Microfinance Institutions Could Help African Entrepreneurs Beat Back the Pandemic

“It’s essential that we support SMEs right now in Africa because they are the beating heart of the continent’s economies.” - Neanda Salvaterra

Eldric Lem

12 Nov 2020

"Global Steering Group for Impact Investment, a U.K.-based charitable organization, is asking the world to support African small and medium-sized businesses that have been hurt by the COVID-19 pandemic."

In South Africa, about 60% of small or medium-sized enterprises (SMEs) have fired workers or considering letting workers go, while in the rest of the continent about 20 million jobs are at risk because of the outbreak which has hurt economic growth. Stakeholders like Tora, the market development director of the Global Steering Group (GSG) for Impact Investment, are concerned the pandemic will erase economic gains made by countries such as Ghana, one of the only African countries on track to meet the U.N.’s global development goals.

In Africa, banks have a poor track record of lending to small businesses, which they view as risky and more prone to not paying back creditors. Only 20% of SMEs on the continent are currently accessing bank financing. The GSG report outlined strategies for dealing with the economic pain, such as boosting funding for microfinance institutions that have proven adept at extending credit to SMEs. Tora urges investors to review the work of a group of stakeholders who are in the process of creating an emergency liquidity fund to support SMEs.

Recommendations

- Government-backed and private direct financing institutions need to step up and provide liquidity to microfinance companies that in turn can help support entrepreneurs.
- Microfinance institutions may be the best option for the continent’s SMEs to weather the pandemic.

Conclusion

Due to the pandemic, 20 million jobs are at risk in Africa, threatening to plunge 70million people into poverty. Unless support is given to entrepreneurs, previous economic progress made in the continent will be undone. With sufficient financial assistance from microfinance institutions, the community businesses have proven to be resilient to adversity before and will continue to do so.

Original Article:

London School of Economics and Political Science
Houghton St, Holborn, London WC2A 2AE, United Kingdom

©2020 by LSESU Microfinance Society