have encountered significant cash flow and operational challenges, providing insights into the realities of navigating Kenya’s complex MSME market. While factors such as a weaker shilling and a tight macroeconomic climate undoubtedly exacerbated these challenges, crucial lessons emerged. Meticulous assessment of cash flow risks within specific verticals is paramount. Investors and lenders must prioritise avoiding sectors characterised by thin margins and lengthy repayment windows, which can severely strain liquidity when scaling B2B embedded finance platforms.
To spur lender innovation, the Kenyan government is implementing initiatives to promote financial inclusion and enhance the business environment for MSMEs. Notably, the Central Bank of Kenya introduced a credit guarantee scheme in 2020 to work closely with financial institutions, providing partial risk mitigation by compensating them in the event of borrower default.
Kenya's SME financing market offers substantial opportunities driven by a growing MSME sector, innovative digital lending solutions, and supportive government policies. With these factors in place, investors can capitalise on Kenya's SME ecosystem's robust potential and critical role in economic growth.
