Across Africa, small and medium-sized enterprises (SMEs) and startups often find themselves stuck between two difficult options: traditional bank loans with high collateral requirements, and venture capital that’s often too risky, demanding, or out of reach.
But there’s good news. A growing ecosystem of alternative financing tools is emerging—designed to be more accessible, more adaptable, and better aligned with the realities of African businesses.
From community capital and revenue-based financing to embedded credit and crowdfunding, African entrepreneurs are finding new ways to raise capital without giving up control or taking on unsustainable debt.
Why traditional models fall short
Bank loans
Often require formal records, collateral, and multi-year trading history—criteria many small or informal businesses don’t meet.
Venture capital
VCs typically seek high-growth tech startups and expect aggressive scaling and equity dilution. Most SMEs don’t fit that mold.
Development grants
Useful but competitive, slow to disburse, and often restricted to specific sectors or donor priorities.
That’s where alternative financing steps in—to bridge the gap between formality and informality, ambition and access.
Key alternative financing models gaining traction
1. Revenue-based financing (RBF)
Firms raise capital and repay a percentage of future revenues—rather than fixed loan installments.
Why it works: No need for collateral. Repayments rise and fall with actual performance. Investors earn steady returns, while founders retain equity.
Example: Some West African agribusinesses and retailers now use RBF via platforms like Nithio or local angel syndicates.
2. Embedded finance
Startups offer credit directly within their platforms—like inventory financing for informal retailers, or equipment leases through a mobile app.
Why it works: Builds lending into user behavior. Providers have real-time visibility on customer performance.
Example: Fintechs like Wasoko and M-KOPA offer embedded financing for goods, smartphones, or solar kits.
3. Supply chain and invoice financing
SMEs borrow against confirmed purchase orders, invoices, or contracts, instead of physical assets.
Why it works: Unlocks working capital without long approval processes. Great for service providers or suppliers to large buyers.
Example: Fast-growing FMCG distributors in East Africa access short-term capital using purchase order financing platforms like Numida or Lendable.
4. Cooperative and community finance
Groups of entrepreneurs pool savings and offer microloans, often through digital savings groups or fintech-enabled ROSCAs.
Why it works: Builds local trust, improves discipline, and doesn’t rely on formal credit scores.
Example: Digital savings tools like MaTontine (Senegal) or Ensibuuko (Uganda) are digitizing traditional group lending.
5. Crowdfunding and diaspora finance
Entrepreneurs raise small amounts from many supporters—either via equity, rewards, or debt models.
Why it works: Mobilizes community and diaspora capital, often from people with a vested interest in local development.
Example: Startups like Afrikwity and Thundafund offer platforms for African founders to raise funding from diaspora communities.
Other emerging models
- Islamic finance: Non-interest-based models are gaining popularity in Muslim-majority regions
- Tokenized or blockchain-backed lending: Still early-stage, but being explored in fintech circles
- SME-focused private debt funds: Offering flexible loans with advisory support from regional PE and DFI partners
How to decide which model is right
| Goal | Consider This |
|---|---|
| Short-term cash flow | Invoice or PO financing, community lending |
| Scaling a proven model | Revenue-based financing, embedded credit |
| Testing a new idea | Crowdfunding, donor-backed grants |
| Buying equipment | Lease-to-own or asset-backed lending |
| Avoiding equity dilution | Debt, RBF, or supply chain finance |
Tips for success
- Formalize gradually: Even basic recordkeeping helps improve eligibility for many alternative tools
- Build repayment culture: Alternative doesn’t mean informal—strong repayment and communication builds long-term access
- Diversify: Use a mix of financing types over time, depending on your growth stage
- Negotiate terms: Many tools are flexible—understand what’s fixed, variable, or negotiable
Final thought: capital is evolving—so should your strategy
Today’s African entrepreneur doesn’t have to wait for a bank loan or a VC check to grow. With the right financing mix, founders can stay in control, reduce risk, and build businesses that are resilient and ready for scale.
Alternative financing isn’t just a fallback—it’s becoming the new normal.
About the author
Aurel Kinimbaga is a contributor specializing in innovation, business strategy, and inclusive growth in Africa. He writes on entrepreneurship and the economic trends shaping the continent’s future.