Based on research by Andrew Hansen-Addy, Mario Davide Parrilli and Ishmael Tingbani
You are running a small, family-owned business in a bustling African city. This business was built from scratch by you through hard work and by reinvesting all your profits. Today, your business needs funding to break into new markets, and you recently heard that new government reforms have made it easier to access loans. Banks are more open, paperwork is simpler, and funding is finally within reach. But you don’t apply. Why?
This is the paradox at the heart of SME finance in Africa: access is improving, but uptake remains stubbornly low. A new study led by NUSC colleague Dr. Andrew Hansen-Addy, with Prof. Mario Davide Parrilli and Dr. Ishmael Tingbani, dives deep into this puzzle—revealing why increased access to finance doesn’t always lead to more borrowing, and what that means for SME policy, resilience, and growth.
Small and Medium Enterprises (SMEs) are often hailed as the backbone of economic growth in developing countries. In Africa, they account for around 70% of GDP and 80% of employment. Yet despite their importance, many financially constrained SMEs continue to rely on retained earnings rather than external finance—even when the regulatory business environment improves and access to funding is better.
Examining 17 years of data, with over 30,000 observations across 30 African countries, Hansen-Addy and colleagues find evidence of a pattern – African SMEs shy away from external finance even when these are more accessible in enabling business environments. Why? External finance, while more accessible, remains unaffordable for many African SMEs —especially when interest rates are high or collateral requirements are steep.
This research challenges the assumption that improving access alone will solve SME financing gaps. Instead, it suggests that:
- Affordability matters as much as accessibility.
- Policy interventions must go beyond enabling business environments to address cost structures and risk perceptions.
Explore the research and its implications more deeply by reading the full article.
At NUSC, we’re interested in how systemic forces shape urban and economic resilience. This study highlights the complex interplay between regulation, firm behaviour, and financial ecosystems—a dynamic system that is especially relevant in African cities where SMEs drive innovation, employment, and local development.
To truly empower SMEs, policymakers must tailor financial instruments, reduce borrowing costs, and build trust in financial institutions. Eco-innovation, urban regeneration, and inclusive growth all depend on SMEs having the right kind of financial support—not just more of it.
To build resilient urban economies, we must look beyond surface-level indicators and understand the complex, context-specific decisions SMEs make every day.
What do you think? If access isn’t enough, what could make finance truly work for SMEs in Africa?
Share your thoughts in the comments, share with a colleague working in SME policy, or tell us how your city is tackling this challenge.
Read the full study to explore the data, insights, and implications: https://onlinelibrary.wiley.com/doi/10.1002/ijfe.2951
#SMEFinance #UrbanResilience #InclusiveGrowth #NUSCResearch #AfricaEconomy
Disclosure: This blog post was drafted and polished with the assistance of AI tools to enhance clarity, structure, and engagement. AI was also used to generate accompanying images where applicable. All content has been reviewed and approved by the author and named lead researcher to ensure accuracy and alignment with the intended message.