Financing models are failing African SMEs, so we’re pioneering solutions

From the bustling streets of Zambia’s Lusaka to the entrepreneurial hubs of Lagos, Nigeria, small and medium-sized enterprises, or SMEs, fuel Africa’s economic engine. They drive innovation, create jobs, and weave economic resilience into the fabric of local communities. Recognizing their central role in economic development, SMEs are prioritized in national policy agendas across much of the continent. Yet despite this, they continue to face persistent financing challenges. According to the World Bank enterprise survey data, the SME finance gap in just 10 sub-Saharan African countries is estimated at $21 billion, with over half of SMEs facing credit constraints. This financing gap persists even though African banks overwhelmingly cite SMEs as a business priority, as they are constrained by structural barriers that limit their ability to lend to them. Traditional financing models are therefore falling short, leaving promising businesses stuck in the early stages of growth. As global interest in Africa’s entrepreneurial potential rises, the need for innovative financing platforms has never been clearer. Enter Growth Investment Partners Zambia, or GIP Zambia, a new initiative designed to fill the gaps left by conventional models in the Zambian financial system. Launched by British International Investment, or BII, GIP Zambia offers long-term, flexible capital, primarily in local currency, to high-potential businesses that are underserved by existing financial institutions. Unlike traditional approaches, such as SME-focused private equity funds, GIP Zambia has a permanent capital structure that doesn’t have to wind up and return capital to its investors after a five-year deployment period. This allows for innovative financial products that are new to the market but tailored to the realities of Zambian businesses and offer alternatives to rigid loan structures. Innovations are designed to fuel SME growth, for example, by offering long repayment periods, and low or no collateral requirement. Critically, this flexible capital is complemented by the Zambia Investment Support Programme. Launched by BII alongside GIP Zambia, the program will deliver technical assistance and business support to SMEs, with a dedicated focus on businesses that are women-owned, Black-owned and -led, and that focus on serving lower-income communities. GIP Zambia represents the second rollout of this model, building on the success of GIP Ghana. Since it was set up in 2023, GIP Ghana has invested in nine companies across a range of sectors, including manufacturing, agriculture, financial services, and logistics. These companies are helping to create jobs, increase financial inclusion, and strengthen local manufacturing of critical goods. What really sets the GIP model apart is a locally driven approach to SME finance. Managed by a team of seasoned local professionals, GIP is a homegrown solution rooted in local expertise and partnerships. It is designed with and led by people who understand the unique challenges and opportunities of their national context, ensuring that financing is tailored to the needs of domestic SMEs. Furthermore, GIP Zambia is co-financed by the National Pension Scheme Authority, or NAPSA, the country’s largest pension fund, providing an avenue for local savings to be deployed into productive use with long-term economic benefits. GIP Zambia is the most recent example of what BII refers to as “platforms” — pioneering partnerships, often built from scratch, to solve development problems where no investable solution exists. BII is one of the few development finance institutions, or DFIs, that does this, and this approach, explored in a recent ODI Global report, allows us to take bold steps to identify gaps in neglected sectors and countries and fill them. This is done using our own capital but also by attracting other investors — ODI’s research shows that platforms supported by DFIs have collectively attracted nearly $3 billion in private co-investment. ODI found that these ventures are proving to be powerful tools for multiplying impact. Beyond SME finance, platforms have been used to tackle challenges in renewable energy, health care, infrastructure, and more. Ayana Renewable Power has led the development of 4.1 gigawatts of renewable capacity and was recently sold to Indian investors at an enterprise value of $2.3 billion. Gridworks is partnering with the government of Burundi to increase electricity access from 12% to 70% of the population. MedAccess has reached over 539 million people with essential medical products through its volume guarantee model. Across countries and sectors, the common thread of these platforms is a proactive and hands-on approach to tackle the most pressing, unaddressed development needs, in a way that catalyzes markets and multiplies impact by mobilizing commercial capital. With each platform successfully launched and scaled, we have learnt something new. One vital lesson is that thinking creatively to create new approaches is a necessity, but this should go hand in hand with thinking commercially. Reaching commercial viability can require large up-front investments, risk appetite and patience, but it is critical to ensure sustainable impact. Perhaps the most important lesson is the potential for partnerships — which can make or break new platforms. For example, through partnering with DP World, a major strategic player in global logistics, we benefit from the operational expertise and experience to be able to invest in the first deep-sea port in the Democratic Republic of Congo. This is something we could not have done alone, and at the same time, the project is unlikely to have happened without our involvement. BII is calling on like-minded partners to help forge bold, commercially viable solutions where none currently exist. With a track record of launching transformative platforms across sectors, we bring deep expertise and a collaborative spirit to the table. We are actively seeking partnerships with investors, operators, and governments to co-create the next generation of pioneering and sustainable solutions that tackle the toughest development challenges head-on.