NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Sunday, June 12, 2005

Whatever else happens as a result of the Make Poverty History campaign, lowering the risk perception of private capital with regards to investing in Africa and in African entrepreneurs should be its single most important goal. Those in charge of the campaigns will claim they have done what they can: engaging with big business and trying to make African countries more investment-friendly.

But this will not be enough to persuade bankers – especially local bankers – to open their loan books to the African small- and medium-sized enterprise sector. Yet this is precisely what has to happen if Africa is to swap its bit part in globalisation as a passive supplier of primary commodities for a more dynamic role based on a competitive, innovative enterprise base.

For this to happen, local African banks have to develop the confidence and the investment mechanisms to shift away from lending solely on the basis of a trading record with 100 per cent collateral. Instead, they need to begin providing finance secured against the entrepreneur’s business plan and above all against a belief in the management team taking the investment forward.
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