Access To Diamonds

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Access to Finance
Entrepreneurs across Africa are often faced with the
challenge of accessing finance
By Mayowa Kuyoro
Access to finance is often quoted
as one of the biggest challenges
entrepreneurs face today across
Africa. In fact, some reports show
that 85% of small businesses are largely
underfunded with no access to finance. In
2014, a poll that was conducted by the U.S.
State Department showed that 37% of the
entrepreneurs surveyed, responded that
funding was the biggest challenge they faced.
This challenge arises from an availability
and an access issue. Availability, because
historically, there hasn’t been a lot of money
floating around to fund young entrepreneurs
outside of the usual route of friends and
family. Access for two reasons – some people
are not aware of the offerings available, and
sometimes the conditions required to get
these funds are not easy to meet – the funds
often come with a heavy price tag attached.
The landscape is, however, changing for
entrepreneurs today, especially those in
the early stage. Increasingly, governments,
foundations and even the private sector
are turning their focus on how to fund and
incubate young entrepreneurs. In less than
15 years, Africa will have the largest working
force population in the world who need to be
gainfully employed. Thus, ensuring that our
entrepreneurs today can flourish is critical.
As a young entrepreneur, there are a few
sources of funding that are available. Firstly,
you have the government and other public
sector lenders who can provide concessional
financing e.g. the Lagos State Employment
Trust Fund which not only disburses loans
at 5% interest but also provides training and
business support to the awardees of its funds.
Another government entity trying to provide
access to finance is the Bank of Industry which
has schemes for entrepreneurs across various
sectors from Adire, to Nollywood – and what
got me excited – a graduate entrepreneurship
fund which provides up to 2M to individuals
on the NYSC program.
Increasingly in this space today, we are seeing
philanthropic foundations step in to provide
access to finance to young entrepreneurs. You
have foundations such as the Tony Elumelu
Foundation, the Dangote Foundation, and
even some international donors who provide
funding to entrepreneurs in Africa.
Other sources of finance include angel
investors, venture capital groups and impact
funds, where we are seeing increased activity.
These have been around for a while and
have helped to drive funding, especially
for technology-enabled businesses. These,
combined with the government sources of
funding, have been able to only partially
meet the need of seed/early stage businesses
in Nigeria today.
One model of funding early-stage businesses
that has slowly been gaining traction in
Nigeria and across Africa is the Accelerator/
incubator model. These programs provide
business funding, access to mentors,
collective knowledge and years of experience
in nurturing startups.
While not a new concept as these have
been around in other markets for a while,
in Nigeria, we are seeing an emergence of
these institutions backed by different types
of players. Some examples are the Africa
Fintech Foundry, Itanna, XL Africa (launched
by the World Bank and other international
companies) MEST incubator etc.
The question I have, however, is how to
provide access to finance at scale in order
to create jobs for the potentially 50 million
Nigerians we will be adding to our labour
force by 2030? The statistics don’t tell an
encouraging story. On an individual level,
at the end of 2016, Nigeria had a financial
inclusion rate of 58% - the government is
targeting 80%.
Although access to finance for entrepreneurs,
and access to financial services to individuals,
may at the first pass seem unconnected,
these issues are intertwined. It is a virtuous
ecosystem - not cycle as this is not a linear
problem - that we must aim create.
An ecosystem with funding, businesses and
sustainable businesses which help can create
jobs for our youths. Some of these businesses
in and of themselves could be solutions that
help reduce our access to finance issues in
Nigeria – but they themselves would need
financing to scale.
The good news is that providing access to
finance is on the agenda in the boardrooms
of a range of players – public and private
sector, and effort is being made to address
the issue. Hopefully, with time, we see
a change in the outcomes across both
individuals and businesses and dare I say a
source of innovation on the topic across the
globe.
@thesparkng
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