Think and act for entrepreneurship in Africa


Financing African agriculture: how to break the deadlock?

Agriculture is at the heart of the issues of economic growth, political stability, and the fight against climate change in Africa, is an observation which is widely recognized. However, even…

Agriculture is at the heart of the issues of economic growth, political stability, and the fight against climate change in Africa, is an observation which is widely recognized. However, even today, the funds mobilized by African governments for food and agriculture fall short of the targets set. While the FAO estimates that 10% of African national budgets should be dedicated to these sectors in order to achieve economic and social development, in reality these sectors’ budgets are generally too low, poorly spent, and inefficient (FAO, 2021). The fact that such an essential sector remains a victim of chronic under-investment demonstrates the extreme complexity of the challenge facing Africa. The urgency of improving financing for African agriculture is widely recognized, but implementation has been stubbornly lacking.

So, the sector is still marked by the failure of the various state banks created in many African countries to finance the development of the agricultural sector. As for traditional banks, they are often reluctant to direct their financing products towards agricultural actors which are perceived as too risky, too informal, and too fragmented.

Yet, banks have an essential role to play in the future of African agriculture. How can we learn from the mistakes of the past and propose solutions adapted to the financing of African agriculture?


Participating in a learning and exchange process

The analysis of agricultural value chains makes it possible to understand the sectors in their entirety. Each flow can be analyzed at the different stages of the chain: production, collection, processing, transport, distribution, equipment, supply, etc, thus breaking the misconception that financing the agricultural sector means financing only the producers.

This value chain analysis approach is linked to necessary on-site visits to meet agricultural entrepreneurs, and deconstruct preconceived ideas. For example, one of the commonly accepted assumptions was that the main criterion for choosing a loan was its cost (price sensitivity of agricultural entrepreneurs). In interviews with entrepreneurs in the agricultural sector in Senegal, it was found that the main criterion for them was the responsiveness of the banking institution, rather than the interest rate, mainly because of seasonality constraints.


The importance of proximity and dedicated human resources

The first risk management lever is the training of human resources (business managers and credit managers): this involves putting the credit manager at the heart of the process of identifying the risks related to a sector or an actor.

In addition to this training, there must be closer geographic proximity to the agricultural production areas. A commercial presence in direct contact with the ecosystem of a sector allows a better assessment of the risks. For example, Cofina decided to open a branch in the Niayes region of Senegal in order to be close to the market gardening area: this allows both a better marketing approach and a better knowledge of the risks linked to the crops in the area.


Targeting actors better to “secure” funding

In order to manage risk, a financing institution may favor actors with the best quality image in the value chain. These are generally larger and more formal players: aggregators, traders, processors, etc. A bank can also “move down or up” the value chain towards actors perceived as riskier (less risky ??).

The bank can also identify financing instruments where the quality image of a dominant player acts as a security for the bank’ in order to finance the downstream or upstream part of the chain: for example via an advance on an invoice. In this “entry point approach,” risk management is embedded in different time phases: my customer’s business partners today are my customers tomorrow.

Finally, the mobilization of African banks towards the financing of local agriculture will be possible as long as they have access to long-term liquidity. In this context, international donors or impact funds have a key role to play in giving local banks the means to effectively finance agricultural sectors via “earmarked funds” for agriculture.

In addition to this catalytic role, donors can partly address the risks posed by weak collateral and poor-quality assets that characterize some actors in the agricultural value chains. This is made possible by mobilizing risk-sharing funds, concessional financing, or guarantee funds.

Through targeted grants, development agencies can also facilitate the process of analyzing value chains, identifying potential targets, and creating attractive pipelines.


Learning, proximity, and risk management

The hundreds of billions missing for the financing of African agriculture can be seen in two different ways: either it is a symptom of a sector that cannot be financed by banks, leaving this function to public programs, international donors or a few microfinance institutions… or it is a sign that there is a huge field of unexplored opportunities.

As committed supporters of the growth of African SMEs, Cofina and classM fully subscribe to the second option. We are convinced that an approach based on learning from past mistakes, proximity to the actors, and better risk management will allow the development of the potential of African agriculture.


