Why Domiciliation Matters

Background: WHY DOMICILIATION MATTERS TO MSMEs

While informal employment accounts for 86.5% of total employment and self-employment remains high at 75.5% of workers, there continues to be shortage of small enterprises that can provide more stable employment.

The impact is particularly severe for Africa’s youth, who face significant barriers to decent work. MSMEs are highly effective at generating inclusive jobs but have limited access to affordable finance that is hindering African entrepreneurs from starting, growing and scaling high-potential enterprises. MSMES are often too large to access microfinancing and are too small to access traditional banks and traditional PE and VC capital. They require more diverse capital providers to support their establishment and growth. Collaborative for Frontier Finance’s research shows that small and growing businesses (or MSMEs) generate approximately 80% of formal jobs in emerging markets but still face a USD 940 billion funding gap. This could be transformed into the “transforming middle”.

The figure below shows how diversifying the domiciliation of funds can have a positive effect on economic transformation for African youth, who represent 70 percent of the continent’s population.

Developing mature African capital markets is imperative to drive investment into African MSMEs. African or local domiciled Investment Vehicles (IVs) are well positioned to deploy capital and support value creation through a strong pipeline of local MSMEs. There has been a rise in diverse smaller-sized funds (with fund sizes less than USD 10 million in Africa), smaller sized funds are significant in their ability to unlock funding for small investments that mostly go into MSMES.

For more information about the technical aspects of the study, please write to domiciliation@momentus.global