Unlocking the growth equation: Stability, capital, and SMEs in Africa’s fragile markets

Small- and medium-sized enterprises (SMEs) need growth capital to thrive. Investors are constantly seeking promising businesses to invest in.

It sounds like a perfect recipe for success—and often it is.

In developed and emerging markets worldwide, the marriage of private equity and venture capital to entrepreneurs and their businesses has been a key driver of economic growth, innovation, and job creation. However, in fragile and conflict-affected situations—the World Bank identifies 38 of these worldwide, including 21 in Africa—the picture is more complicated.

Private businesses in these environments contend with a host of unique challenges, including higher macroeconomic risks, uncertain policy environments, foreign exchange volatility, greater vulnerability to internal and external shocks, and limited access to markets, infrastructure, and global suppliers. Difficulties accessing capital, driven by limited short-term lending from banks, high interest rates, and constraints around collateral, underlie—and amplify—their challenges.

Meanwhile, investors often perceive fragile places as being full of red flags. The risk-return calculus can appear less attractive in these environments, and the pipeline of investment-ready SMEs is also usually smaller.

A central focus of the World Bank Group’s work is, therefore, to expand access to finance for SMEs in fragile places and to find innovative ways to unlock new sources of capital, especially through its private-sector arm, IFC.

Channeling capital and expertise to high-potential businesses in markets recovering from conflict or suffering from fragility is essential for fostering economic development, job creation, and resilience.  We do this by supporting both firms and funds.

On one side of the equation, we provide advisory services to SMEs by preparing and strengthening them to receive investment; on the other, we work with fund managers to build their capabilities and strengthen local investment ecosystems so they can more easily mobilize capital, and drive value creation across their SME portfolios.

This two-fold strategy was on display in November 2025 at IFC’s 13^th annual SME Ventures Forum in Zurich, which convened development finance institutions (DFIs), limited partners (LPs), fund managers (GPs), and ecosystem players to share experiences and best practices.

Established in 2010, IFC’s SME Ventures program channels risk capital to SMEs by investing in private equity funds in frontier markets, where challenges generally include weakened institutional and governance capacity and shallow capital markets.
 

Strengthening ecosystems

In addition to investing capital, SME Ventures works with other development partners to strengthen private capital ecosystems and support local fund managers with access to global expertise, market knowledge, and capacity building.  

The program has supported fund managers to expand access to finance for high-growth, underserved SMEs in frontier markets like Nigeria, Ethiopia, the Democratic Republic of the Congo, and Madagascar.

We support emerging fund managers in frontier markets because they often are the main investors on the ground, taking early risks to pioneer private equity investments. Their understanding of local dynamics, networks, and operating environments enables them to work closely with SMEs and entrepreneurs to strengthen their operations and unlock long-term growth.

SME Ventures has committed to over 28 funds managed by local fund managers on the ground investing in SMEs. They not only receive an equity investment but also have access to advisory services to strengthen the fund managers’ capabilities and to support their portfolio SMEs to drive value and economic growth.

On the other side of the equation, IFC is strengthening individual businesses, including through the Local Champions Initiative, which supports locally owned businesses across several fragile and conflict-affected markets to improve their investment readiness to attract IFC financing and other private sector sources.

For example, a furniture producer in Guinea received a loan to help the company build a modern industrial complex to consolidate and expand its operations with the goal of tripling its production capacity. Additionally, the company receives advisory services to help assess the feasibility of developing its own forest concession operations to improve its wood sourcing and traceability.

Providing businesses in fragile and conflict-affected countries with the capital and know-how they need to grow is an urgent imperative: the World Bank Group estimates that by 2030, half the world’s extreme poor will live in countries characterized by fragility, conflict, and violence—and most of these people will be in Africa.

By bringing much-needed capital and expertise to local SMEs and fund managers, we work to strengthen private sector ecosystems in fragile countries, supporting recovery, accelerating growth, and reducing the risk of a slide back into instability.