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Acceleration programs: a miracle solution for early-stage companies? (1/2)

Capitalizing on the boom of Africa’s entrepreneurial revolution, official development assistance (ODA) actors are increasingly taking on the challenge of supporting new generations of entrepreneurs willing to contribute to job…

Capitalizing on the boom of Africa’s entrepreneurial revolution, official development assistance (ODA) actors are increasingly taking on the challenge of supporting new generations of entrepreneurs willing to contribute to job creation and the emergence of more inclusive growth on the African continent. It is in this context that programs, initiatives and structures claiming to “accelerate” businesses have emerged in recent years. 

Note: Part 2 of this article, spotlighting an Ivorian company supported by an acceleration program, will be published next week.

Acceleration: A promising concept for African startups

When it comes to entrepreneurship, acceleration is defined as a service that provides mentoring, networking, and sometimes funding, to growing companies. However, the term is used to refer to a wide variety of very different programs. These include “accelerators” and start-up studios (such as GSMA Kenya and Flat6Labs Egypt), which are often physical or virtual structures that focus on digital economy (1) start-ups and are typically located in English-speaking countries, as well as investment funds that define themselves as booster programs (such as Catalyst Fund and Janngo) and/or that develop a range of acceleration program services to diversify their portfolios.

These programs are mainly funded by international organizations and private donors (e.g., West African Trade Investment, funded by USAID; Orange Corners, funded by the Netherlands Enterprise Agency).

In a globalized context where virtual support is widely available, international accelerators, in the US, Latin America, and Europe, are assisting more and more African startups. Before 2020, the renowned North American Y Combinator had only provided on-site support to 12 African startups—a figure that has tripled in the last two years.

An insufficient offering given the needs of entrepreneurs

This apparent plethora of acceleration programs gives the impression that the needs of African early-stage companies have now been met. This misleading impression is strengthened by the growing numbers of venture capital fundraising exclusively targeting IT startups in a limited number of African countries (Kenya, Nigeria, South Africa, Egypt.

The number of start-ups across the continent that need assistance in the acceleration phase or upstream during the incubation phase is significant; whereas the range of seed financing (pre-seed/seed) is almost nonexistent if we look at the ratio of funds to the number of entrepreneurs. The financial and non-financial support granted must cover both general and specific needs, and therefore requires time, locally rooted expertise and a personalized calibration/analysis of a business’s needs. Accelerating a company’s growth does not mean accelerating the time required for its development.

Unfortunately, most programs funded by ODAs are not properly structured to overcome the gap between the time/support required for each entrepreneur and the number of targeted beneficiaries. Often these programs are unwilling or unable to assume the real cost of coaching each company and therefore take the risk of acting only superficially/provide only superficial assistance. Implementation resources are limited since there are inexhaustible reserves of new entrepreneurs to support whose scaling up problems  cannot be solved exclusively by a generalist approach.

The apparent profusion of acceleration programs is misleading: the number of startups that need support across the continent is considerable and the supply of seed funding is still largely insufficient.

Draw inspiration and deploy good practices

Since there is still a lot to do to guarantee the development of African entrepreneurship, the experience accumulated in recent years by acceleration program actors make it possible to identify a few “good practices” that could be deployed on a larger scale:

(1) The segmentation of programs is an added value

Every acceleration program must consider the fact that the term “start-up” includes companies that have nothing in common, either in terms of their business or location, and as such, require differentiated support. Segmentation adds significant value as it allows acceleration/support programs to more quickly identify issues and address challenges common to a particular business/company; a Sahelian SME in the agribusiness sector, for example, will have different support needs than a Nigerian e-commerce startup. Segmentation benefits also to programs that favor a virtual and grouped approach but which have difficulty obtaining the expected results with audiences that are too diverse.

Sectoral programs, such as those dedicated to agribusinesses (e.g., the PCESA financed by Danish cooperation in Burkina Faso) or initiatives focused on gender (Access Bank Nigeria’s W Initiative…) are more likely to identify the particular challenges of businesses and better understand regional equity issues (urban, rural, etc.). In the same way, results are achieved when the support continuum has been well thought out. Incubation in particular is not interchangeable with acceleration, as the needs of companies may differ from one phase to another (2).

