Business and Finance

Finance for African Start Ups

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Africa is witnessing a boom in entrepreneurship brought about by the proliferation of the World Wide Web and mobile computing technologies. However African start up companies still face the obstacle of insufficient access to venture capital. The business arena in the continent is characterised by companies experiencing difficulty gaining access to both international and local venture capital investors, a lack of international and local venture capital and a surplus of aid organisations that are focussed on bringing about a large number of technology-facilitated efforts for social change that normally fail to create financial wealth. What is the solution to these problems? African business expert Dinfin Mulupi suggests that peer-to-peer lending might be the answer.

Peer-to-Peer Lending

Peer-to-peer lending websites enable people to borrow money from unrelated individuals without having to approach banks or other financial intermediaries. They can often offer favourable business loan rates and there are sites that have been set up for the specific purpose of connecting African businesses with finances from across the globe, for example Danish-based site MYC4, which has disbursed over 1.4 million pounds worth of loans to over ten thousand different businesses over the course of the last few years. This form of lending provides lower interest rates than many other sources and has been predicted to grow in popularity. It allows African businesses to borrow from sources in other countries more easily and goes some way towards solving the problem of a lack of available capital in the nation, although it is still yet to reach its prime and has not yet achieved its potential.

Crowdfunding

A recent report by the World Bank suggests that the answer to the problems faced by African start ups might lie in the widened acceptance and global shift towards crowdfunding as an approach to improving the level of access that entities that may not otherwise be capable of raising finance using traditional avenues have to capital. The term ‘crowdfunding’ refers to individuals networking and pooling their money together to support an effort that has been initiated by an individual or organisation. It is usually done via the internet and could provide the most promising African businesses with the funding that they need to get going. In some cases, people who participate in crowdfunding are promised a share of the profits of a company, meaning that this need not necessarily be a form of charity and could work as a loan.

The Domino Effect

A report by the BBC suggests that charitable organisations aimed at funding technology innovation hubs in Africa might be the key to improving finances for the continent’s start up companies. These hubs can help to support entrepreneurs, which results in more money available for them to put into businesses that they think are likely to prosper. When one business is successful, it enables a company to have the necessary finances to invest in another, creating a domino effect. All that is needed might be an initial push in order to get the first domino in the line moving.

Bringing About Change

It is clear that there is a long way to go before starting a company in Africa will be easy thing to do. There are still a large number of roadblocks in place that are likely to prevent significant numbers of companies from ever getting off the ground. However as alternative forms of lending such as peer-to-peer lending gain in strength and popularity and more and more people donate money to businesses in the continent via crowdfunding websites, the situation is likely to continue to improve. The more start ups manage to overcome the initial problem of lack of investors and lack of capital and become successful, flourishing businesses, the more they will be able to help other fledgling companies who are in the position that they were in when they first started out. This will hopefully bring about a change and inject more money into the continent, furthering its economy and improving the quality of life of the people. The first step to addressing the problem is by far the most difficult. Once it has been achieved, the remainder of the journey that the African business world is travelling upon is liable to be a much smoother ride.

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