According to a study and market intelligence analysis by Briter Bridges, a company that focuses on emerging markets, approximately $415 million has been borrowed by Nigerian digital firms over the past ten years.
According to the paper “Debt Financing in Africa’s Innovative Ecosystem,” between 2014 and 2023, African startups as a whole borrowed a total of $2.1 billion. Kenyan startups received the lion’s share of this debt, having borrowed over $800 million in 60 transactions.
The startups in Nigeria borrowed $415 million, which was the second-highest amount on the continent at that time. The report claims that the money was borrowed in more than 40 transactions
The big four countries in terms of startups in Africa, Nigeria, Kenya, Egypt, and South Africa accounted for over 75% of the volume of total debt funding by African startups.
The report noted that debt financing in the African startup ecosystem had grown over the last five years due to a decline in equity funding.
According to the report, from 2019 to H1 2023, debt as a share of the total volume of funding to ventures in Africa increased from 4% to 26%.
“While debt is certainly playing a role in Africa’s startup ecosystem and innovations on the financing side making it more accessible, one of the biggest drivers of debt’s rise in Africa’s startup ecosystems may be the dramatic fall in equity funding, which fell from $2.6bn in 2022 to $1.4bn in 2023.
“Over the past ten years, more than $2bn in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa from more than 140 funders for a total of more than 200 deals,” Briter Bridges stated in the report.
The sectors getting the debt
According to Briter Bridges, unlike with equity, most of the debt funding is flowing to companies with collateral with nearly 75% of debt funding going to asset-heavy businesses in cleantech, mobility, agriculture, and logistics.
It added that while debt funding to startups in Africa has increased, it has not been equally distributed across sectors.
“Debt has typically flowed to sectors where funding can be collateral against assets or other collateral like loan books. For example, the sectors in which startups have received the most funding are cleantech and fintech. But even within these, there are a handful of products driving it.
Nearly 50% of disclosed debt funding from 2014 to H1 2023 went to cleantech. The majority went to solar home kits and pay-as-you-go products. In fintech, where nearly a quarter of debt funding has gone to asset financing and buy-now-pay-later products. In mobility, it served for electric vehicles, and within agtech, it was used to finance agriculture equipment,” it added.
The report listed top debt deals within the period including the $200 million raised by Kenyan startup, Mkopa, $130 million raised by Sunking, another Kenyan Startup, and $50 million raised by Nigerian startup, Lumos.
