Africa is that place in the world where the following formula holds very true:
demand for capital > supply of capital
There is more capital needed than capital available. And this gap isn’t small: it amounts to roughly $400 billion (AfDB, 2024).
But what does that actually mean?
Kenya doesn’t wake up one day and say, “I need 50 billion.” Kenya doesn’t care. Kenya’s leaders do. Because they have goals. One of these goals is for the country to become an upper-middle-income economy by 2030. That means a GDP per capita above $4,500.
So, at some point, someone in a policy briefing says: “Jeez, if we really want that, we need to fill an investment gap of $50 billion.” That “if we want” is crucial. Capital needs exist only when goals - human goals - exist.
In 25 years, there will be 1 billion more humans in Africa. All of them will learn, eat, commute, take medication etc…. How do we want their lives to look like? Many people will answer: better. Cool. To fulfill this goal, a lot needs to be built: schools, factories, roads, hospitals. And building requires capital.
Not everyone agrees, of course. That’s where the fascinating debate on models of development comes in: is economic growth an imperative? Are we even measuring it right? Neoliberals, post-colonial thinkers, neo-Marxists, they all have their versions of the story.
For the purpose of this article, I will inscribe myself in the Amartya Sen tradition of “development as freedom”. Above all, economic development is a process of expanding freedom. Freedom FROM: need, exploitation, physical suffering. Freedom OF: movement, expression, experimentation, fun.
Following this logic, I want there to be more investments in Africa. Because investments are a decent proxy for material economic development. And material economic development means more freedom. And freedom is a value in itself.
Now that we’ve cleared the ground on values, let’s move on.
Everything starts with credit 🏦💸
Africa needs capital. Ok, but how?
The media likes to place a lot of emphasis on Venture Capital and Private Equity, because everything about these asset classes fits so well the storytelling machine: “the team of visionaries who believed in that early business when no one cared & now made insane returns transforming an industry etc..”. How inspiring can it be?
Yet, when it comes to real money on the ground, everything starts with credit. And the African private sector is credit-starved:
“When we think about how private equity was born as an asset class, it was born on the back of credit rails.”
For today’s episode, I had the pleasure to sit with (bro) Isaac Marshall, investor at TLG Capital. TLG is one of the pioneers of private credit in Africa, concretely helping closing the “capital gap” in many interesting & creative ways we will explore.
“Private equity in the early days in the U.S. was a bunch of funds the same size as your African PE funds, sparring at way bigger deal sizes because the banks had a leveraged loan model that made it very easy for them to access debt.”
The reference is to the Mike Milken’s era of high-yield bonds & the massive credit expansion in the 1980s. Beyond the excesses of those times (including Milken’s criminal charges looool), history still proves a point: when credit is widely available, many more players can step into the ring of buying and investing in businesses. Don’t have enough cash? You put down some, and borrow the rest. This dynamic de-risks private investment, because
more credit → more transactions → more liquid markets
In liquid markets, there’s always someone ready to buy you out. In Africa however, there are very few people that can rescue you when things gets tough, because there is less liquidity in the market, i.e. fewer buyers ready to take on distressed assets.
“I think one of the challenges in African markets is that we’ve been trying to build a private equity investment framework on a market that does not have the credit and liquidity systems in place to facilitate how private equity was born in the first place, right?”
It’s tough to replicate the global PE framework without the credit machine that powers it. Because credit is the lubricating oil of all the other asset classes. So how can we accelerate credit in Africa in the first place?
“Better credit frameworks”, says Isaac.
Sounds obscure for now. Let’s first dive into why banks and pension funds aren’t already saving us.
Banks, pensions: where are you? 😡
When people think about credit, they think about banks.
Banks are the pillar of Africa’s financial system & hold the majority of the financial sector assets. In Ghana, for instance, banks hold around 76% of total financial sector assets. However, most of it sits is in government treasuries and cash; only about 24% of their assets is represented by loans (mostly short-term) to the private sector.
This contributes to the general feeling: banks control most of the money, but very little of it reaches the real economy.
Are we being too hard on them? Isaac has a different take:
“Banks are ultimately in charge of keeping depositors’ money safe. And the capitalization of banks is principally driven by the money that everyday people and everyday companies hold with their banks. One problem with that is that we then expect banks to also be the ones doing all the lending and all the risk-taking in the economy in the form of lending. And that’s a little bit of a mismatch”.
On a note of fairness, we can argue that regulation isn’t easy on banks. They must maintain high liquidity ratios, which make government securities extremely attractive. Furthermore, banks simply can’t escape this equation:
short-term deposits = short-term lending
How can you take a one-year deposit and lock it into a ten-year loan?
“Where banks bump into problems is the long-term stuff. It’s giving capital to put down assets. It’s giving capital to improve machinery in your plant. It’s giving the long-term breathing room that businesses need to be able to continually reinvest and grow their companies. That’s where the limitations are in the banks”
So banks are at the core of the financial system. Yet, they deploy on treasuries (by choice & regulatory nudging) and short-term loans (by design).
So then, aren’t pension funds supposed to fill that gap?
“A pension fund has liabilities that has to pay out in like 50 years, 40 years, 30 years. They’re perfectly suited to give the kind of lending that a factory or an infrastructure asset or other things like that are needed, right?”
In theory, we agree with Isaac.
Yet, when we look at the numbers, it’s not exactly great! Pension funds in Nigeria hold about $15 billion in assets. Of that, 61% goes into government bonds (again?), while the rest sits in the stock market and some corporate bonds. You don’t see much going into infrastructure or vehicles that support private equity, for example. Why?
A mix of regulatory nudging and a cautious investment philosophy, which makes them prioritize capital preservation and predictable returns, both of which government securities conveniently offer. And maybe, the absence of well-structured, available instruments?
