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Africa’s SMEs Are Becoming More Visible. Can Our Financial Institutions Act on What They See?

By Ethel Cofie

What Is Missing From the Lending Decision?

Imagine a cybersecurity company in Accra. It has operated for seven years, employs 25 people and supplies banks and large companies. It has recurring retainers, signed contracts, payroll records, tax history and evidence of completed projects.

It wins a major contract and needs working capital to hire additional engineers and procure licences before the client’s first payment arrives. It approaches a lender. The discussion eventually comes back to property.

The company does not own a building.

What exactly is missing from this financing decision? Evidence that the business exists? Evidence that customers pay it? Confidence that it can deliver? Or an institutional route through which those things can become a loan?

Those are different questions. Too often, our conversation about African SME finance treats them as one.

For years, the diagnosis has been familiar: small businesses lack collateral, reliable accounts and credit histories. Assessing them is expensive. Much of their activity is difficult to observe. All of that remains relevant.

But consider what a digitally active business can now produce. A merchant has years of mobile-money receipts. A logistics company records deliveries, customers and payments. A software business tracks subscriptions and renewals. An outsourcing company has foreign contracts, regular receipts and payroll history.

That evidence does not automatically establish creditworthiness. It does, however, raise a question about where the financing problem now sits.

As African businesses become easier to see, are our financial institutions becoming better at understanding and financing them?

 

Better Data Is Already Part of the Answer

The idea that alternative data can improve lending is well established. The G20’s Global Partnership for Financial Inclusion documented its potential for SME finance as far back as 2017. We should build on that work without pretending that collecting more data is a new discovery. (GPFI)

Ghana offers a useful example of the infrastructure being developed. Development Bank Ghana has described its Ghana Integrated Financial Ecosystem, or GIFE, as a platform connecting financial literacy, trusted credentials and access to finance. The Bank of Ghana also joined international partners in launching the Universal Trusted Credentials initiative in 2023, aimed at making traditional and alternative business data more useful for financing assessments. (Development Bank Ghana, UNDP)

These initiatives address something fundamental: a business needs to be able to demonstrate its economic history in a form others can trust.

But visibility is not financeability. Between producing evidence and receiving capital, several decisions still have to happen.

The Evidence-to-Capital Chain

I think of this as the Evidence-to-Capital Chain:

Visible → Verifiable → Interpretable → Actionable → Capital

1. Visible: Can the Lender Access the Evidence?

Start with visibility. Can the lender access the records that matter? Evidence sitting across a payment provider, an accounting platform and a procurement system may exist without being available to the institution assessing the loan. Availability also has to come with appropriate permissions and at a manageable cost.

2. Verifiable: Can the Lender Trust It?

Then comes verification. Is the contract authentic? Do the receipts belong to this business? Is the invoice still unpaid? Has it already been financed elsewhere? A digital document can be as misleading as a paper one. Its format does not establish its truth.

3. Interpretable: Does the Lender Understand It?

The third stage is interpretation, and this is where I think we need a much richer conversation.

A lender can verify a software company’s recurring revenue without understanding how durable that revenue is. What happens when customers cancel? How dependent is the product on one founder? Are renewals spread across many customers or concentrated in two?

Similarly, a three-year outsourcing contract may look reassuring until someone examines its termination provisions. A signed government contract may be genuine while providing very little certainty about when cash will arrive.

The evidence is there. Understanding its implications requires judgement.

We talk extensively about information asymmetry: the business knows things the lender does not. I would add interpretation asymmetry to that conversation. Institutions can have access to the same credible information and differ substantially in their ability to understand what it means.

This matters for Africa’s technology and services businesses. A lender experienced in financing stock, equipment and property may need different expertise to assess a company whose earnings depend on subscriptions, skilled employees or service contracts. These businesses still carry risk. The institution needs the capacity to identify and price that particular risk.

4. Actionable: Can the Institution Use What It Knows?

Then comes the fourth stage: actionability.

Suppose the lender understands the company. It can see how the business earns, what threatens its cash flow and how repayment could work. Its existing products may still require collateral the borrower does not possess. Its repayment schedule may begin before the contract generates cash. Its approval process may have no established route for the proposed structure.

At that point, asking the entrepreneur to submit more information may achieve very little.

The question has moved inside the institution: can its policies, products and processes act on the evidence its people now understand?

There are legitimate reasons the answer might remain no. A loan may be too expensive to originate and monitor. The bank may already have too much exposure to that customer’s industry. Recovery may be uncertain. Funding costs may make the required interest rate unaffordable for the borrower.

A good business is not automatically a good lending proposition. Nor should every financing need be met with debt.

But we should distinguish a considered rejection from an inability to assess or structure the transaction. They require different responses.

Different Financing Gaps Need Different Solutions

That distinction changes how we think about the SME financing gap. Inside the same headline problem may sit missing information, unreliable evidence, limited sector knowledge, unsuitable products and businesses whose underlying economics cannot support the financing they seek.

Each can leave an entrepreneur without capital. Each calls for a different intervention.

A new credit line may help an institution constrained by funding. It will do less for one that cannot evaluate the intended borrowers. A guarantee may address a defined risk, but it does not automatically create the expertise to originate and monitor the loans. Another investment-readiness workshop may help a business improve its records while leaving the lender’s unsuitable collateral requirements untouched.

Before prescribing more capital, identify where the Evidence-to-Capital Chain breaks.

5. Capital: Did the Evidence Change the Decision?

This is also where the African digital-infrastructure conversation becomes more consequential. As payment systems, business records and trusted credentials develop, the opportunity is to connect infrastructure investment to institutional decisions from the beginning.

How many businesses registered on a platform is a useful implementation measure. Whether their evidence changed a financing decision is a different measure altogether.

Did verification reduce the cost of assessment? Did better information support a suitable loan size or repayment period? Could an institution serve a category of business it previously struggled to understand? And, after lending, did repayment performance justify that decision?

Those questions would make a useful board discussion. They would also sharpen conversations between commercial banks and development finance institutions.

Alongside “How much funding do you need?”, ask: “Which businesses do you believe you could finance responsibly, and what currently prevents you from doing so?”

The answer might be capital. It might be expertise, product design, enforceability or the cost of serving smaller firms. It might reveal weaknesses the business itself must address. The value lies in locating the constraint accurately enough to do something useful about it.

The Next Step for African SME Finance

Return to our cybersecurity company in Accra. Customers renew. Employees receive salaries. Projects are completed. Payments arrive. The business produces economic evidence every day.

None of that entitles it to a loan. It should, however, give a capable financial institution something substantive to assess.

My argument is that the next stage of African SME finance requires us to follow that evidence all the way into the lending decision. Better data creates an opportunity. Institutions determine how much of that opportunity becomes suitable capital.

If Africa succeeds in making millions of businesses digitally visible to capital, but those businesses remain no more financeable than before, what exactly will we have digitised?