(2) Greater impact is achieved by training local intermediary actors essential to the development of entrepreneurs

Entrepreneurship support structures (SAE) in particular, independent experts and consultants be able to find their market beyond punctual aid from donors (3) . It is by contributing to the local skills development of African professionals that a greater number of companies will be able to scale up. In addition to Afric’innov, whose primary mission is in French-speaking African countries, a few financial players have recently attempted to fill this blind spot in their program offerings. Examples include the collaboration between Argidius and Village Capital, who have been working since 2020 to help structure SAEs in Uganda (Uganda Ecosystem Builders), and the work of mentoring and then financing SAEs carried out by Triple Jump and its experts in Sub-Saharan Africa.

(3) Acceleration programs that provide a complementary set of tools are more effective

First, appropriate seed funding tools, which specifically take into account a company’s lack of financial management skills and habits, can take the form of a repayable advance, as currently practiced by I&P Acceleration in the Sahel (IPAS). An advance lays the groundwork for a relationship with a financier and will probably make it possible to financially support more SMEs through the effect of recycling money (4).

Secondly, we can use skill-building tools that alternate between generalist support (to aim at disseminating entrepreneurial skills as widely as possible) and targeted support (venture building, technical assistance). The technical support provided to a company is just as determinant as the financial support. Y Combinator’s alumni agree that their growth is more due to technical support than to the initial financing, even if the financing gives more weight to the advice given.

Although the scarcity of seed funding is a significant obstacle, support, through skills building and technical assistance, is just as crucial as seed funding.

General skill building (group trainings, bootcamps and workshops, webinars, etc.) is often valued by funders, but technical assistance is largely absent from many acceleration programs. Technical assistance, i.e., contracting with local sector experts (legal, commercial, technological, managerial, etc.), is critical to improving the performance of companies during the absorption of seed financing and the development of traction. Technical assistance is an eminently relevant tool when it is implemented by an investor who wishes to strengthen the enterprise where he perceives risks that would not be detected by other types of actors. Most acceleration programs that include the deployment of technical assistance produce net results: this is the case, for example, with GreenTec Capital’s Boost Digital, which offers technical assistance in business and digital strategy and significantly increases the revenues of its beneficiary startups.

Some traps to avoid

Program funders still face many challenges to increasing the impact of their programs. It will inevitably be necessary to move away from the “all-startup” scheme to support “brick and mortar” SMEs as well and to rethink the establishment of support over time, taking into account that the phases of increasing skills are costly but necessary in order to meet demanding results indicators. It is also important to recognize that high failure rates at the outset are normal given the high initial risks involved, during the time when a company must deploy its offerings, prove itself and find its market. If the company survives, thanks in part to acceleration, then the risks, the need for liquidity and the need for competence (…) all decrease simultaneously.

We must also avoid the model of ephemeral competition and challenges, unless we are clear about their purpose (brand testing, visibility, etc.) and encourage a little more in-depth research work for “nuggets” and summoning patience and local relays in the process of selecting companies outside the circuits known to “serial pitchers”. The implementation of programs designed in Africa, involving African public and private stakeholders, favoring local financial risk-taking (e.g., business angels, African entrepreneurs, especially alumni of acceleration programs wishing to invest) is becoming essential.

In conclusion, we can hope that the enthusiasm of DFIs, international donors and African private actors for acceleration programs will continue and lead to the realization of ambitious aspirations: to strengthen young companies and create intermediary bridges/pathways to capital investment for those with clear development projects. Such a dynamic is inseparable from a broader reflection on the programs that exist further upstream from acceleration (ideation or incubation programs). The quality of our tools must be continually questioned in order to adapt them as closely as possible to the changing issues that growing African companies face.

Notes :

(1) An overview of the so-called gas pedal structures is available on the Afrikan Heroes and CrunchBase websites and in the Briter Bridges 2020 & 2021 reports

(2) Cf étude AFD-Roland Berger « Innovation en Afrique et dans les pays émergents »

(3) On this subject, see the studies and experiments currently being conducted in Cameroon, Congo-Brazzaville and Chad by actors such as R.M.D.A or the Agro-PME Foundation to implement the use of service vouchers, a useful tool for training and accreditation of consultants, etc.

