Imagine you are a small-scale manufacturer in Nairobi, Kenya. You have saved $8,000, and you need another $12,000 (roughly 1.5 million KES) to purchase a specialized production line that could triple your output. You walk into a tier-one bank, optimistic.
Instead of a partner, you find a wall. According to current Total Cost of Credit data for April 2026, a typical SME loan in Kenya carries an interest rate between 14% and 18% p.a., often bundled with appraisal fees of 3% and mandatory credit insurance. Worse, most banks refuse to lend for more than 5 to 7 years for equipment, making a 15-year facility almost impossible to secure.
This isn’t just a “small business problem” – it is the fundamental paradox of the landscape in most African countries, and it represents a massive opportunity for foreign investors.
African Banking: Record Profits, Low Customer Value
While that Kenyan entrepreneur struggles, banks themselves are thriving. According to a McKinsey report, African banking revenues have officially surged past $100 billion, reaching an estimated $107 billion in 2025.
Across the African continent, the sector is delivering a Return on Equity (ROE) of 19%, nearly double the global average of 10%. Of the major countries, Egypt has the highest profitability at 25–28%, followed by Nigeria at 18–20%, Kenya at 16–18% and South Africa at 15–17%. (Maybe this also explains why South African banks are currently investing heavily in Kenya.)
However, McKinsey’s analysis reveals a sobering truth: these profits are not driven by efficiency or superior customer value. Instead, they are fuelled by:
- High Interest Spreads: Charging SMEs 16% while paying depositors minimal interest.
- Government Paper: Banks often find it safer to lend to the government via treasury bonds than to a local manufacturer.
- Legacy Inefficiency: African banks’ cost-to-assets ratio stands at 2.6%, double the global average of 1.3%. They remain profitable despite being inefficient because there is too little competition between the major “incumbent combatants.”
The Fintech Challenge: High Entrance Costs
Fintechs were supposed to be the ‘major disruptors’, but the path to genuine competition is paved with high market entry costs. The recent history of Flutterwave, a fintech, in Kenya, where regulatory hurdles led to the annulation of licenses and years of legal battles, shows how difficult it is for agile players to break the banking monopoly.
Even as Flutterwave secures a new banking license in Nigeria this month, the capital requirements and compliance frameworks across the continent remain heavily skewed in favour of the big traditional incumbent banks. This keeps the market stagnant and keeps that $12,000 loan out of reach for the average entrepreneur.
The European Opportunity: To Deliver Customer Value
This “Value Gap” is precisely where European investors can find an opportunity. There is an urgent need for “middle-layer” funding that bridges the gap between a high-interest bank loan and no funding at all.
European capital – seeking higher yields than the stagnant rates in the EU – can capture immense value by:
- Direct company financing: For example, investments in funds that offer long-term equipment financing – at interest rates that reflect the actual business risk rather than charging monopoly rates.
- Fintech infrastructure: Investments in digital platforms that make it easier for start-ups to bypass traditional banks and offer low-cost financial services.
- Venture capital in “Neo-Banks”: Funding fintechs and Neo-Banks that will compete with incumbent banks.
Conclusion: Investing in African Banking
The success of a nation’s economy is not measured by the record-breaking profits of its banks, but by the health of its makers and shopkeepers. As long as it is more profitable for a bank to sit on government bonds than to fund private businesses, economic development will be hampered.
This is where a big business opportunity lies for European investors too. It is all about customer value for the huge number of African entrepreneurs.
Will Europeans be willing and able to seize this opportunity?
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