Nigerian impact investment hampered by startups’ finance challenges

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Lack of financing options, access to financing, and knowledge of alternative financing channels are the key challenges faced by social enterprises seeking investment in Nigeria, according to research by the Global Impact Investing Network (GIIN).

In new data gathered from Nigeria’s impact investing ecosystem spanning the past 10 years, GIIN found that five challenges can be identified as the key obstacles faced by social enterprises in the country; three of the challenges revolving around financing.

The first challenge highlighted is difficulty in securing financing; with social enterprises finding it difficult to access financing from commercial lenders – due to overly onerous collateral requirements; and where finance is available the cost is often too high for enterprises to bear.

“As much of the demand for financing is for working capital, this significantly hampers enterprises’ abilities to conduct their day-to-day operations,” GIIN said.

The lack of varied financing options in Nigeria is cited as the second challenge; the report finding there are very few angel investors, venture capitalists, or impact investors active in Nigeria.

According to GIIN, incubators in Nigeria – although mostly tech-focused – are currently fulfilling the role of providing alternative financing options.

In addition to the above challenges, GIIN found there is a limited awareness of financing options other than commercial banks among social enterprises.  When talking about access to finance, GIIN said enterprises referred almost exclusively to commercial lenders.

“Part of the reason for this is that enterprises often lack the skills, networks, and time to actively seek connections with potential investors, limiting their exposure to new sources of financing,” the research says.

Two challenges were also identified which did not specifically relate to financing.

First, the research found a skills gap, with enterprises lacking systems to ensure accurate financial record keeping, professional management, effective governance, and product development; resulting in it being difficult to secure investment, but also it being more difficult to run businesses effectively.

Finally, GIIN highlighted that a stigma exists around social ventures in Nigeria, with investors less willing to support businesses operating under the category of social enterprises, for a belief that these enterprises do not want financial returns.

“For the few social enterprises that are attempting to establish themselves, it appears that their status as “social enterprises” makes it difficult to convince investors of their viability as investment prospects. […] local investors tend to view impact investing as a type of philanthropy, and assume that enterprises that seek social and environmental impact are not actively seeking financial return.”

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Inspired and excited by the African tech entrepreneurial scene, Gabriella spends her time travelling around the continent to report on the most innovative tech startups, the most active investors, and the latest trends emerging in the ecosystem.

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