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Africa Economic Brief - Financing for innovation: what can be done for African SMEs?
Financing SMEs is a challenge all around the globe. In Africa, this challenge is compounded by several deep-rooted issues which pertain both to the environment in which firms are working, as well as to the lack of breadth and depth of financial markets. When it comes to financing innovative firms, these issues are even more acute given the perceived risks they carry. On the firm’s side, many are unable to find adequate ways of promoting and presenting their innovative projects to obtain financing. On the financial infrastructure side, more than average caution is exercised by financiers which face many uncertainties and market failures that prevent them from engaging in financing. The paper reviews the theory underpinning such issues in the context of innovative firms and puts forward novel ways to address them, including SME exchanges, crowdfunding, the role of development partners and business angels.