The Missing Link in African Startup Funding

One of the most puzzling aspects of Africa’s investment landscape is this disconnect: despite billions in available capital, many promising startups struggle to get funded. After attending the GEC+Africa conference in Cape Town, I realized that the problem may not be a lack of money but rather a shortage of “business legibility” - the ability for financial institutions to understand and assess risk.

The fundamental issue is that much economic activity occurs outside traditional financial channels. A small business might have paying customers and regular transactions yet appear risky because these signals aren’t captured in a structured format. Startups may be growing but lack operational history, while gig workers generate consistent income through irregular payment patterns.

The Information Gap

Several initiatives are emerging to address this challenge:

• African Bank is building tools that transform fragmented small business activity into usable data for lenders
• 22 On Sloane’s KUMii platform uses AI to help startups discover funding and market opportunities across a complex ecosystem

These efforts highlight that the financing gap is also an information gap. Simply adding more lenders won’t solve the problem if businesses remain financially invisible.

A Case Study: South Africa

South Africa provides a clear example - with an estimated R350 billion ($21.6 billion) micro, small and medium-sized enterprise (MSME) financing gap, yet hundreds of funders compete for limited deals.

As Edna Sathekga-Montse, African Bank’s Chief Transformation Officer, explained: “Lenders need to understand businesses better to assess affordability and risk.” The challenge is that this information often exists in silos - bank transactions, invoices, payroll records, tax filings all tell a piece of the story but don’t create a comprehensive financial picture when viewed separately.

This disconnect particularly affects smaller and informal businesses. OECD data shows that 56% of South African MSMEs are unregistered, while only 7% used formal loans to start their businesses.

The Solution: Financial Infrastructure as Enablement

The most promising approach isn’t just about moving money but building the infrastructure that helps capital find deserving businesses. By offering integrated solutions for payroll, tax and HR functions, banks like African Bank can help companies become more structured - generating more data while improving operations.

As Sathekga-Montse noted, “The more structured a business becomes, the more information it potentially generates about itself.” This reduces reliance on traditional proxies like collateral or credit history, allowing lenders to make more informed decisions based on actual performance.

While digitization is important, access remains uneven - with only 32% of South African MSMEs having websites and 50% with internet access. The real opportunity lies in creating inclusive financial systems that can understand businesses regardless of their digital footprint.