Banks and pension funds have the assets, but not the willingness or the capacity to make them circulate. Most of that money is sucked up by the government, constrained by regulation and risk aversion. Few adapted instruments capable of helping us get out of this dilemma.
How do we move forward?
“I think that the beginning of solving that liquidity problem is creating credit frameworks that work.”
Alright, Isaac, got it. Let’s step into TLG’s world, and see how these frameworks can actually help our friends.
The TLG formula 🍯👨🏽🔬
As much as we think they should do more, both banks and pension funds each have particular strengths that can help us overcome this conundrum:
Banks have an unmatched territorial presence and a deep understanding of the real economy.
Pension funds are the largest holders of long-term local currency capital in Africa
Both can be leveraged to create frameworks that, ultimately, unlock more liquidity for the private sector. And this is where TLG’s secret sauce comes in 🍯
Banks = downside protection 📉
Bridging dollar-denominated global capital to the continent is tough, if you factor in low liquidity, macro risks & currency devaluations.
“Our question is, how do you add African markets to the asset allocation of global institutions? The way that you do that is that you solve for risk, you don’t solve for return. Because the biggest problem is not that the returns are not high enough”
The idea is simple: if you take care of risk, the returns will take care of themselves - and that’s how you earn the right to invite global investors to the table.
One powerful way to do this is through local banks. Banks are deeply rooted in their communities. They have unmatched visibility into the real economy and know their clients better than anyone else. Many of these banks are already exposed to local businesses through lending, but they’re trapped in the short term.
So what happens?
You ask banks to identify their best SMEs — companies that are fundamentally solid but temporarily struggling to service their debt. The goal is to refinance that debt, extend maturities, and give these businesses breathing room to recover and grow.
Banks, however, lack the long-term capital and flexibility to do this on their own. That’s where private credit steps in. Private credit funds can restructure or extend loans, bringing flexibility and longer horizons into the system. In return, banks provide assurance and act as guarantors in selecting the businesses they already trust. In this case, a 100% guarantee: investors have the certainty that they will get back all of their money if things go bad.
This is precisely the model behind TLG Africa Growth Impact Fund II (AGIF II) - a $150 million private credit fund managed by TLG Capital.
Nothing but a “credit framework” where each leverage on their strengths:
banks become guarantors of the new line of credit (100% guarantee), leveraging their knowledge of the market,
private credit provides the flexibility, longer tenors, and technical expertise needed to bridge the gap
$200 million into African SMEs is no small fit. What about the stockpiles of local currency sitting in pension vaults?
Pension funds: local currency kings 👑
The truth is that the volatility of African currencies + the tough macro environment makes dollar-based investments extremely costly. You can attract as much global capital as you want, but you cannot escape the fundamental need to “mobilize domestic capital”. How many times have we heard this sentence in the past years?
Regulators have taken good initiatives, like Ghana mandating 5% of pension assets to go into PE & VC, or South Africa amendment to Regulation 28 allowing for higher caps on private equity.
But beyond the regulatory nudges (which are very useful & we need more of that) how can you build a strong business case to convince pension funds to invest directly in the real economy?
TLG’s answer is the first SEC-approved local currency private credit fund in Nigeria. And the pitch goes something like this:
after sovereign defaults, even local-currency bonds can carry substantial risk;
diversification becomes essential & private sector shows strength;
you can tap into it while still beating the performance of government bonds
“So we’ll give you 500 basis points over the 10-year treasury. And we’ll take very, very low-risk stuff. There’s so few people in the market giving private credit. We’re the only SEC-registered private credit fund in all of Nigeria that does Naira. So you get to choose the best deals.”
Launched in May 2024, the FCMB–TLG Private Debt Fund is a 10-year, closed-ended fund to provides long-term, Naira-denominated debt. The fund has been backed by 16 Nigerian pension funds, a massive achievement. And the first series has been fully deployed. The strategy is to enter a blue ocean market of local-currency private credit. Very safe, high-quality businesses, for long-term financing that no one else in the market currently offers.
“There is an opportunity to actually build out long-term credit provision. And then you have a framework where the local banks can do the short end of the curve, which matches their deposit and the private credit institutions increasingly funded by domestic capital to do the long tenor stuff.”
The big bet for TLG is clear. And it’s honestly refreshing to hear & interesting to follow.
My final 2 cents 🪙
The details of finance can run deep, and it’s beyond the scope of this article to unpack all the technicalities of TLG’s facilities. But to pull off two funds of this scale, TLG needed to stake all of its reputation, expertise, and deep local understanding of African markets. Kudos to them, we are keen to see if returns will match expectations.
There is something really clear that remains from this conversation.
For Africa to reach its development goals, we need capital. But the institutions we rely on today - either by design or by habit - are not wired to finance private businesses in the way we need them to.
Private credit can emerge as a bridge: a way to leverage these existing institutions and actually deploy capital into the real economy.
We’ve seen how this can happen in two ways:
by focusing on downside protection for global dollar investors through partnerships with banks,
or by mobilizing a tank of local-currency capital to reach high-quality companies that need longer-term financing.
One key concept here is frameworks. As unsexy as the word may sound, it sheds light on something essential in finance (and thus in development).
How do you bridge the needs of different institutions? They all hold money — money that, in principle, should be put to good use in the real economy, helping businesses grow and create jobs. But in practice, they operate under different mandates, regulatory constraints, and skill sets. The real challenge, then, is to design the right frameworks - frameworks that allow these diverse institutions to work together toward a higher goal: deploying capital where it truly matters.
In this, innovations in the realm of finance might be as impactful as innovation in the realm of technology.
A good lesson to take home.
This is a very informative article. Thanks for sharing!