How does the high cost of money affect the growth, sustainability, and competitiveness of small African businesses?

Small and Medium Enterprises (SMEs) are critical drivers of employment, innovation, and economic growth across Africa. However, their development is often constrained by the high cost of borrowing, with lending rates in many African countries ranging between 18% and 35%. This study examines how high borrowing costs affect the growth, sustainability, and competitiveness of African SMEs. The research adopted a mixed-methods approach based on secondary data obtained from academic literature, policy reports, and international databases, including the World Bank and African Development Bank. The study explored the relationship between lending rates and SME performance indicators such as investment, productivity, profitability, and business survival. Findings reveal that high borrowing costs significantly limit SME growth by reducing access to affordable capital for expansion, technology adoption, and job creation. Expensive credit discourages businesses from seeking formal financing and increases reliance on internal or informal funding sources. The study also found that high debt-servicing obligations weaken financial sustainability by reducing liquidity, profitability, and resilience to economic shocks. Furthermore, elevated lending rates diminish competitiveness by restricting innovation and limiting firms’ ability to compete with businesses operating in lower-interest-rate environments. The study concludes that the high cost of money remains a major structural barrier to SME development in Africa. Addressing this challenge through financial-sector reforms, improved credit systems, and affordable financing mechanisms is essential for enhancing SME growth, competitiveness, and long-term economic development across the continent.