SME's development in the African private sector and their access to funding

The development of the private sector is very heterogeneous from one country of Africa to another. The health of the SME depends on the development of the accessible financial systems as well as on the will and dynamism of the public promotion policies of the sector.
The SME's in Africa are suffering from a limited access to financing that conditions their emergence and subsequent development: the small entrepreneurs or entrepreneurs-to-be are seldom in a position to meet the conditions fixed by the local financial institutions. For the classical operators (commercial banks, etc.), the African SME's are labelled as "high-risk" enterprises because of the lack of information on their capacity of repayment and of the weakness of the guarantees they can propose.
In the same way the financial system of most African countries proposes relatively few financing tools: the capital markets remain embryonic, the shareholding is limited and the long-term financing tools are practically inexistent for the SME's.

How can we henceforth improve the access of SME's to financing?

A few elements of response  are as follows:

Improve the business environment among others through:

The development of information, adoption of accounting standards applied by competent firms, development of risk centres, sound judicial system, reform of the commercial law with especially institution and clarification of the title deeds, incentive taxation for small entrepreneurs so as to get them into the formal economy, effective remuneration of the service-providers by the authorities for the performance of work contracts.

Help the SME's to comply with the requirements of formal finance:

Beyond the necessity to strengthen the capacities of SME's by means of the technical assistance some DFIs and other organisations can propose them, using some financial tools can help filling in the lack of information or reduce the risk tied to the impenetrability of some SME's. Let's quote for instanceleasing and factoring that allow to reduce efficiently the financial risk for the credit institutions.
On the other hand the States and the community of the moneylenders have also favoured the constitution of guarantee funds allowing ensuring the repayment to the credit institutions in case of default.

Make the financial system more accessible to the SME's:

The lack of financing for SME's was partly filled in by the microfinance institutions: the flexibility of the financing formulae they are proposing to small entrepreneurs explains the boom.
However although adapted to the local needs, the microcredit institutions remain fragile and of moderate size. They are particularly held up in their development by limited financial capacities.
A number of countries have chosen to fill in the lack of financing by supporting the development of smaller-sized commercial banks in order to reduce the geographical and economic gap between the traditional banks and the SME's (in 2005, South Africa adopted for instance two laws aiming at extending the banking system to the savings and credit institutions and to the cooperative banks by relaxing the banking regulation).
Credit units for SME's are also developing gradually within the traditional commercial banks.
A narrow collaboration between commercial banks, microcredit institutions, service-providers to enterprises and associative structures is a key element to remove the obstacles of SME's access to financing (complementary skills and better circulation of the information).

Expand the financing offer by a larger resort to the non-financial private sector:

The transfer of resources between large enterprises and SME's may play an important role in facilitating the access of SME's to financing (guarantee of solvency).
Better cooperation between enterprises of a same sector, of whatever size, gives them an easier access to credit (e.g.: supplier credit or inter-companies loans).