(4) The repayable advance and its effects will be the subject of an article in this Acceleration file.

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The case for informal bonds

This article argues for the implementation of an alternative financing mechanism for informal small and very small businesses in Africa that would allow them to benefit from other formal financing…

This article argues for the implementation of an alternative financing mechanism for informal small and very small businesses in Africa that would allow them to benefit from other formal financing opportunities under better conditions than those offered to them today.


A review of current funding mechanisms

African economies today are still predominantly financed by the banking sector, which carries the disadvantage of elevating the banker to the status of a sort of multi-sector specialist who groups entrepreneurs in various sectors such as the agri-food, energy, consulting, and even new technology sectors, into the same single portfolio.

Private equity investors focus almost exclusively on large deals in order to ensure the monitoring of their investments (although fortunately some of them have oriented their investment strategies towards small and medium-sized businesses).

Microfinance institutions, whose success is due to a financing model adapted to small-size loans and small companies, but unfortunately carries some significant drawbacks, including the application of high interest rates.

We could also mention meso-finance, which is quite new and essentially functions as an intermediary between traditional banking and micro-bank financing. Nano-credits, which are generally below 100,000 FCFA, are offered by some Fintechs but are still quite rare.

Finally, an informal and parallel financing system has been created which is a sort of “street financing”
system that applies predatory interest rates and abusive loan terms and requires, among other things, the borrower’s debit card as a guarantee.

This overview of existing financing mechanisms makes one thing clear: the informal sector, which according to the International Labor Organization represents more than 85% of jobs on the African continent, has been completely left behind. It is therefore necessary to develop an alternative financing mechanism to cater to this vital segment of our economy.

The overview of existing financing mechanisms makes one thing clear: the informal sector, which represents more than 85% of jobs on the African continent, has been completely left behind.


The informal sector as a life raft

The informal economy constitutes a veritable life raft for the vast majority of Africans. In the case of Europe, this life raft is characterized by each state’s social welfare model, and each country has defined a minimum wage that allows every worker to provide for the basic needs of his or her family.

In Africa, this life raft is characterized by one’s informal activities. The public administration employee who earns 65,000 CFA francs per month (100 €) and who has 6 children to support, will need to develop an additional activity in the informal sector in order to make ends meet and feed his or her family.

Financing our informal sector, therefore, amounts to financing our social welfare network. The informal sector simply cannot remain the forgotten or poorly equipped part of our economy that it is today.

Today, the African financial market should represent hope, an option, through the inclusion of informal entrepreneurship. Each player in our economic network should be able to access an opportunity through this financial market.

This is why we are calling for the implementation of a new product, which we could refer to as “informal bonds”.

Each player in our economic network should be able to access an opportunity through this financial market.


What are informal bonds?

According to the International Monetary Fund (2017), the informal sector represents between 20% (South Africa) and 65% (Benin, Nigeria) of the GDP of African countries. Contrary to popular belief, informal does not necessarily mean poorly organized.  In fact, some informal businesses such as planting or motorbike taxi driving, for example, organize as Cooperatives or Groups.

The idea of the informal bond is simply to allow business groups that have historically demonstrated good organization and governance to seek financing for their members through the financial market by issuing what would be called an “informal bond”, a bond dedicated to financing informal business activities.

A group’s leadership would select, thanks to their knowledge of the sector and of their members, the beneficiaries as well as the loan amounts granted to them.

Assuming that the group has previously demonstrated moral probity, it would be possible for all or part of the bond to be guaranteed by a bank or a state guarantee fund.

For security and transparency reasons, loans and repayments would be made directly via “mobile money” transfer between the custodian bank of the operation and the informal entrepreneurs.


This concept could encourage the progressive structuring and formalization of informal actors, who would have specific guidelines to follow in order to qualify for this financing mechanism (group membership, record keeping, opening of a mobile money account, etc.) For their part, the States would benefit from an increase in tax revenues.

