WHAT IS THE FUTURE OF ASSET FINANCING IN AFRICA?
Asset financing in Africa holds huge potential for economic growth, sustainability, and financial inclusion. This fast-growing market is critical in developing individuals and businesses across the continent by providing access to essential assets ranging from vehicles to technology.
In this piece, we will examine asset financing in Africa and its future, where innovations are expected to fuel growth.
Furthermore, we will highlight the increased demand for Electric Vehicles (EVs) in Africa and the role Gigmile plays in it.
How Asset Financing Works
Asset financing is a financial arrangement that makes it possible for individuals and businesses to own various assets such as vehicles, machinery, equipment, and technology without having to raise the required funds.
This type of financing is ideal for businesses and individuals who want to acquire these assets but lack the immediate liquidity to make a full payment.
Asset financing also promotes financial inclusion by providing individuals and businesses with viable options.
The Roles of Borrowers and Lenders in Asset Financing
The asset financing market thrives on a collaboration between borrowers, lenders, and the assets, with each playing a distinct role in the process.
Borrowers are individuals or businesses seeking to acquire specific assets for various purposes, such as expanding their operations, upgrading their technology, or improving their overall productivity.
They approach a lender, typically a financial institution or specialized asset finance company, to secure the necessary asset.
Lenders, on the other hand, are financial institutions, banks, or specialized asset financing companies that provide the assets needed.
They assess the creditworthiness of the borrower, evaluate the asset’s value, and structure a financing arrangement based on various factors like repayment terms.
Lenders play a crucial role in mitigating the financial risk associated with asset financing.
The Current State of Asset Financing in Africa
Asset financing in Africa plays a crucial role in the continent’s economic development, with vehicles taking the lead.
Report states that two-wheelers form the majority.
The opportunity for investment in vehicle financing in Africa in recent years is fueled by continental trends such as urbanization, a booming automotive industry, and a rising middle class.
GSMA reports that 40% of Africans reside in urban areas, and by 2050, that number is anticipated to reach at least 60%. In the 30 years that follow, one billion more people will be residing in towns and cities.
With this increase will come a strong demand for transportation services and personal vehicles — making vehicle financing a more lucrative opportunity on the continent.
The booming automotive industry in Africa is also fueling a rise in vehicle financing on the continent, consequently contributing to financial empowerment and inclusion.
PWC predicts that Nigeria will be Africa’s next automotive hub. The Ghana automotive industry was valued at $4.6 billion in 2021 and is expected to reach $10.64 billion by 2027, and Kenya is one of the most promising vehicle markets.
However, some challenges in the asset financing market in Africa may restrict this — limited access to financing, particularly for SMEs and individuals; high-interest rates and collateral requirements; political and economic instability in some regions; and lack of credit history and data.
These challenges can only be overcome if financing solutions are implemented. For instance, Gigmile contributes largely — specifically by providing financing for motorcycles and tricycles, as well as smartphones to help mobility entrepreneurs participate and thrive in the gig economy.
Thus, the company is at the forefront, offering innovative asset financing solutions that break down traditional barriers and make financing more accessible to a diverse range of people, especially the unbanked majority of the African population.
The Future of Asset Financing in Africa
The near and far future for asset financing in Africa is promising. Fintech innovation will likely continue to play a pivotal role in expanding access to financing.
Green financing will grow in importance, driven by sustainability goals. As economic stability improves in various regions, asset financing markets are likely to expand.
The Concept of Electric Vehicles (EVs) and their Fit in the African Market
Electric vehicles present significant economic opportunities and environmental benefits for Africa, and the transition is already gaining traction.
Transport currently makes up 10 percent of Africa’s total greenhouse gas (GHG) emissions, which is expected to increase in line with Africa’s expanding vehicle industry.
A recent analysis by McKinsey & Co., focusing on five sub-Saharan African countries (Ethiopia, Kenya, Nigeria, Rwanda, and Uganda) suggests that sales of EVs in these countries could be 340–820 thousand units in 2025 growing to ~3.8–4.9 million units by 2040.
Most of these sales will be electric two-wheelers (E2Ws) due to their low charging requirements, high fleet turnover, and lifetime cost competitiveness.
This means that 4–8% of the vehicle parc (total number of vehicles on the road at a particular time) in these five countries will be electric by 2030, growing to ~25- 35% by 2040.
This prediction consequently implies that the adoption of EVs on the continent will contribute to environmental conservation efforts and development.
Recognizing both the need for and the opportunities of e-mobility in Africa, scalability is automatically centered in this conversation.
However, scaling e-mobility in Africa will require infrastructure financing which is what asset financing companies such as Gigmile are focused on.
Gigmile is breaking down traditional barriers to financing, making it more accessible to a wider range of people, particularly the unbanked, who are a majority of the African population.
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