Entrepreneurial Financing in Africa during the COVID-19 Pandemic

Abstract

Access to finance by small-to-medium-enterprises (SMEs) remains an enigma that still warrants further research. The COVID-19 pandemic has exacerbated the funding gap and necessitated the need for entrepreneurs to seek alternative financing due to tight credit rationing by the traditional finance institutions. There is a marked increase in demand for alternative online finance known as crowdfunding amid social distancing and lockdowns occasioned by the COVID-19 pandemic. The main objective of this study was to examine the trends in the financing of African SMEs during the COVID-19 pandemic with a particular focus on crowdfunding. The postpositivist research philosophy and deductive strategy was adopted in this study with the view to test an existing theory and hypothesis. Secondary data sourced from TheCrowdDataCentre were utilised for the study. Eight hundred and fifty-nine African crowdfunding campaigns were employed as the unit of analysis. The study employed econometric techniques to test the research objectives of this study. The probit model was employed in the analysis. The results of the study revealed that backers, the COVID-19 and social network variables were positively and significantly related to campaign success. On the other hand, duration was found to be negatively and significantly related to crowdfunding success. The study contributes to the growing literature on the impact of COVID-19 on crowdfunding performance, as well as the literature on alternative sources of finance.

Factors Affecting Small and Medium-Sized Enterprises Financial Resilience Post Covid-19 Pandemic in South Africa

“…Similarly, Mamaro and Sibindi (2022) found that SMEs' access to Finance is positively associated with their growth and innovation. Mujeri et al (2020) note that SMEs have limited options in obtaining funding, with many SMEs being obliged to receive bank financing under tight conditions that are not beneficial to their enterprises' repayment capability.…”

“…Repayment plans are also critical to SMEs' financial resilience. Flexible repayment plans can help SMEs manage their debt burden during economic uncertainty, enabling them to remain financially stable and avoid defaulting on their loans (Mamaro & Sibindi, 2022;Msomi & Olarewaju, 2022). However, many SMEs in South Africa need more flexible repayment plans, which can lead to default and bankruptcy (Fatoki, 2014).…”

“…According to Mushtaq et al (2022), SMEs' access to loans is essential for their growth and innovation. However, SMEs often need help accessing loans due to stringent loan requirements and high interest rates (Mamaro & Sibindi, 2022). In South Africa, only 20% of SMEs have access to Finance, with the rest facing challenges in accessing Finance due to stringent loan requirements (SBI, 2021).…”

Digital Financial Inclusion: COVID-19 Impacts and Opportunities

“…Studies showed that as a result of the pandemic, the need to obtain additional funding for businesses and the demand for alternative financing-in particular through crowdfunding platforms-have increased significantly. However, the COVID-19 pandemic also caused a decrease in participation in crowdfunding and reduced its effectiveness for businesses [50].…”

The Drivers of Successful Crowdfunding Projects in Africa during the COVID-19 Pandemic

“…The sustainability of entrepreneurs is considered to be a major engine of economic growth and development, mainly because it creates jobs and innovation (Mamaro and Sibindi 2022). This has directed African governments to encourage the establishment of small and medium-sized enterprises across the continent.…”