Banks don’t fund African renewable energy startups. So where can founders find money?

Jun 02 2021

Small and medium scale enterprises in Africa receive about $70bn of credit each year. But the International Finance Corporation estimates that the gap exceeds $300bn.

Why does the gap exist? Michael Famoroti, chief economist at Stears gave two reasons during a recent TechCabal Live event on financing renewable energy companies in Africa.

Credit providers seem to lack enough information with which to assess the risk worthiness of many borrowers. This problem exists at the retail level as most bank customers who have tried to take personal loans will be aware.

But it is arguably a bigger problem for SMEs and startups whose businesses are typically regarded as high-risk and unproven.

The second reason Famoroti gave is that credit providers may not find enough value in the use proposed for the funds. In this case, creditors may play safe by lending to legacy industries like real estate or banking, while taking a skeptical approach to promising but new ventures. Like renewable energy for example.

So if you are setting up a renewable energy startup to provide electricity to the more than 50% of people living in SubSaharan Africa who lack access, how do you find funding?

The TechCabal Live event had Marly Diallo, Wiebe Boer and Christian Wessels in attendance as guests.

Source: TechCabal