January 27, 2021

Extending MSMEs’ access to trade finance under the AfCFTA

While the African Continental Free Trade Area (AfCFTA) provides opportunities for regional financial sector development, it also poses a real test for the continent’s financial system. The ability of Africa’s financial sector to perform the crucial function of facilitating economic growth and integration, at the required scale to support the capacity of small firms to benefit from the single African market remains shaky. In terms of opportunities, the elimination of inhibitive regulations under the AfCFTA is expected to ease cross border trade, enable capital and information flow, attract greater foreign and intra-continental investments, potentially increase capital funds, and provide a much larger customer base for financial institutions to serve. This potential new market base includes traditionally excluded micro, small and medium enterprises (MSMEs) that constitute a large share of the African economy. MSMEs are expected to be a major catalyst for increasing intra African trade and shared economic growth. However, the constraint to MSME financing is a major threat to the success of the AfCFTA as effective economic integration and development depend on easily accessible and affordable capital. This brief therefore advocates for urgent implementation of harmonised financial sector policy reforms across the continent to eliminate these funding constraints, and allow for a more supportive business environment.

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