Why African Startups Appear Riskier Than They Are

After attending the GEC+Africa conference in Cape Town, I’m convinced that Africa’s financing problem isn’t necessarily a shortage of capital, but rather a lack of financial visibility for businesses. While banks, venture funds, and other lenders have money available, many African companies operate in ways that don’t generate the structured data institutions need to assess risk.

A small business might have paying customers and regular transactions, yet still appear risky because those signals are scattered across different systems. Startups may be growing but lack operational history, while gig workers earn consistently but with income patterns that differ from traditional employment.

Several initiatives address this gap: African Bank is working to transform fragmented small-business activity into usable information for lenders; 22 On Sloane launched KUMii, an AI platform helping startups discover funding and market opportunities. Together, they demonstrate that the financing challenge is fundamentally an information one.

South Africa illustrates this well: with a micro, small, and medium-sized enterprise (MSME) financing gap estimated at $21.6 billion, yet more than 300 funders now operate in the country—a doubling from just 2018. Simply adding more lenders won’t solve the problem if businesses remain difficult to assess.

As Edna Sathekga-Montse of African Bank noted, lenders need better understanding of affordability, credit status, and risk appetite—information that often exists in fragmented form across bank transactions, invoices, payroll records, etc. When these pieces can’t be analyzed together, they don’t create a clear financial picture.

The challenge is particularly acute among smaller, informal businesses: 56% of South African MSMEs are unregistered, and only 7% used formal loans to start their ventures.

The solution isn’t about creating new data—it’s about connecting existing information in ways that enable better decision-making. Invoices show who a business sells to; transactions reveal cash flow; payroll indicates employment levels—all verifiable signals of economic activity.

African Bank is responding by expanding beyond traditional lending, offering services like payroll management and invoice discounting to help businesses become more financially structured. The more data a company generates about itself, the less reliant lenders need to be on proxy measures like collateral or business age.