There’s a noticeable paradox in South Africa’s credit market that illustrates a challenge across the continent. South African banks hold liquidity and capital well above what regulators require of them, comfortably putting them in a position to extend enough credit to customers. Yet in the second quarter of 2025, consumers submitted 18.5 million credit applications, of which 67% were declined. The problem, then, was not that there was too little money in the system. It was that the institutions holding it could not confidently underwrite a large enough share of the market demanding it. The pattern is the same across most of Africa to date.
The International Finance Corporation estimates that $331 billion in SME financing demand goes unmet in Sub-Saharan Africa each year. Having spent years building alternative credit infrastructure, I’d argue the reason is the same one playing out in South Africa: there is more capital available to disburse as credit, but only a fraction of that demand falls within the addressable market of formal lenders today.
For many Africans, building a home is a years-long exercise in accumulation: one room at a time, as enough cash becomes available to add the next. It is a practical response to a financing system that cannot always bring future purchasing power forward into the present. The same pattern appears across the entire economy. Businesses grow one inventory cycle at a time, expansion waits for retained earnings, and productive investment often happens only when enough cash has already been accumulated to fund it.
The real problem is not that some of the economy grows this way, but how much of it does. Africa’s economy is largely powered by the informal sector, which the African Development Bank estimates contributes about 40% of the continent’s GDP, and could be as high as 50–60% in some countries. A significant share of the economic activity banks could be financing therefore develops at the pace of saved cash rather than at the pace of real customer demand. Where credit cannot bring that purchasing power forward, there is slower business formation, slower asset creation, and slower accumulation of the economic activity that generates future banking demand. The result is an economy and a banking market that remains much smaller for longer.
If financial institutions can safely extend credit to more of the economy, it doesn’t just accelerate the formation of the economy, but expands one of the largest revenue pools in African banking. This then begs the question, why, despite the glaring economic potential, are banks and other financial institutions still constrained in financing more of it?
Most financial institutions, particularly banks, know the opportunity is real. Lending is already the single biggest revenue pool for African banks, generating over $30 billion in 2024, close to a third of total banking revenue on the continent, and it’s projected to continue as the largest product category through 2030. The incentive isn’t the issue. The challenge, from what I’ve seen, is closing the decision gap at the infrastructure level, either by building capacity internally or enabling credible partners to embed the infrastructure needed to lend more safely to more people.
Within traditional banking institutions, a new idea has to pass through different layers of approval: product, risk, committee, technology, and compliance committees before anyone can release the balance sheet behind it. By the time it clears every desk, the quarterly targets that gave it urgency may have already rolled over, and the idea gets deprioritised.
Another challenge has been the assumption that closing a gap this large forces lenders to take on more risk. But data from the various markets where Notto operates suggests otherwise. Before our scoring models were introduced, roughly 1% to 2% of the consumer base we have since assessed had access to formal credit. Within about a year of our models being used by lending partners, credit extended to that population grew close to tenfold, while non-performing loans remained below 4%.
On one hand, more people gained access to credit; on the other, lenders expanded their portfolios without a corresponding deterioration in credit performance. The reason is that the models surfaced evidence of creditworthiness that conventional systems had not captured: on-time rent payments, regular bill payments, and other patterns of financial behaviour already generating signals of repayment capacity.
The shift we need is not a lowering of standards by lenders, but a widening of what counts as evidence. Creditworthiness in Africa has been defined by a narrow set of formal markers – a bank statement, a payslip, a credit bureau file – but most people’s financial lives don’t leave that kind of paper trail, as much of their financial behaviour happens outside formal channels. Rent paid on time, mobile money saved for school fees, supplier invoices settled every month, and other patterns of financial behaviour can all provide signals of repayment capacity. The opportunity is turning those signals into reliable, interpretable evidence that lenders can use in making credit decisions.
That reframing changes where the industry should focus its energy. Instead of asking how to bring more capital into the system, the more useful question is whether the infrastructure exists to let the capital already there reach the people and businesses capable of putting it to work. There’s a need for alternative data intelligence for credit decisioning, and credible partners are already solving at scale.
The opportunity is ultimately larger than expanding access to credit, but changing the pace at which the economy itself can form. When businesses can finance inventory before they have accumulated the cash to buy it, when assets can be built in years rather than decades, and when productive capacity can scale with demand rather than savings, the effects compound far beyond the initial loan. More economic activity is created, more of it becomes bankable, and the banking market grows with it. The capital is already there. The opportunity is to build and adopt the infrastructure that lets it move at the speed of Africa’s ambition.
Written by Dumisani Dube – Chief Commercial Officer, Notto