Africa’s Alternative Lenders Are Becoming Banks. That Is A Problem.

By Kei Rapodile

African banking, by any conventional measure, is thriving. Research from McKinsey & Company puts return on equity at roughly 19 percent – a figure that would make most Western bankers envious. Yet across the continent, a significant share of economically viable small and medium-sized enterprises (SMEs) remain shut out of formal credit markets.

The banks are profitable. The businesses are creditworthy. And still, the money does not flow.

Not a Paradox. It Is a Design Outcome.

Banks are optimized for predictability: clean data, standardized risk, scalable portfolios. Large corporations and salaried employees fit that model neatly.

Many SMEs do not. Informal operations, inconsistent financial records, and irregular cash flows make them expensive to underwrite at scale.

From a purely institutional standpoint, leaving them underserved is not an oversight – it is a rational choice.

That structural gap is precisely where trade finance – specifically purchase order (PO) funding and invoice discounting – found its purpose and its market.

Built For Gaps The Banks Left Behind

PO funding and invoice discounting were never intended to replace banks. They were designed to extend the financial system into the territory it could not efficiently reach.

PO funding finances confirmed orders before delivery – turning a promising contract into actual production capacity. Invoice discounting advances cash after delivery – converting outstanding receivables into working capital.

Together, they form a transaction-based financing loop grounded in real economic activity rather than historical balance sheets.

For countless African SMEs, this model has been the difference between winning a contract and walking away from it. Speed, flexibility, and a willingness to assess the deal rather than the filing cabinet – these were the defining advantages of alternative trade finance.

Were. Past tense. Because something is changing.

The Quiet Drift Toward Orthodoxy

As trade finance providers have scaled, a subtle but consequential shift is underway. Many are quietly adopting the same characteristics as the banks they once complemented: more extensive compliance requirements, standardized credit frameworks, greater reliance on audited financial histories, and a growing preference for repeat, lower-risk clients.

From a governance standpoint, this drift is understandable. Institutional capital demands predictability. Portfolios must perform. Risk must be measured, priced, and controlled. Nobody managing a lending book at scale wants to explain a string of bad calls to investors.

But the problem is not that these providers are becoming more disciplined. The problem is convergence.

When alternative financiers begin applying the same filters as banks, they stop functioning as an extension of the financial system and start replicating it. The result is not a broader market – it is a narrower one, dressed up in different branding.

A Familiar and Frustrating Cycle

The pattern that has emerged is depressingly predictable. Banks avoid non-standard SME risk. Trade financiers enter to serve that underserved segment. Those financiers scale and standardize. The same SMEs find themselves excluded again. New, more flexible entrants emerge, and the cycle restarts.

This is not market expansion. It is cyclical reallocation – a merry-go-round that generates activity without meaningfully improving access for those who need it most.

Why the Drift Is Hard to Resist

Three structural pressures are pushing trade finance in this direction, and none of them are easy to resist.

Volatility. Currency swings, inflation, and credit losses across many African markets force tighter controls. Flexibility becomes difficult to justify when downside risk is rising.

Scale. Growth introduces complexity. Managing hundreds of transactions requires standardization, which inevitably reduces room for the deal-by-deal judgment that once set these providers apart.

Data. Banks are investing heavily in AI-driven underwriting and data infrastructure. Access to credit is improving – but primarily for businesses already visible within formal financial systems. Those operating in the informal economy remain as opaque as ever.

The Strategic Trap

For trade finance providers, the strategic dilemma is stark. Converging with banks creates a structural disadvantage: alternative financiers lack low-cost deposits and the deep balance sheets that traditional lenders rely upon.

Competing on the same terms means eroding margins and weakening competitive positioning – a race the banks are almost certainly going to win.

Remaining differentiated, on the other hand, demands maintaining flexibility – often at the direct expense of predictability. It is a harder business to manage and a harder story to tell institutional investors.

But it is the only one that justifies the sector’s existence.

What This Means for African SMEs

For African SMEs, the implications are immediate. More funding options on paper do not necessarily translate into better access in practice.

Documentation requirements are increasing, not decreasing. Approval timelines are lengthening. Speed – once the defining advantage of alternative finance – is diminishing.

Access is increasingly contingent on finding providers willing to assess individual transactions rather than financial histories, and that pool is shrinking.

McKinsey & Company continues to identify SME finance as one of the most significant growth opportunities across Africa. The demand is real and the opportunity is large.

But growth in the number of providers does not resolve structural exclusion if every provider eventually gravitates toward the same narrow band of acceptable risk.

The Market Will Adapt – But at What Cost?

The financial system has never tolerated a persistent, profitable gap for long. New niche players will emerge. Hybrid advisory-and-funding models will expand.

Transaction-based financing will persist in some form. Each wave of standardization creates room for a new wave of flexibility, and the cycle continues.

But the adaptation is slow, imperfect, and costly. Businesses that fall through the gaps while the market recalibrates do not simply pause – they collapse, miss contracts, or never reach their potential.

The human cost of each turn of this cycle is real, even when it is invisible in aggregate statistics.

Scale Into Sameness, or Stay Where the System Cannot Reach

African banking is not broken. It is highly efficient within its parameters. But those parameters leave a meaningful share of economically productive activity chronically underserved. Trade finance – particularly PO funding and invoice discounting – was built precisely to serve that segment.

As these models become more bank-like, they risk reinforcing the very exclusion they were designed to solve. And when that happens – when the cure begins to resemble the disease – the market responds, new entrants emerge, and the whole cycle begins again.

For providers, the strategic question is ultimately simple: scale into sameness, or remain positioned where the system still cannot reach? The answer will define not just their commercial futures, but the financial lives of millions of businesses that have nowhere else to turn.

Kei Rapodile is a registered Business Adviser and certified DTT Technician with a focus on Marketing, Construction, and ICT. He is the founder of Ebos Advisory, a micro advisory firm supporting enterprise growth and local economic development. Over the past 5 years, he has delivered 3,000m² of completed structures and trained over 500 students in digital literacy. With 10+ years of experience, Kei bridges strategy, infrastructure, and digital systems for practical impact. He is committed to reshaping South Africa’s built environment through innovation and inclusive enterprise.