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AfricaOctober 2 2005

SME funding inches ahead

Innovative schemes are overturning the belief that financing African small and medium-sized enterprises is unprofitable. There may even be models for commercial banks to follow. But development finance is still needed to prove the case,James Eedes reports.
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It is something of a mantra in development circles that the key to improving the lot of the poor in Africa lies in growing the small and medium-size enterprise (SME) sector, the engine of job creation and income growth. Yet, despite an abundance of entrepreneurial energy and no shortage of viable business opportunities, Africa’s SME sector remains generally under-developed.

The reason, in part, is a lack of start-up and working capital for SMEs, funds in the order of $50,000 to $1m that can launch a business and get it onto a sustainable operational footing. Typically, investors and lenders are put off by the perceived and real risks of funding SMEs, citing such factors as little or no business experience or track record, weak business plans and low levels of collateral. Not surprisingly, commercial banks have been reluctant to service this market.

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