ISSN (Online): 2321-3418
server-injected
Economics and Management
Open Access

The Role of Financial Institutions in SME Financing: Case Studies from Major African Countries

DOI: 10.18535/ijsrm/v13i09.em08· Pages: 9728-9740· Vol. 13, No. 09, (2025)· Published: September 18, 2025
PDF
Views: 1,733 PDF downloads: 1,018

Abstract

Small and medium-sized enterprises (SMEs) are the backbone of African economies, generating employment, fostering innovation, and contributing significantly to GDP. Despite their importance, access to finance remains a central barrier to SME growth across the continent. This article examines the role of financial institutions in SME financing, using comparative case studies from major African countries including Kenya, Nigeria, South Africa, and Ghana. It explores how banks, development finance institutions (DFIs), microfinance institutions, and emerging fintech platforms influence SME access to credit, the cost of financing, and firm-level performance. Drawing on recent survey data, policy reports, and international databases, the study employs four econometric model specifications complemented by in-depth country case analyses. The findings reveal that while traditional banks remain the dominant source of SME credit, their reach is constrained by collateral requirements, high interest rate spreads, and information asymmetries. Credit guarantee schemes and wholesale lines from DFIs have improved lending volumes, though the pricing benefits for SMEs remain uneven. In parallel, fintech lenders and mobile-money platforms are expanding access, particularly for informal and women-owned businesses, yet challenges of scale and regulatory clarity persist. The study underscores the importance of institutional diversity, blended finance mechanisms, and risk-sharing instruments in addressing Africa’s SME finance gap. Policy recommendations emphasize the need for better-designed guarantee schemes, expanded credit information infrastructure, gender-sensitive financial products, and stronger linkages between fintech and traditional banks. By integrating econometric analysis with country-specific experiences, this article contributes to both theory and practice on financial intermediation in emerging markets, offering insights for policymakers, financial institutions, and development partners seeking to unlock SME potential in Africa.

