Financial institutions should create more avenues for private sector funding, officials say

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The private sector is crucial for the development and stability of economies on the African continent. Despite this, they are heavily challenged with the lack of funds to kick start or to grow their brilliant business ideas.

In an interactive session on Tuesday, May 20, during the Annual Meetings of the Africa Development Bank (AfDB) in Kigali, Rwanda, the plight of the continent’s private sector was brought to light – with a call to drastically change the approach through which their funding is sourced.

The “New Business Models for Private Sector Resource Mobilization” session, which attracted hundreds of finance experts and politicians, sought to push for new ideas on private sector resource mobilization and investing in Africa.

The Finance Minister of Zimbabwe, Patrick Chimamasa, told the session that although governments are trying their best to create conducive policies to attract foreign investment and funding for the private sector, financial institutions are not following suit.

“Local banks and large financial institutions are not playing their proper roles to support the private sector. They must come up with instruments and models that support the informal sector, not only in financing but in skills building,” Chimamasa said.

“It is paramount to know that before banks can dish out money to the privates sector, local investors must first have the skills and knowledge of how to invest in their areas of choice. This way, they will make serious contribution towards our economic development.”

Zaki Khoury, the head of Microsoft Cooperation in the Middle East and Africa, said that Africa should desist from trying to fix old models of financing, but instead, create new ones.

“We must understand that the growth of the private sector is not about the money. African governments must refocus the way they facilitate SMEs because old models have failed. What I am hearing so far is that we are still trying to fix the system, or trying to repair aspects of the same system by raising more money. What we need are new models,” Khoury said.

“On top of looking for capital and financial resources, human capital must be developed to ensure that there are people who can execute ideas brilliantly. Lastly, the African private sector must also develop acute insights by conducting credible market research to limit the risk of failure.”

Furthermore, speakers at the session challenged global financial institutions to trust African markets more by opening up avenues through which SMEs can directly apply for funds.

For investors who still believe that Africa is still a risky place to invest, they should know that the higher the risk, the more the benefits. Each company has its risk mitigation factors and am sure that everyone knows that Africa is profitable place to invest,” Jyrki Koskelo, the Director of Africa Agriculture and Trade Investment (AATIF), said at the session.

“But we in Africa must first of all be more innovative. The SME cluster must come up with projects that are very attractive to investors. All in all, banks must be more willing to test the market, but by being more daring, it is the only way we can test the resilience of SMEs.”

Charles Boamah, Vice-President of Finance at the AfDB, told participants that the African Development Bank is committed to working more closely with the private sector to form strong partnerships that can contribute to financing Africa’s transformation.