Improving Access to Finance for Africa’s Fashion Entrepreneurs
Fashion is a billion-dollar industry which has the potential to power economies and transform millions of livelihoods. The realisation of this potential, however, depends on the availability of finance to fund the various operations along its value chain. At the moment, access to finance is a major constraint to the performance of most fashion businesses in Africa. Resultantly, they are plagued with limited production capacities and high costs of doing business, which ultimately stalls the growth of the industry.
In March 2022, the Fashionomics Africa team conducted a survey and a webinar, to better understand the characteristics of fashionpreneurs regarding finance, and to explore potential solutions to their challenges.
A total of 156 entrepreneurs filled out the Fashionomics Africa survey, most of them were micro-enterprises owned by entrepreneurs between the ages of 26 and 40, and drawn mainly from Nigeria (32%), Ethiopia (13%) and Kenya (10%). Findings from the survey did confirm that most entrepreneurs in the textile apparel and accessories (TA&A) industry face challenges in accessing finance. 79% of the survey respondents highlighted that they had not received any form of finance in the last year. In terms of source of financing, crowdfunding and commercial banks were the top two sources of finance.
Funding channels (Fashionomics Africa Survey 2022)
The survey further revealed that the majority of the funding was below 10,000 USD. Such findings provide more context on the reason why entrepreneurs might get access to finance but still face capacity constraints, due to the low amount of money they receive.
Amount mobilised (Fashionomics Africa Survey 2022)
As a follow-up to this survey, Fashionomics Africa also hosted a webinar titled ‘Financing the African Fashion Industry’, on 25th March 2022. Fashion designers and entrepreneurs, investors, industry experts and media attended this webinar. Other profiles included development partners, consultants, and researchers. This webinar aimed to identify the challenges faced by fashion entrepreneurs, especially women and youth, in accessing finance, as well as discuss the innovative and disrupting financing channels available for fashion entrepreneurs.
In addition, it was discussed that access to finance was influenced by several factors such as financial intermediation which allows fashionpreneurs to have a better understanding of how financial institutions work and helps them to better navigate the finance landscape and secure funding.
“One key point that is missing in the conversation is the power of financial intermediation. Financial intermediation. We are talking about the fashion industry where the main actors are creators, designers, artists, and they don’t know about many of the things that we are talking about,” highlighted Lauren Kouassi-Olsson, Founder and CEO of Birimian Ventures.
With strong financial intermediation processes in place, both fashionpreneurs and financial institutions can align their goals to create a mutually beneficial relationship for both parties. Waikuru Njuguna, Partner and Investment Manager of HEVA Fund, reinforced this point by highlighting the importance of sensitivity to the type and level of technical support that creative entrepreneurs require regarding financial issues and the business aspect of fashion.
“When investing in this industry, development financial institutions cannot take the same approach as with other industries, because there are many nuances. HEVA’s approach to investment in the fashion sector has kept shifting because it is not similar to what already exists in other industries”, stated Wakiuru, from Heva Fund.
The need for capacity building was also a recurring issue during the webinar, as the panel highlighted the importance of training, quality education, and technical support.
“Having institutions focused on quality education and training is a priority for Africa; because financing is not again just a numbers’ game, it is about people, customers, having a unique product that could change lives, it is about communities and cultures that are affected by these innovations”, said Sophie Nzinga, Founder of Dakar Design Hub.
Education introduces a multiplier effect to a brand by capacitating entrepreneurs to effectively utilise innovations and resources available to them, to create commercially viable brands. As a consequence, it acts as a strategy for mitigating risks that are peculiar to the fashion industry. Along with the aforementioned factors, collaboration amongst stakeholders such as development finance institutions, academia and organisations supporting the fashion industry, was also cited as an approach for mobilising finance for the fashion industry.
Opportunities for the African Fashion Entrepreneurs
The webinar explored various financing options for fashionpreneurs, which are offered by the organisations that were represented. One of the financing options available for women is the African Development Bank’s AFAWA initiative, which aims to improve women’s access to finance, provide technical finance and advisory services and create an enabling environment for women-owned businesses. Birimian Ventures also provides financial support to fashion brands through equity, quasi-equity, or debt instruments. The organisation offers an accelerator programme called IFM-Birimian Accelerator for Africa, which supports African designers’ brands. Through this program, Birimian Ventures works on the branding of designers, distribution strategy, digital acquisition, and digital distribution. Heva Fund is another organisation that provides financial solutions, equipment and support to fashion entrepreneurs on a case-by-case basis. Afreximbank has a programme for creative and cultural industries called CANEX. Its focus is to address gaps and difficulties in terms of financing, capacity building, digital solutions, and export and investment promotion. Through its programme, it provides mentorship so that African designers, apart from counting on their talent, will be guided through all the processes.
The Bank of Industry has partnered with the African Development Bank on the AFAWA initiative. Additionally, it collaborates with fashion hubs and has a free trade zone. Female entrepreneurs can obtain finance from the Bank of Industry (BOI) through its Gender Business Group, which promotes women’s enterprises through the provision of innovative, financial and business support services. Furthermore, the Lagos State Employment Trust Fund (LSETF) supports small businesses by creating programmes structured to provide financing and leverage for MSMEs; skills development for youths; and promote technology-driven innovations in enterprises. On the other hand, the Dakar Design Hub provides an interdisciplinary design space that focuses on providing quality education and services that facilitate better access to finance, for aspiring designers and professionals in Africa. Entrepreneurs can also explore Thundafund for innovative crowdfunding which is rewards-based, allowing entrepreneurs and innovators to raise capital and provide products or services in return.
Based on the findings from the survey and the webinar, African fashionpreneurs are not where they need to be in terms of securing finance, but opportunities for improvement certainly exist. Through cross-collaboration and an attitude that promotes continuous improvement in the African fashion community, there is room for better resource mobilisation for Africa’s fashion industry to emerge.
To have access to more webinars and up-to-date information and opportunities on the African fashion industry, create an account on the Fashionomics Africa platform here.
Cover picture: Georgina Goodwin/World Bank