Can African banks choose up the startup funding baton?

Africa’s startup growth has run on overseas gasoline for the higher a part of a decade. Enterprise capital and growth finance establishments (DFIs) powered the primary wave of progress, whereas most native industrial banks stayed on the sidelines, generally by selection, typically by design.

That mannequin labored whereas international liquidity swelled and grants have been plentiful. It doesn’t anymore. VC has slowed, DFIs are extra selective, and lots of promising founders, particularly these exterior “sizzling” classes, are stranded with out capital. If Africa needs a resilient innovation economic system, its banks should change into co-architects, not passive observers.

That is already starting to occur. In late July, Solar King—the off-grid photo voltaic big—closed a $156 million securitisation led primarily by way of industrial banks (ABSA, Citi, Co-operative Financial institution of Kenya, KCB, and Stanbic Kenya). The transaction, the most important majority bank-backed securitisation in Sub-Saharan Africa exterior South Africa, will finance roughly 1.4 million photo voltaic merchandise and smartphones in Kenya. That’s not only a headline quantity, it’s a blueprint for bankable affect at scale.

Kenya’s sixth-largest lender by property, Stanbic Financial institution, has additionally damaged from the pack. Stanbic plans to boost $100 million by way of a brand new Catalytic Fund to finance startups and SMEs throughout East Africa—particularly in sectors that VCs typically overlook: agritech, the artistic economic system, healthtech, and manufacturing. The financial institution needs to “develop the continuum” of who will get served, not solely the companies that look VC-ready on day one.

And Fairness Group—Kenya’s largest lender—simply signalleda rotation away from authorities securities towards loans to the true economic system, projecting a ten% rise in buyer lending by year-end. When the area’s most influential financial institution decides that lending to companies beats parking money in Treasuries, you need to count on the remainder of the herd to lookup.

These strikes come as Africa’s enterprise market tries to seek out its ground—maybe its new form. African startups raised$3.2 billion in 2024 (fairness plus debt), with fairness holding regular at roughly $2.2 billion at the same time as debt slipped 17% to $1.0 billion. Exercise remained resilient at 457 fairness offers (–3% YoY), and the variety of distinctive fairness buyers ticked up barely.

However 2025 is displaying actual inexperienced shoots. By mid-year, The Huge Deal counted about$1.4 billion raised—roughly a 78% leap over H1 2024—and flagged a a lot stronger July. That’s nonetheless beneath the 2021–2022 sugar excessive, suggesting a more healthy reset somewhat than a chronic winter. Even the IFC, hardly a hype machine,acknowledges the 2022–2024 swoon (funding down by 52% from the height) whereas arguing the deeper drawback is structural. The continent lacks home fairness financing and depends excessively on overseas cycles, which implies native banks matter.

Why banks have stayed away

African banks’ reluctance to fund startups boiled right down to danger, regulation, and returns. Banks function below prudential pointers, making them averse to unsecured, unstable companies with excessive failure charges. Startups, in flip, typically sought capital exactly as a result of they lacked the regular revenues banks demand. The consequence was a pure division of labour: VCs took the wild bets; banks financed the secure bets.

Nevertheless, a number of forces are eroding that neat separation. The VC downturn has left even stable, cash-flow-positive startups struggling to boost capital. New asset lessons, like revenue-based financing and structured debt, permit banks to cost and handle danger extra successfully. Regulatory stress in some markets to extend SME lending quotas is nudging banks to look past the standard suspects.

A lot of the African market is over-indexed to short-term working capital. Kenya gives a helpful microcosm. Digital overdrafts like Fuliza (run with Safaricom in partnership with KCB and NCBA) transfer astonishing quantity—NCBA and its companions disbursed aroundKES 1 trillion ($7.7B) in digital loans in 2024, with Fuliza alone close to KES 906B. That’s highly effective for liquidity—but it surely’s not affected person progress capital. Founders can’t construct factories, scientific networks, or agri-processing capability on 30-day overdrafts.

The macro atmosphere is pushing banks to diversify. In Kenya, as an example, yields on authorities securities fell from double digits in early 2023 to single digits in 2025. In Nigeria, inflation-adjusted returns on fastened revenue are unfavorable. For a financial institution’s treasury crew, startups and tech-enabled SMEs — particularly these serving massive addressable markets — are beginning to appear like a extra engaging risk-return trade-off.

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The help banks might supply

If banks totally commit, they will supply affected person capital, one thing the VC mannequin typically can’t. VCs, by design, function on 5– to 10–yr fund cycles and should ship outsized exits to their LPs. This drives a “progress in any respect prices” mentality that may be ill-suited to African markets, the place infrastructure gaps, fragmented logistics, and slower adoption curves require extra time to scale sustainably.

