The conversation around Micro, Small, and Medium-sized Enterprises (MSMEs) needing funding has gained momentum. Current estimates reveal that the funding gap for MSMEs in Africa exceeds a staggering $140 billion. However, the issue of limited funding hindering growth requires further examination: Is funding alone sufficient? While countless small business owners often cite a lack of access to finance as a primary barrier to their success, it is essential to recognize that there’s an additional factor that may be equally stifling small businesses’ growth.
Governments, development banks, and financial institutions are all channeling capital into various means to foster MSMEs’ growth, promote job creation, innovation, and inclusive economic growth. However, beneath this optimistic outlook lies a crucial reality. Funding alone is not enough. While securing financing is essential, capacity building is equally important. As Sinatra famously sang, “Love and marriage, you can’t have one without the other.” Similarly, funding and capacity building are mutually dependent; you cannot have one without the other.
A wave of micro & small businesses capacity-building programs has shown that access to finance, though critical, does not guarantee business survival or growth. Evidence suggests that many MSMEs either misuse funds or operate inefficiently due to limited business management skills, poor financial literacy, or structural weaknesses, all of which can be addressed by capacity-building programs. The consequences of misusing funds and operating inefficiently include high failure rates, minimal impact, and wasted public or donor funds. For instance, in Ghana, for example, researchers and development experts have found that funding without capacity building is akin to watering a plant in a pot with no soil.
The numbers tell the story. A 2022 Nigerian MSME report revealed that 80% of businesses under Micro, Small, and Medium Enterprises in Africa fail within the first five years, primarily due to poor business practices. The report also noted that “the most significant impediment to growth was not a lack of capital but a lack of skills necessary to manage a successful firm”. In Ghana, research highlights a worrying trend: many MSMEs default on loans or grants not due to market conditions, but due to weak internal structures and a lack of skills.
Additionally, the International Journal of Research & Innovation in Social Science, in its September 2024 publication on SME failure in Ghana, identifies managerial shortcomings, poor management practices, and a lack of entrepreneurial skills in areas such as strategic planning and financial management as significant contributors to these failures.
The gap between funding and sustainable growth for MSMEs is often defined by one key factor: capacity. To ensure the long-term success of MSMEs, we need to shift our mindset away from viewing funding as the ultimate goal. In reality, funding may be the beginning. Many development experts agree that while access to finance is crucial, it is not a panacea for the sustainability of small businesses. MSMEs also require business development services, mentorship, and the necessary skills to effectively utilize that capital and thrive. It’s important to emphasize that funding alone will not save them. Instead, financing combined with skills development, proper systems, and strategic support is essential for fostering the entrepreneurial resilience that Africa’s economies urgently need.
Capacity-Building Enhances Management Skills
Capacity-building through entrepreneurship training programs enhances management skills, making business owners better equipped to apply for and effectively manage funding. The United Nations defines Capacity-building as “the process of developing and strengthening the skills, instincts, abilities, processes, and resources that organizations need to survive, adapt, and thrive in a fast-changing world.” Capacity-building programs help improve business management skills and prepare entrepreneurs to understand the market in which they operate.
Many small business owners, particularly in rural or low-income areas, start businesses out of necessity rather than opportunity. As a result, they lack the necessary basic business and financial management skills, long-term vision, resilience, or the growth-oriented mindset needed to transform a small operation into a viable enterprise.
Capacity-building programs that emphasize leadership, decision-making, and strategic thinking have been shown to significantly improve the outcomes for micro, small, and medium enterprises. Research highlights the crucial influence of mindset and strategic guidance in this process. Additionally, capacity building can enhance productivity and increase profits. Entrepreneurial capacity-building programs aim to help business owners think strategically and make informed decisions.
These programs include financial literacy training, which helps improve borrowers’ knowledge, addresses borrowers’ self-exclusion from credit markets, and enhances their access to credit, leading to better management of the funds they receive.
Capacity-building programs also foster a proactive mindset by teaching participants how to identify opportunities and navigate challenges effectively, a skill crucial for effective financial management. Entrepreneurship training encompasses a variety of topics, including strategic planning, financial planning, marketing, and customer service. The primary goal of an effective capacity-building program is to equip participants with the skills needed to manage their businesses more efficiently. Ultimately, building capacity for entrepreneurs goes beyond business success; it can also translate into personal success.
The most effective capacity-building programs will do more than fund entrepreneurs; they will also support, equip, empower, and accompany them on their journey from startup to growth. The aim should not be to have more businesses; Africa already has enough, with over 125 million micro, small, and medium-sized businesses. However, the goal should be to have better businesses — resilient and scalable ones. The kind that can weather global disruptions, seize opportunities, and become the economic engines Africa needs to create jobs and drive economic growth.
At KilSah Consulting, our training programs are developed with the understanding that people differ around Africa and the world, and people have diverse behaviors and perspectives. As a result, we design our programs to meet the unique needs of entrepreneurs, ensuring that our capacity-building initiatives are tailored, rather than being one-size-fits-all.
Conclusion
A CSIR-STEPRI research shows that MSMEs receiving cash support demonstrate “okay financial performance” but struggle with innovation and employment generation when capacity building is absent. The message from experts is resoundingly clear: funding alone cannot fix what weak business foundations break. Capital may be the fuel for micro, small, and medium firms, but without the engine of knowledge and the wheels of structure, even well-intentioned businesses will stall.
MSMEs aren’t failing because they lack ambition or because markets don’t exist; they’re failing because many of them lack the knowledge, governance, and systems that build resilience, all of which could be acquired through consistent capacity development. Consider the tailor who doesn’t know how to price products profitably, or the tech startup that can’t manage cash flow, or the food vendor who mixes business money with household expenses, or the entrepreneur who is unable to manage the funds she just raised. These aren’t character flaws; they’re skills gaps, and skills gaps can be closed with capacity-building programs.
For governments and development partners, this means moving beyond the disbursement of funds to building entrepreneurial ecosystems that prioritize the development of business skills. It means recognizing that the most effective intervention is often the one that prevents avoidable failure, rather than trying to rescue businesses after they’ve already struggled. For MSME owners, it means embracing learning as profoundly as they embrace funding. The most successful entrepreneurs aren’t just those who can access capital, but those who can multiply it through innovative management, strategic thinking, and solid systems.
Capital alone is a spark, a good spark. But capacity is what makes the spark burn brighter and longer. As African economies look to small firms to contribute to inclusive growth, the next wave of policies must recognize this fundamental truth: money helps businesses start, but access to skills-building programs helps them survive and scale.
Written by:
Staff Writer
