Appraisal of institutional funds for development in Africa

In the following article, I will provide an overview of institutional and alternative online financing platforms for development in Africa. I will also highlight how private P2P lending can offer some promising ways to close the funding gap for Africa’s infrastructure while mitigating risks.

Alternative online finance, including P2P lending platforms, are very much in their infancy and early stages in Africa. They hold the promise and potential to be real game changers to accelerate financial inclusion.

For example, banks’ excessively stringent lending criteria hinders start-ups and small growing businesses. Alternative online finance will definitely be an enabler for growth across Africa, and could also be the conduit for new innovation in terms of credit scoring and analysis.

Likewise, there are vast opportunities for establishing a number of alternative payment solutions for the large number of unbanked individuals across the African continent. The cost of banking in Africa is high, and alternative online finance platforms offer solutions for individuals, communities and businesses.

There is a significant funding gap to fulfill Africa’s infrastructure needs, which cannot be met by current official sources of funding alone. In particular, the proportion of Official Development Finance (ODF) in total infrastructure spending is modest, with increased likelihood of further decrease in a context of tightening budgets in countries that provide assistance.

Kenya and South Africa are the clear market leaders in Africa with over 16.7m and 15m raised respectively from online channels in 2015.

The East African region has the largest market share of African alternative finance markets. In 2015, East Africa accounted for 41% of total African market share, while West Africa accounted for 24% and Southern Africa accounted for 19%.

Rekindling new and dynamic sources of growth in Africa is important, and financing those sources of growth is more important. Since there is a shortage of lending in Africa for many small and medium enterprises, many investment opportunities never get realized even though they would be very profitable.

An adequate financing scheme to provide promising projects with the necessary capital, such as through peer to peer lending could thus boost impact. Financing in this way can be made available on different levels –from larger-scale projects to smaller scale investments. Opportunities for Peer to Peer funding in Africa could be classified into three board areas:

· Renewable energy: There are tremendous yet unrealized potentials in renewable energy financing and payment in Africa, converting sunlight, water, wind, and waste into energy and energy into wealth in the region.

· Innovation, entrepreneurship and technology: Peer to peer lending can be used to assist local entrepreneurs and businesses in Africa to acquire the right technology and skills to assimilate new technology, adopt and adapt it, and learn to invent new products which benefit country-specific context.

· Agribusiness and trade: Supporting local farming communities and agribusinesses to join the global value creation network in the virtual world, allowing anyone to participate — small and big players. Export credits, while primarily benefitting exporters from the country provider, can also have direct benefits for P2P project lenders involved in agribusiness infrastructure projects.

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