Africa has millions of women running businesses. Getting money to grow is still the problem

For many women running small businesses in Africa, the problem is not finding something to sell or finding customers. It is having enough money to keep the business moving. A retailer may need more stock but not have the cash to buy it. A small manufacturer may have more orders but lack the money for equipment. 

A business that has completed a job may have to wait weeks to get paid while still paying its workers and suppliers. This is the problem behind an estimated $49 billion financing gap for women entrepreneurs in Africa. The African Development Bank (AfDB) and AXIAN Group have launched a programme aimed at 34,000 women-led businesses across five African countries, with access to finance and digital financial services at the centre of the programme. The countries are Madagascar, Tanzania, Senegal, Togo and Comoros. The programme will also provide financial literacy, digital skills and entrepreneurship training to 25,000 women.

Getting a business started is only the first step

There are already millions of women running businesses across Africa. The problem often comes when they want to move beyond the level they have reached. A business might have regular customers but still operate with a small amount of working capital. That limits how much stock the owner can buy and how many orders the business can take. This is where access to finance can make a difference. If a business has enough money to buy more stock, it can sell more. If it can buy a piece of equipment, it may be able to increase production. If it can cover its costs while waiting for customers to pay, it can take on bigger contracts. Without that money, the business can remain stuck at the same level.

Why getting a bank loan can be difficult

A conventional bank loan is not always an option for a small business. Banks generally want to see financial records and evidence that the business can repay the loan. They may also ask for collateral. For a very small business, those requirements can be difficult to meet. The owner may have been trading for years but have limited formal financial records. She may own a business but not have property that can be pledged against a loan. That does not mean the business is not making money. It means the business does not always fit the way traditional lenders assess borrowers. The new programme is looking at this problem through digital finance.

Using a phone to access financial services

AXIAN will use its digital financial services, including Mixx and MVola, as part of the programme. For a small business owner, being able to access financial services through a phone can be more practical than having to visit a bank branch. The programme also plans to use alternative credit assessment. Instead of relying only on the information normally used by banks, lenders can look at other financial activity when assessing a customer. For businesses that regularly receive digital payments, that activity can provide a picture of how much money is moving through the business. It is not a guarantee that the business will get a loan. It simply gives the lender more information to work with.

What would the money actually pay for?

This is probably the most important part of the story. Small businesses do not always need large amounts of capital. They need enough money to deal with the next business problem. It could be stock. It could be a machine. It could be a delivery vehicle. It could be raw materials. It could be the cash needed to pay workers while waiting for a customer to settle an invoice. These expenses can look small compared with the amounts normally discussed in business funding stories. But for an SME, they can determine whether the business takes on more work or turns it away.

The cost of the loan still matters

Giving businesses access to credit is only useful if they can afford it. A business owner borrowing money to buy stock has to make enough profit from selling that stock to cover the cost of the loan. If the interest and fees are too high, the business may end up using most of its profits to repay the debt. This is why the success of programmes like this cannot be measured only by the number of businesses that receive financing. The terms matter. How much can a business borrow? How quickly can it get the money? How much will it have to repay? And what happens if sales are slower than expected? For a small business owner, those questions are more important than the headline amount being made available.

The programme also includes training

The AfDB and AXIAN are not focusing only on lending. The programme will provide training in financial literacy, digital skills and entrepreneurship to 25,000 women across the five countries. That matters because managing a small business becomes harder as it grows. An owner needs to know how much money is coming in, what is being spent and whether the business can afford to take on debt. Keeping business money separate from household money also becomes important. These are basic things, but they can determine whether extra financing helps the business or creates another problem.

The financing gap is much bigger than this programme

The programme will reach 34,000 businesses, but Africa's estimated financing gap for women entrepreneurs is around $49 billion. The AfDB says its wider AFAWA initiative has already mobilised more than $3.1 billion in financing for women-led businesses through financial institutions across Africa. That is a significant amount of money, but it shows how much more capital is still needed. The problem is also not limited to women who want to start businesses. Many already have businesses. They have customers. They have suppliers. They have products to sell. What they often do not have is enough working capital to take the next step.

What SMEs should look at

For the businesses targeted by the programme, the important details will be fairly simple. Can a small business owner actually qualify? Can she get the money without property to use as collateral? How much will it cost? Can she apply through her phone? And will the financing be enough to make a real difference to the business? Those answers will tell us whether the programme is useful to the businesses it is trying to reach. The $49 billion financing gap sounds like a problem that belongs to governments, banks and development institutions. But it eventually comes down to individual businesses. It is the shop that cannot buy enough stock. The manufacturer that cannot buy another machine. The contractor that has to wait for payment before taking another job. The business that has customers but cannot afford to serve all of them.