Keywords

SME financefinancial institutionscredit guaranteesfintechAfrica

References

  1. The World Bank. (2023). FinTech and the future of finance: Policy and market implications. World Bank. https://www.worldbank.org/en/publication/fintech-and-the-future-of-financeGoogle Scholar ↗
  2. Organisation for Economic Co-operation and Development, G20, & Global Partnership for Financial Inclusion. (2024). Action plan for MSME financing and policy guidance. GPFI.Google Scholar ↗
  3. https://www.gpfi.org/sites/default/files/2024%20GPFI%20MSME%20Finance%20ReportGoogle Scholar ↗
  4. European Investment Bank. (2024). Finance in Africa 2024: Fintech transforms African financial services. EIB. https://www.eib.org/en/press/all/2024-435-eib-finance-in-africa-2024-fintech-transforms-african-financial-services-but-high-funding-costs-hinder-climate-and-digital-transitionsGoogle Scholar ↗
  5. Central Bank of Kenya. (2025). FinAccess/Banking supply-side survey on MSME financing (2024). CBK. https://www.centralbank.go.ke/2025/07/02/11441Google Scholar ↗
  6. The World Bank. (2024). Toolkit for impact evaluation of public credit guarantee schemes for SMEs. World Bank. https://openknowledge.worldbank.org/entities/publication/653d1ccd-be80-5345-bdbf-95416f4e9defGoogle Scholar ↗
  7. African Guarantee Fund. (2023). AGF annual report 2023. African Guarantee Fund. https://africanguaranteefund.com/wp-content/uploads/2024/08/AGF-Annual-Report-2023Google Scholar ↗
  8. GSMA. (2024). The state of the industry report on mobile money 2024. GSMA. https://www.gsma.com/sotir/wp-content/uploads/2024/03/GSMA-SOTIR-2024_Report_v7-2Google Scholar ↗
  9. McKinsey & Company. (2024). Redefining success: A new playbook for African fintech leaders. McKinsey. https://www.mckinsey.com/industries/financial-services/our-insights/redefining-success-a-new-playbook-for-african-fintech-leadersGoogle Scholar ↗
  10. International Finance Corporation & SME Finance Forum. (2024). MSME finance gap: Updated estimates and implications. SME Finance Forum/IFC. https://www.smefinanceforum.org/data-sites/msme-finance-gapGoogle Scholar ↗
  11. World Bank Group. (2021–2024). MSME finance gap assessments and regional diagnostics. World Bank Publications. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/653831510568517947/msme-finance-gap-assessment-of-the-shortfalls-and-opportunities-in-financing-micro-small-and-medium-enterprises-in-emerging-marketsGoogle Scholar ↗
  12. PricewaterhouseCoopers Global. (2024). SME financing and structural constraints: Regional briefs. PwC. https://www.pwc.com/ng/en/assets/pdf/pwc-msme-survey-report-2024Google Scholar ↗
  13. United Nations & Global Partnership for Financial Inclusion. (2024). Public financial inclusion guidance: MSME financing action plan. United Nations/GPFI. https://www.gpfi.org/sites/default/files/2024%20GPFI%20MSME%20Finance%20Report_V4_0.Google Scholar ↗
  14. Le Monde. (2023, May 3). En Afrique, le décollage des « fintech ». Le Monde. https://www.lemonde.fr/economie/article/2023/05/03/en-afrique-le-decollage-des-fintech_6171865_3234.htmlGoogle Scholar ↗
  15. FinMark Trust. (2024). FinScope MSME South Africa 2024: Key findings. FinMark Trust. https://finmark.org.za/knowledge-hub/articles/finscope-msme-south-africa-2024-key-findings-highlight-urgent-need-for-informal-sector-supportGoogle Scholar ↗
  16. African Development Bank. (2024). Annual report 2024. AfDB. https://www.mfw4a.org/publication/african-development-bank-group-annual-report-2024Google Scholar ↗
  17. Development Bank Ghana. (2023). DBG annual report 2023. DBG. https://www.dbg.com.gh/wp-content/uploads/filr/3998/DBG%202023%20Annual%20ReportGoogle Scholar ↗
  18. International Labour Organization. (2024). Credit guarantee schemes, MSME access to finance and labour productivity in Africa. ILO. https://www.ilo.org/sites/default/files/2024-07/Credit%20guarantee_MSME_Africa_S2_2024_EN.Google Scholar ↗
  19. AFI (Alliance for Financial Inclusion). (2021–2024). Credit guarantee schemes: Facilitating MSME financing in Africa—case studies & lessons. AFI/ADB collaboration. https://www.afi-global.org/wp-content/uploads/2024Google Scholar ↗
  20. European Investment Bank & Global Development Network. (2021). Potential impact of guarantee instruments on access to finance (AEGF study) (EIB/GDN Working Paper). EIB. https://www.eib.org/files/publications/eib_gdn_working_paper_aegf_enGoogle Scholar ↗
  21. Food and Agriculture Organization & Rural Finance and Investment Learning Centre. (2021). Impact evaluation of credit guarantee schemes in agriculture: Guidelines and case studies (methodology). FAO/RFILC. https://www.rfilc.org/wp-content/uploads/2021/12/Impact-evaluation-of-credit-guarantee-schemes-in-agricultureGoogle Scholar ↗
  22. AGF & Climate Policy Initiative. (2024). Guaranteeing change: Mapping the landscape of guarantees in Africa. CPI. https://www.climatepolicyinitiative.org/guaranteeing-change-mapping-the-landscape-of-guarantees-in-africaGoogle Scholar ↗
  23. FinFind, FinSouth Africa, & African Bank. (2025). South African MSME access to finance report 2025. FinFind/African Bank. https://smesouthafrica.co.za/the-south-african-msme-access-to-finance-report-2025Google Scholar ↗
  24. GSMA. (2024). Sub-Saharan Africa 2024 year in review (mobile economy). GSMA. https://www.gsma.com/about-us/regions/sub-saharan-africa/wp-content/uploads/2025/01/GSMA-Sub-Saharan-Africa-2024-Year-In-ReviewGoogle Scholar ↗
  25. Sanga, B. (2024). FinTech developments and their heterogeneous effect on digital finance for SMEs: Evidence from 47 African countries [Working paper]. ResearchGate. https://www.sciencedirect.com/org/science/article/pii/S2053460424000136Google Scholar ↗
  26. ScienceDirect. (2024). FinTech developments and heterogeneous effects on digital finance for SMEs. ScienceDirect. https://www.sciencedirect.com/org/science/article/pii/S2053460424000136Google Scholar ↗
  27. ResearchGate. (2024). Systematic review: FinTech and SMEs financing (2008–2022). ResearchGate. https://www.researchgate.net/publication/374594875_FinTech_and_SMEs_financing_A_systematic_literature_review_and_bibliometric_analysisGoogle Scholar ↗
  28. Trends Research. (2023–2024). Impact of fintech on service sectors in Sub-Saharan Africa. Trends Research. https://trendsresearch.org/insight/the-impact-of-fintech-on-the-services-sector-in-sub-saharan-african-countries-a-comprehensive-analysisGoogle Scholar ↗
  29. National Credit Guarantee Company. (2024). NCGC: Institutional mandate and stakeholder engagement materials. NCGC. https://ncgc.ngGoogle Scholar ↗
  30. Reuters. (2025, January 1). Nigeria to establish National Credit Guarantee Company. Reuters. https://www.reuters.com/world/africa/nigeria-expand-credit-access-citizens-2025-01-01Google Scholar ↗
  31. PricewaterhouseCoopers Nigeria. (2024). MSME survey report 2024: Nigeria. PwC Nigeria. https://www.pwc.com/ng/en/assets/pdf/pwc-msme-survey-report-2024Google Scholar ↗
  32. Beck, T., & Cull, R. (2014). Small and medium-sized enterprise finance in Africa (African Growth Initiative Working Paper No. 16). Brookings Institution. https://doi.org/10.1596/1813-9450-7018DOI ↗Google Scholar ↗
  33. Demirgüç-Kunt, A., & Levine, R. (2008). Finance, financial sector policies, and long-run growth. The World Bank. https://ideas.repec.org/p/wbk/wbrwps/4469.htmlGoogle Scholar ↗
  34. Beck, T., Klapper, L. F., & Mendoza, J. C. (2010). The typology of partial credit guarantee funds around the world. Journal of Financial Stability, 6(1), 10–25. https://ideas.repec.org/a/eee/finsta/v6y2010i1p10-25.htmlGoogle Scholar ↗
  35. Levine, R. (2005). Finance and growth: Theory and evidence. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth (Vol. 1, pp. 865–934). Elsevier. https://ideas.repec.org/h/eee/grochp/1-12.htmlGoogle Scholar ↗
  36. Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2011). Firm innovation in emerging markets: The role of finance, governance, and competition. The Journal of Financial and Quantitative Analysis, 46(6), 1545–1580. https://doi.org/10.1017/S0022109011000378DOI ↗Google Scholar ↗
Author details
Jules KOUNOUWEWA
Assistant Professor of CAMES Universities National School of Administration Marketing and Organizational Governance Research Laboratory (LARMAG) University of Abomey-Calavi
✉ Corresponding Author
👤 View Profile →