Top-down, bottom-up, public-private. Zambia, a country known for big mining, is turning its attention to small business as a pathway to inclusive growth. And it’s hitting it from all angles.
Efforts by both the government and private sector are underway to support broader-based economic opportunity and ownership through small business growth. They include a $260 million small business financing initiative of the Bank of Zambia; an angel investing network; and a private credit fund tapping Zambia’s diaspora community for funding.
“When the small business sector grows, that production circulates within the ecosystem and the multiplier effect is much higher,” than any individual sector, says Austin Mwape, the former deputy governor of the state-owned Bank of Zambia.
The impetus: The landlocked Southern African country has enjoyed decades of growth thanks to its substantial reserves of copper and cobalt, two highly valued earth minerals. Those riches have not been widely felt throughout Zambia’s roughly 23 million people, however.
“Growth has not been inclusive, because it’s growth driven by the mines,” Mwape tells ImpactAlpha on the sidelines of the Africa Impact Summit hosted earlier this month in Lusaka. Many of the largest, most productive mines are owned by foreign companies.
Zambian President Hakainde Hichilema, who faces reelection this year, is pushing to formalize the many informal and small-scale mines to ensure that local businesses benefit from the demand for its minerals. His government also enacted a policy requiring that large mining companies operating in the country spend at least 20% of their procurement budgets with local suppliers.
“Mining is about empowerment, it’s about equity, it’s about shared prosperity,” Hichilema said at a major mining summit in South Africa earlier this year.
Through the Bank of Zambia, the government is looking to put small businesses on a steadier growth path with better access to financing. The central bank is anchoring the Small and Growing Business Initiative, or SGBI, a program of the Zambia National Advisory Board for Impact Investment, or NABII, that aims to incentivize commercial banks and other financial institutions to lend to small businesses.
The Bank of Zambia’s $260 million in first-loss debt financing is meant to crowd in private institutions that have either resisted small business lending because of perceived risks, or that make it too expensive and onerous for business owners to accept loans.
The purpose of SGBI, says Mwape, is to counteract “ownership structure complications where you can grow something but you cannot keep it,” referring to the historical pattern of foreign companies coming into Zambia to control its most valuable resources.
Public sector signals
Zambian small businesses, like those in most emerging economies, are a major driver of jobs but are underserved by mainstream financial institutions. When capital is available, it’s often expensive or requires substantial collateral that many small businesses can’t provide.
SGBI’s objective is to not only open the capital taps, but to deliver different types of capital for small businesses’ different needs. The first pot of money SGBI will put into the market will be a debt pool, expected to launch later this year. Regulated commercial banks will be able to apply to SGBI for low-cost capital that they can use to buffer their own risk and lend to small businesses at lower than usual rates.
SGBI will also host a fund of funds to invest in venture capital and private equity funds providing equity for businesses’ longer-term growth. It’s a more complicated pool and pipeline to develop, says Mwape, because most small business owners prefer not to give up ownership.
“A lot of small businesses don’t have appetite for that, but we are hoping that there will be a few who will align, and with time, others will see what’s happening to those who benefit from this program,” he says.
SGBI will pair equity investments with technical assistance and a “learning lab” to support fund managers and educate small business owners.
NABII has approached Argidius Foundation to fund its research and technical design, and the Livelihoods Impact Foundation and Japan’s Ministry of Finance for catalytic investments. The Bank of Zambia and NABII are also advocating for regional pension funds to engage.
The goal is to eventually spin out SGBI as an independent fund; three fund managers have been shortlisted to run it.
“The central bank’s involvement is transitory. Once it exits, SGBI will be a full private sector entity, because that way you shield it from the political mire,” Mwape says, alluding to election cycles, like the one Zambia faces in August this year, and the political complexity that comes with them.
For now, the government plays a crucial signaling role for the private sector, especially highly risk-adverse institutional investors, to step in.
“We know that they can’t be the first mover. We are hoping that through the demonstration effects they will develop interest with time once they see SGBI begin to work,” Mwape says.
SGBI’s success, says Mwape, would be evidence of lower pricing for small business loans, as well as evidence of growth and job creation.
Tapping the diaspora
Greg Marchand, a serial entrepreneur, remembers the frustrations of trying to secure the capital he needed to grow his businesses, and the high collateral demands he faced for an IT company in particular. He co-founded the Zambia Business Angels Network to give entrepreneurs more friendly and flexible options, funded by others who understand the entrepreneur’s journey.
“I’ve been there. I bootstrapped friends and family money. I remember how hard it was, and it still is, to get financing,” Marchand shares.
Not everyone has friends and family who can invest, however, so ZBAN is tapping more distant relatives instead: the African diaspora. Overseas Africans send roughly $100 billion annually back to their local friends, families and communities. More structured pathways, like ZBAN and other angel investing networks, could channel more of that directly into the small business community, explains Marchand.
ZBAN is made up of more than two dozen angel investors, about half of whom are part of the diaspora community; the five-year-old network is organizing a roadshow in the US to onboard others. It has deployed $325,000 in 23 companies working in renewable energy, edtech, fintech, food production, consumer goods, beauty and personal care, manufacturing, agriculture and real estate. Its portfolio includes edtech startup Koloso and agricultural market intelligence service Shamba Data.
The network invests on a needs basis, offering debt, equity and hybrid funding through convertible and SAFE notes. Its membership, pegged at $550 annually, gives diaspora angels access to its pipeline in Zambia with zero obligation to invest upfront.
“We co-invest alongside that diaspora capital as local business insiders,” says Marchand. That “provides a lot of credibility when we put our skin in the game.”
Lusaka-based Africa Equity Group is similarly working to convert “passive remittances or fragmented investments, into structured, underwritten, productive capital deployed into African commercial opportunities,” says AEG’s Fabien Anthony. Its evergreen private credit fund, Borderless Africa, draws on organizations engaged with the African diaspora to direct revenue-based financing, contract-based financing and supply chain financing to Zambian, Kenyan and Rwandan businesses. Panda, one of its portfolio companies, itself provides loans for Zambia’s small businesses.
AEG is writing much larger checks than ZBAN: $6 million to $12 million per deal. Anywhere between 60% and 80% per deal comes from the diaspora. The fund taps into several diaspora-facing organizations including the Pan-African Council, Birthright Africa, GABA Center, Continental Gateway Group and Minah Global Impact Industries to mobilize this financing.
“Trust built with diasporans becomes the infrastructure in our model,” Anthony, who also chairs the Pan-African Council, explains.
There’s both urgency and opportunity in the work of Zambia’s small business finance initiatives. Marchand observes that “Bill Gates, Sam Altman, Jeff Bezos have all invested in Zambia in large critical minerals mining and exploration of AI.” That, on the one hand, illuminates the investment opportunity in the country; it also forewarns the risk of a new wave of foreign investors disproportionately benefiting from Zambia’s resource wealth.
Marchand believes Zambians and its diaspora community are eager for a narrative change. “It is almost like they were waiting for us. They just wanted a way to plug in, and they didn’t know how,” he says. “We want to share opportunities. There are a lot of opportunities here.”
