- Firstly, it finances their development, serving as seed funds and strengthening their project’s equity. It can therefore create financial leverage with microcredit or banking loans.
- Secondly, it can help structure businesses because entrepreneurs must go through a selection process and can then benefit from post financing technical assistance. An honour loan is also a form of recognition from local and knowledgeable professionals that builds trust in the project.
- Thirdly, it enhances networking inside their ecosystems and sectors, accelerating commercial access to the market.
Honour loans are flexible in terms of amount, maturity, and beneficiaries. They are a complement to the local financial ecosystem and thus contribute to filling the finance gap. They can be integrated into national long term public policies to support MSMEs and adapted to regional programmes.
Honour loans have gradually expanded in North and West Africa. More recently, such mechanisms have been launched in English speaking African countries (e.g. Kenya and Nigeria) and have been adopted as a public policy tool (e.g. Morocco and Tunisia).
The development of honour loans nevertheless faces challenges:
- The absence of an official framework governing its activities
- A business model that is sustainable only if honour loans operators can finance their operating costs by showing its value and impact to authorities, the ecosystem, and donors in order to receive funding for the benefits created (i.e. monetising the development impacts)
- Scalability to achieve and prove
- The lack of awareness about honour loans’ multidimensional development mechanism
More than 80 operators active in 17 African countries have already committed nearly 11 million euros to financing more than 3,000 entrepreneurs and creating nearly 9,000 jobs.
- Economic survival rates are in the region of 80 to 85%