Small and medium-sized enterprises (SMEs) across Africa continue to face tighter lending conditions, higher collateral requirements, and limited access to formal trade finance despite evidence showing that their credit risk profile has remained relatively stable.
According to a new African Development Bank (AfDB) report released in Brazzaville on May 27, SME-related default rates, averaging between 8 and 10 per cent, have shown limited volatility over time.
The report, Trade Finance Supply in Africa: Post-COVID Trends and Emerging Opportunities, notes that SMEs account for at least 80 per cent of businesses and employment on the continent and contribute more than half of Africa's GDP.
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However, SMEs' share of banks' trade finance portfolios fell from about 34 per cent in 2019 to 19.5 per cent in 2020 during the Covid-19 shock, before stabilising at around 21-22 per cent between 2023 and 2024.
Despite their economic importance, SMEs are still widely classified as high-risk borrowers, a perception that continues to shape lending decisions.
The report shows that SME defaults rose from 8 per cent in 2020 to just under 10 per cent in 2023 before easing to 8.8 per cent in 2024, while approval rates for SME trade finance applications remained steady at about 63 per cent over the same period.
The AfDB says this perception of risk has translated into stricter lending terms, including higher interest rates, shorter repayment periods, and tougher collateral requirements, limiting SME participation in formal trade finance systems.
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However, the report notes that many SMEs continued repaying loans consistently even during periods of currency volatility and tighter global credit conditions, suggesting the sector's risk profile may be more stable than commonly assumed.
Martin Fregene, the Acting Vice President for Agriculture, Human and Social Development Complex at AfDB, warned that limited SME financing could undermine Africa's ability to create jobs for its rapidly growing youth population.
"Every year, 11 million young Africans enter the labour market, but only three million get formal jobs," he said, stressing the need to expand financing for SMEs and agriculture-driven enterprises.
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The report says defaults are largely driven by external pressures such as delayed payments, weak cash buffers, limited working capital, and exchange rate volatility rather than poor business management.
Still, many lending models continue to classify SMEs broadly as high-risk borrowers without fully considering repayment history, sector performance, or export track records.
According to the report, restricted access to trade finance is limiting investment in production, logistics, and export capacity, particularly in agriculture and light manufacturing, potentially slowing intra-African trade and industrialisation.
The AfDB called for reforms including stronger credit information systems, expanded trade guarantee schemes, and improved risk-sharing mechanisms to align lending practices more closely with actual SME default behaviour.