Affected person capital is just not charity. Its capital is structured to the realities of African working environments, which embody longer cash-conversion cycles, foreign money volatility, uneven infrastructure, and regulatory friction. The right devices mix draw back safety with progress upside. Banks are uniquely positioned to ship this in the event that they regulate merchandise, danger fashions, and incentives.

Banks, particularly these with massive retail deposit bases like Kenya’s KCB Group, Nigeria’s Entry Financial institution, and South Africa’s Commonplace Financial institution, can present longer-term loans or hybrid debt-equity buildings that align with the slower burn of constructing in Africa. Structured accurately, such financing might help founders in capital-heavy sectors like manufacturing, agri-processing, or healthtech gear — areas which might be important to financial transformation however unattractive to conventional VC due to their lengthy path to profitability.

For banks seeking to help Africa’s startup ecosystem with out straying too removed from their danger consolation zones, the chance lies in adapting acquainted merchandise to the realities of thin-file founders. Receivables and stock finance, as an example, could be prolonged in opposition to contracted revenues—corresponding to distribution agreements or enterprise contracts—or audited inventory. Pairing these amenities with treasury providers permits money flows to brush instantly towards reimbursement. This mannequin is already confirmed: Solar King’s PAYGo receivables confirmed how predictable money flows could be securitised. Whereas a multinational like Citi can take such offers to capital markets, smaller banks might begin with warehouse strains and step by step scale up.

One other software is revenue-based financing (RBF), which replaces conventional collateral with a declare on future revenues till a cap is met. It really works exceptionally properly for SaaS corporations, creator-economy ventures, logistics platforms, and B2B marketplaces. For founders, RBF behaves like quasi-equity, extending runway with out possession dilution, whereas lenders amortise danger over time. Banks might even syndicate these offers with native enterprise debt funds to unfold publicity.

Milestone-linked time period loans supply one other pragmatic method, releasing funds in tranches tied to operational efficiency—energetic customers, churn charges, or unit economics. Borrowing a web page from challenge finance, this methodology aligns incentives with out burying startups below overly restrictive covenants. Equally, enterprise debt paired with warrants permits banks to supply medium-tenor loans to venture-backed corporations whereas taking a modest fairness kicker. For founders, meaning extra respiration room; for banks, it preserves principal whereas providing a shot at equity-like upside.

Banks might additionally construct packages round anchor-offtaker financing, the place a company or public entity is the assured purchaser—assume telcos, utilities, grocery store chains, or well being insurers. This might imply device-financing for PAYGo photo voltaic or smartphones, cold-chain gear for agri-processors, or capex for diagnostics labs with insured funds.

Blended ensures can scale back danger for first-time debtors. By mid-2024, Kenya’s state-backed credit score assure scheme had disbursed about KES 6.3 billion—a modest base that could possibly be expanded with sector-specific variants. Partnering with growth finance establishments (DFIs) and authorities packages might assist banks scale this method meaningfully.

Foreign money volatility is one other barrier. FX-aware amenities—local-currency loans with embedded hedges or CPI-linked step-ups—might help match the income realities of startups that earn in shillings, naira, or rand however increase fairness in {dollars}. Lastly, asset-backed small-ticket loans stay underused in manufacturing, healthtech, and agritech. A CNC machine, photo voltaic mini-grid elements, or a chilly room are all financeable by way of leases or hire-purchase agreements. The problem isn’t whether or not the asset could be resold, however whether or not the financial institution can underwrite the sector’s money flows.

The longer term is optimistic

The traits don’t counsel that banks will out of the blue exchange VC. Variations stay. Financial institution credit score committees assume by way of risk-weighted property, not pre-money valuations. Many startup founders have little expertise making ready the type of audited financials banks require. With out these banks, they could nonetheless draw back from pre-revenue ventures.
That’s the place coverage and partnership might play a job. Improvement banks might channel extra funds into first-loss ensures for industrial financial institution lending to startups, as a substitute of writing direct fairness cheques. Regulators might create sandbox frameworks for financial institution–startup financing fashions. Trade our bodies might standardise due diligence templates that bridge the hole between financial institution credit score assessments and startup pitch decks.
If the Solar King deal, Stanbic’s fund, and Fairness’s SME shift are early tremors, the earthquake will come when a number of massive African banks have devoted startup finance items, simply as they now have SME desks. That might mark an precise rewiring of Africa’s capital formation system — one the place native financial savings finance native innovation, and the following era of African scale-ups are as more likely to have financial institution debt on their steadiness sheets as they’re to have VC fairness.

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Adonijah Ndege

Senior Reporter, TechCabal

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