Africa's credit market presents a paradox that policymakers and financial institutions can no longer afford to ignore. Despite having capital and liquidity to lend, millions of individuals and businesses remain excluded from formal financing. This issue is particularly pressing, with the International Finance Corporation estimating that $331 billion in yearly SME financing demand goes unmet in sub-Saharan Africa. This financing gap has far-reaching consequences, including businesses unable to purchase inventory, acquire equipment, employ more workers, or expand production.
The experience of South Africa provides a striking illustration of this issue. In the second quarter of 2025, consumers submitted 18.5 million credit applications, but 67 percent were declined. This suggests that Africa does not necessarily have a shortage of money to lend but a shortage of reliable information with which lenders can confidently determine who should receive it. This distinction is crucial, as it highlights the need for a more nuanced approach to creditworthiness assessment.
The problem is particularly serious because much of Africa's economic activity takes place outside the formal financial system. Informal businesses may have customers, turnover, and reliable suppliers but lack the payslips, audited accounts, extensive banking histories, or conventional credit records demanded by traditional lenders. This creates a damaging mismatch, as people can be economically active without being financially visible.
To address this issue, Africa's financial institutions need to rethink how creditworthiness is assessed. The answer is not for banks to lower their lending standards or abandon risk management, which would merely create another problem through rising defaults and weakened financial institutions. Instead, the objective should be to widen the evidence upon which responsible lending decisions are based.
Regular rent payments, utility bills, mobile-money transactions, school-fee savings, supplier payments, and other consistent financial behaviors can reveal valuable information about an individual's or business's capacity to repay. The challenge is converting these scattered signals into reliable, transparent, and usable credit intelligence. This is increasingly possible through alternative-data analytics and modern credit-scoring systems.
Evidence from emerging lending models suggests that expanding the pool of information available to lenders can bring previously excluded borrowers into the formal credit system without necessarily producing a corresponding explosion in bad loans. This should encourage African banks to move beyond the traditional definition of a bankable customer and consider alternative data sources.
Collaboration among banks, fintech companies, credit bureaus, telecoms operators, payment platforms, regulators, and data providers is crucial to addressing Africa's credit challenge. Regulators should establish clear rules governing responsible use, privacy, consent, and accuracy of alternative data, while financial institutions should invest in the technology and skills required to interpret it. Governments also have a role in accelerating financial formalization by improving digital identity, business registration, address systems, and data-sharing frameworks.
Key points
- The lack of reliable data is a significant obstacle to accessing credit in Africa.
- Alternative-data analytics and modern credit-scoring systems can help to address this issue.
- Collaboration among stakeholders is crucial to expanding access to productive credit in Africa.
