From the Sahel to the Great Lakes region, and from northern Mozambique to the Horn of Africa, fragility is often the lens through which international actors view entire swaths of the continent. Conflict, political instability, and weak institutions have long kept capital out and opportunity down. But a quiet shift is underway.
Across these so-called “fragility zones,” impact investors and local private equity (PE) firms are stepping in—not just with capital, but with patient strategies and targeted support to help small and growing businesses scale up, even in the hardest places.
These investors are betting on a bold idea: that entrepreneurship can flourish, even amid fragility—and that doing so isn’t just good for development, but also increasingly viable as a long-term investment strategy.
The Challenge: Capital Gaps in Crisis-Prone Markets
SMEs in fragile contexts face triple pressure:
- Market uncertainty due to conflict, inflation, or political risk
- High operating costs, including unreliable infrastructure and security
- Lack of financing, particularly in the $50,000–$5 million “missing middle” range
Local banks remain risk-averse, especially toward first-time borrowers without collateral. International investors, meanwhile, tend to avoid high-risk regions altogether, or impose risk premiums that local SMEs simply cannot absorb.
This is where impact capital and local PE funds are stepping in—with blended finance models, flexible terms, and strategic support that traditional lenders avoid.
What’s Working: Models That Are Making a Difference
🔹 Blended Finance & First-Loss Capital
Development finance institutions (DFIs) and donor-backed funds are de-risking private investments by providing concessional capital or guarantees. This lowers the hurdle for private investors in fragile areas.
- Example: In northern Nigeria, blended vehicles supported by the IFC and USAID are backing agribusiness SMEs with a mix of grants and equity.
- Impact: This model reduces downside risk for investors, allowing businesses to scale in otherwise off-limit regions.
🔹 Local PE with Deep Market KnowledgeLocal or regional private equity firms often succeed where global firms hesitate. They understand the informal dynamics, political context, and real risks on the ground.
- Example: In the DRC, funds like XSML (the Central Africa SME Fund) are investing in health clinics, logistics firms, and education providers, using revenue-based financing and active portfolio management.
- Impact: Returns are moderate, but resilience is high. SMEs are thriving in sectors that donors struggle to reach directly.
🔹 Revenue-Based and Flexible Instruments
Many investors are abandoning rigid debt structures in favor of revenue-based finance, convertible notes, or milestone-triggered disbursements.
- Why it works: In fragile zones, predictability is rare. Flexible repayment models give SMEs breathing room during instability, while preserving upside for investors.
Sectors Seeing the Most Action
| Sector | Why It Attracts Capital in Fragile Zones |
|---|---|
| Agribusiness | Local food systems are essential, and demand is constant |
| Healthcare | Clinics and pharmacies show resilience and quick cash flow |
| Logistics | Movement of goods is always needed, even during crises |
| Renewable Energy | Off-grid solar and clean cooking fill infrastructure gaps |
| Education | Strong social demand and steady revenue from tuition |
These sectors not only offer relative stability, but also have clear social impact—making them ideal for both impact funds and double-bottom-line PE investors.
Case Snapshot: The Sahel
In Mali and Burkina Faso, despite ongoing insecurity, social enterprises in agro-processing and mobile health are receiving capital through regional accelerators and diaspora-backed investment syndicates. These businesses are small but high-impact—supporting farmers, employing women, and stabilizing local economies.
Donor agencies are beginning to channel funds through local intermediaries who can make smaller, context-sensitive bets, with governance and mentoring baked into the deal.
What’s Enabling This Shift?
- Stronger Local Fund Managers
African-led funds with boots-on-the-ground knowledge are driving smarter deployment. - Rise of “Impact-First” Investors
DFIs and family offices increasingly accept below-market returns in exchange for measurable development outcomes. - Tech-Enabled Monitoring
Remote monitoring tools and digital payment systems make it easier to track performance, even in insecure zones. - Policy and Ecosystem Support
In countries like Chad and the CAR, regional economic communities like CEMAC are creating SME-friendly frameworks and tax incentives for local investors.
Risks Remain—But So Does Potential
Operating in fragility is not without trade-offs. Currency shocks, conflict spillovers, and political turnover continue to pose real threats. But for investors who take a long-term, embedded approach, the upside is clear:
- First-mover advantage in underserved markets
- Social license from being part of local problem-solving
- Portfolio resilience by backing essential, high-demand sectors
The Bottom Line: Impact + Patience = Scale
Africa’s fragile zones are not dead ends—they are frontiers. With the right mix of risk tolerance, flexible instruments, and local expertise, SMEs can not only survive—they can scale.
Impact capital and local private equity are proving that transformation doesn’t have to wait for perfect conditions. In fact, it often begins precisely where systems are broken—because that’s where new models are most needed, and most welcomed.
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.
