The Negative Effect of Risk Perception on Africa’s Economy

The perception that Small and Medium Enterprises (SMEs) are high risk businesses in Sub-Saharan Africa and Cameroon in particular, explains to the reason why they experience great difficulties with financial institutions despite the very important role they play in Africa’s Economy. This poor perception heavily affects investor’s interest in the sector.  This negative impact is being felt across the continent as SMEs struggle to get the necessary financial support.

According to Jeune Afrique, an estimated need of 500 billion FCFA is unmet for SMEs. The first factor is macroeconomic and structural. In fact, the current bank structure
favours transactions with large companies. However, another drawback is the absence of transparency which makes foreign investors go towards other foreign countries to lower the risk of eventual changes. Difficulties faced by SMEs include high interest rates with an average of 15.6% for small businesses to maintain their partnership with traditional banks as opposed to 11% in other countries. These difficulties have made them turn to other sources for investment such as microfinance institutions (MFIs).

Microfinance institutions function by offering loans to their customers. According to http://themarketmogul.com/sharing-risk-africa/ , 15% of micro entrepreneurs got finances through MFIs, and 30% through tontines.

Ovamba partners with several financial institutions to help provide SMEs with the crucial financial support.  Ovamba differs from traditional financial institutions in that technology enables a faster speed in processing transactions.  Such speed is extremely helpful for businesses with punctual needs like customs clearance and importations.  Visit www.ovamba.com for more information.

 Source: http://themarketmogul.com/sharing-risk-africa/