Thoughts on prosperity through an African lens

Yet it’s not for want of future that I’m here, he thought. It’s for want of a present.” ― John le Carré, The Honourable Schoolboy

Seven years ago, I went to Rwanda, in Central Africa, on a whim. Just curiosity.

After some time studying gaps in the market there, I co-founded a logistics company, Pan African Logistics (“PAL”).

I saw this as a way to make high impact (and have written elsewhere about what drove this decision). Today, PAL is a regional player in East Africa, and has upped standards in the markets it operates in, for treating its staff well, training them, and setting standards for the industry. African markets, like emerging markets everywhere, are challenging but we’ve learned through actual experience how to make things work there and how to manage risk and run businesses profitably there.

In the course of building PAL in East Africa, its CEO Jain Sugu and I met and interacted with many merchants running their businesses there. A common thread ran through their stories: they all needed capital to grow and could not get it. Almost all of the merchants we dealt with there were mid-market (ie SMEs). Almost all imported goods. All had ambitions to expand their businesses. And all of them struggled to get financing to do so at reasonable rates.

These merchants were bumping up against the ceiling of scaling their businesses. Some were willing to accept financing at what we would consider extortionate rates (upwards of 50% per annum) just to keep their businesses growing. Others were willing to literally give up the keys to their businesses to get financing — like the pharmacy owner in Burundi who told me:

Make some money available, you put in your financial controller, I have the orders, I just need to be able to bring in more stock, your man can control my company’s bank account”.

!! Letting someone control your company’s bank account? Unreal. No company boss in the developed world would even dream of offering this. It drove me to learn more about credit availability in Africa.

Before we get into the reasons, here are some sobering facts.

The commercial lending sector in Africa is undeveloped and ripe for disruption. Banks generally avoid financing working capital in businesses unless they are secured over 100% against their lending. This typically means that those who have real property to pledge as security for loans, get financing but still at rates that would be expensive in the developed world. And those that aren’t so fortunate, struggle, accept a limited life, or end up working for those who do.

Trader at the Rwanda-Congo border market bringing empty jerrycans to be filled with cooking oil

The unmet demand for trade finance in Africa was US$ 110 billion in 2011 and US$120 billion in 2012[1]. This number would be much higher now with the years of growth in African economies since then. Compounding this problem, over half of SMEs’ trade finance requests are rejected,compared to only 7% for multinational corporations[2].

Even where trade finance capital is available, it tends to be priced arbitrarily or unreasonably high, ranging from 9–14% at the low end to 78–82%[3], reflecting a difficulty in pricing risk.

The unrealised potential caused by the financial constraints hit me. So I started delving into the reasons for the financing gap.

In my next piece … the reasons for the trade finance gap in Africa.



[1] African Development Bank, Trade Finance in Africa [2014] at 37

[2] World Trade Organization, Trade Finance and SMEs [2016] at 23

[3] World Trade Organisation, “Why Do Trade Finance Gaps Persist: And Does It Matter For Trade And Development?” Source:

Harveen Singh Narulla

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