Why African Ingenuity Needs Development Finance, Not Just Venture Bets

In Africa, ingenuity is not in short supply. Neither are the problems worth solving. What is scarce is capital that understands the realities of the continent.

In 2023, African startups raised between $2.9 billion and $4.1 billion, already down sharply from the previous year’s peak. The downturn worsened in 2024, with just $2.2 billion raised, a mere 0.6% of global startup funding. Yet the first half of 2025 offered a glimmer of hope: $1.35 billion secured, a 78 percent jump from the same period last year. The talent and ambition remain; the question is whether the money will follow and whether it will be the right kind of money.

Traditional bank lending wants collateral that early-stage founders cannot provide. Venture capital, for its part, demands hypergrowth curves that are difficult in countries where infrastructure remains patchy. The result is a financing cliff. On one side stand rigid banks: on the other, impatient venture funds. In between lies a bridge that is too often overlooked: development finance.

When done well, development finance is not charity. It is market-making. It provides grants that help founders get ready for capital. It offers guarantees that give banks confidence to lend. It supplies concessional debt and equity that anchor funds, drawing in commercial investors who would otherwise sit on the sidelines. In short, it turns ideas into businesses and businesses into markets.

We have proof.

Nigeria’s Moniepoint, once a modest merchant network, is now a unicorn that processes more than 800 million transactions a month worth $17 billion. That growth was unlocked because investors with a development mandate backed the company early and stayed patient. A strategy further bolstered by a landmark round last year which pulled in $110 million from a coalition that included the Google Africa Investment Fund. Kenya’s BasiGo has brought electric buses to Nairobi, powered by a $42 million mix of equity and concessional debt, a deal structure that made a capital-intensive bet feasible through a Series A led by Africa50 with debt from British International Investment and the United States International Development Finance Corporation. Solar company d.light accessed a $176 million securitization facility to turn household repayments into investable assets, expanding clean energy access across East Africa. Rwanda’s Inkomoko has paired microloans with training and follow-up, strengthening thousands of small businesses long ignored by banks.

These stories underscore a simple truth: when capital is designed to absorb risk, match real cash flows, and provide technical support, African startups grow. And when they grow, entire markets deepen

Ethiopia, long a latecomer to the continent’s startup wave, may finally be turning that corner. For years, founders operated in a legal gray zone. Banks were wary, investors were tentative, and policymakers had not yet decided how to treat this restless new economy. That changed this year. After a long gestation, Parliament approved a Startup Business Proclamation giving startups legal identity, creating a National Startup Council, and establishing a more than $13 million Startup Fund. In an economy where the public sector still sets the tempo, that mandate matters because it turns policy into demand. It creates customers, not just press releases.

Even before the proclamation, Ethiopia had begun experimenting with instruments that make finance fit entrepreneurial reality. The Innovative Finance Lab seeded thirty young firms with small, targeted grants to sharpen investment readiness and then worked to stand up a larger pool of catalytic capital. The hubs act as an incubator, playing an important role even before the proclamation with their development partners. The Enterprise Financing Facility, at $100 Million and structured as a blend of direct investments and a fund of funds, is designed to crowd in co-investors and build local fund management capacity rather than replace it. Risk sharing on the banking side is moving too. The Credit Risk Guarantee Fund covers half of the default risk on loans to technology ventures. It has already guaranteed eleven loans worth more than twenty-five million birr through multiple banks and microfinance institutions, with repayments underway. For founders, this means cash flow and promise finally count for something on credit committees.

Local Stories Make It Real

Ecosystems are built by names and outcomes, not frameworks alone. Payments infrastructure is a good example. Ethiopia’s migration toward a national online gateway has given payment companies a clear runway, and firms like Chapa have become the front door to e-commerce for thousands of merchants. Standardized rails allow private players to focus on speed, reliability, and user experience. Talent markets are essential, too. Gebeya evolved from a training outfit to a talent marketplace backed by venture capital, connecting Ethiopian developers to regional and global demand. Health innovation is finding its rhythm. Orbit Health built a digital health lab with grant support and later growth funding, showing how blended resources let a mission-driven team move from concept to platform. Mobility is shifting as well. Dodai pushes electric motorcycles with battery swapping, reducing operating costs for riders and keeping vehicles earning for longer. Validation from the Addis Ababa Transport Bureau and new partnerships have turned pilots into growing markets. 

Ethiopia’s new startup law, the growing Enterprise Financing Facility, and the signals from banks using the Credit Risk Guarantee Fund align into one message. The country is building a system in which a startup can be recognized, become bankable, and serve a supplier to the state or large enterprises. The difference between a turning point and a missed chance will be speed, transparency, and execution.

Almost every founder in Ethiopia and the whole of Africa knows the cautionary tales.  Too many programs across the continent have launched with great fanfare only to get lost in bureaucratic delays. Grants take months to arrive. Credit guarantees exist only on paper. Startups are often forced back into survival mode while policymakers celebrate frameworks that do not deliver

For Ethiopia, the new Startup Council must quickly prove it can broker deals, not just write strategy documents. The two-billion-birr fund must move money fast enough to restore trust. Banks must translate guarantees into practical checklists. If the ecosystem produces visible early wins, momentum will follow. Without them, skepticism will return.

What comes next is the orchestration of the ecosystem actors, including incubators, accelerators, startup associations, and government ministries, regional offices as well as development partners. Alignment of intent, instruments, and execution allows good companies to become growth companies and, in turn, create the backbone of a modern economy.

The stakes are high. Startups are not a side story to African economies. They are becoming central. From financial technology to clean energy, from health care to logistics, African startups are filling gaps that states and incumbents cannot. They are proving that the continent can not only consume global technologies but also create them.

Artificial intelligence, for instance, is no longer a far-off frontier. Apollo Agriculture in Kenya is already using AI for precision farming. Nigerian fintechs are deploying machine learning for credit scoring. Clean energy startups are integrating solar, batteries, and mobile money into scalable solutions that appeal to both development finance institutions and ESG-driven investors.

The opportunity is clear. But so is the danger. If African startups continue to raise just half a percent of global funding, the continent risks missing its moment. Without the right capital, patient, risk-tolerant, locally anchored,  the ingenuity of African founders will remain trapped in prototypes and pilots.

This is why development finance matters. It is the mechanism that can align national plans with entrepreneurial energy. Ethiopia’s Homegrown Economic Reform Agenda, Nigeria’s Economic Recovery and Growth Plan, and Kenya’s Big Four Agenda all provide a framework. Development finance can bring them to life, targeting catalytic sectors like agritech, clean mobility, edtech, and health innovation.

Africa does not lack ideas. It does not lack ambition. What it lacks is capital designed for its realities. The lesson from Moniepoint, BasiGo, d.light, and countless smaller ventures is that when such capital exists, transformation follows. The lesson from years of stalled programs is that frameworks alone are not enough.

The continent’s startup story will not be written by declarations but by deals that land, risks that are shared, and founders who are finally allowed to grow at their own pace.

If Ethiopia and Africa can make that happen, then the billions raised in 2025 may not be a rebound blip. They may be the beginning of something larger: a market that finally works for its own creators.