Private Equity to finance SMEs in Africa

Jul 12, 2012

In addition to bank loans and microfinance, Private Equity (PE) can be an alternative way for SMEs to access finance.

In addition to bank loans and microfinance, Private Equity (PE) can be an alternative way for SMEs to access finance.

The goal of PE is for investors to take a stake in a company and ensure its growth and profitability, to resell the shares with a margin a few years later.

This financing method is all the more interesting when considering that this money usually comes with expertise.

Jennifer Choi, public relations officer at the Emerging Markets Private Equity Association (EMPEA), told Afrique Expansion that the money invested as Private Equity reached € 4.9 billion between 2006 and 2008 in Africa against 1.6 billion between 2000 and 2005.

However, according to an evaluation of the Moroccan Ministry of Finance and Privatization, investors usually favour large companies over SMEs.

"Because of the predominance of fragile SMEs and the stiffness of the eligibility requirements, venture capital is little used to support the development of SMEs ", stated the report.

Other experts mention SME managers' concerns about losing control of their business.

But the fact remains that Private Equity is a financing method worthy of interest for SMEs, particularly in a context of global economic crisis and dwindling sources of funding.

The Africa Magazine and EMPEA will host on October 24 the 'Private Equity Forum in Africa in 2012', which will address the funding via PE, especially for SMEs.

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