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Improving financial inclusion: adopting a pragmatic approach

According to the World Bank’s definition, financial inclusion is the ability for individuals and businesses typically excluded from traditional financial services to enjoy affordable access to financial products and services…

According to the World Bank’s definition, financial inclusion is the ability for individuals and businesses typically excluded from traditional financial services to enjoy affordable access to financial products and services that meet their needs.

Every year, numerous conferences are held by the Bretton Woods Institutions to explore strategies on how to improve financial inclusion and develop financial literacy in Africa. Two years ago, the Central Bank of West African States (BCEAO) initiated a program to promote financial education and even set up a central department dedicated to financial inclusion issues. In addition, several countries such as Cameroon, Senegal, and Togo are working on their own inclusive finance strategies.

All of this suggests that there is a real lack of financial inclusion in most Sub-Saharan African countries, largely due to a lack of financial education. This could be resolved by encouraging African individuals and businesses to save through the formal channels of our respective local economies.


What we have learned from recent financial scandals

Many of us today would argue that it is difficult to get ahold of savings from African households. How then are we to understand the success of financiers who have obtained large sums of money through Ponsi schemes in recent financial scandals such as the MonHévéa case in Côte d’Ivoire or the MIDA phenomenon in Cameroon (as well as of other scandals that are probably yet to be exposed)?

These are organizations that guarantee 300%-400% profits in a number of months and that have continued to grow over the years in plain view of the authorities (sometimes even thanks to ads broadcast on national channels.)

There are at least two things we can learn from these financial scams.

First of all, in light of the large number of victims and the monetary amounts involved, we can see that savings do exist in African households. These savings consist principally of small sums (also called household savings) of all segments of the population.

It is also clear that these scammers possess persuasion techniques that enable them to obtain the savings that are so highly coveted by our numerous international development programs and that continue to escape local and legal financial institutions today.


Leveraging traditional administration

Financial education is clearly necessary for our African leaders and officials, who in some countries have been involved in the bad practices mentioned above, often due to a lack of knowledge on these subjects. To educate also means to raise awareness, and this could be done by explaining that savings rates of 20% or 30% do not exist (to say less of rates of 200%, unless we’re projecting savings for our great, great grandchildren!). We can only hope, then, that well-thought-out financial education strategies aim to educate officials and politicians as well as their constituents…

Financial education should not only be done at the civic level (sub-prefects, mayors, etc.), but also at the level of traditional administrators (e.g., traditional chiefs, neighborhood chiefs) who are the most effective agents for raising awareness in their communities.

African nation states could go even further by creating postal bank agencies within certain large chiefdoms in order to exploit close relationships of trust and respect that persist today between villagers and their traditional authorities


Integrating pragmatic solutions

The goal is not to point the finger at these voluntary initiatives designed to improve the social conditions of our populations, but rather to emphasize the need to incorporate the socio-economic and cultural fundamentals that guide/dictate our societies.

Grand plans are not necessarily effective agents of change. The approaches on this matter should be as pragmatic as possible. While a National Financial Inclusion Program sets a 5-, 10-, or 15-year goal for improvement, a pragmatic approach must set a goal for the near future, while working to immediately improve financial literacy, so that:

  • When the next harmful initiative emerges, it will not have anywhere near the same impact.
  • Civil society, especially the informal sector, can let go of the inferiority complex they nurture vis-a-vis the banks, for various reasons: low income, language barrier (for the illiterate…)

How can we understand that these same people had no trouble giving their savings over to illegal practices. The main reason was these scam artists’ promises to multiply their money.

African banks should communicate more with all these small savers, in a language that is relevant to them, promising them growth on their savings based on an interest rate.

This communication could also be led by the States, through the technological means of communication that 90% of Africans are now using. Mobile technology can be used to offer financial services, as is the case today (mobile banking), and as a means of increasing education and awareness on banking and financial concepts. This education could be transmitted not only through written text messages, for those who can read, but also through voice messages spoken in the local dialect, thus enabling illiterate or less-educated people to access this knowledge.


Financial education and, above all, greater financial inclusion, could only strengthen the development capacities and profitability of local entrepreneurship, which overwhelmingly operates in the informal sector, and whose members face numerous financial and organizational management challenges.

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