One of the biggest hindrances to the growth of the creative industry in East Africa is the lack of finance, because commercial banks consider it as too risky to lend to.
According to the Global Impact Investing Network 2015 Report, commercial banks in East Africa have high collateral requirements, often exceeding 100 per cent, which many early-stage enterprises are unable to meet.
“Even where it is available, bank financing is expensive,” said Anne Wangusa, the executive director of Culture and Development East Africa.
Average bank lending rates vary significantly across East Africa, though they are all are typically well above developed country rates.
According to World Bank indicators, the prevailing rates in Kenya, Uganda, Tanzania, Rwanda, and Burundi are all above 15 per cent.
“In East Africa, many small, medium and creative enterprises are considered risky, attracting high interest rates. This expensive debt is available for a period of 5-10 years, which is too short a period to ensure a return on investment for creative enterprises like audio-visual production companies,” Ms Wangusa says.
“As a result, there remains a gap in the market for earlier-stage investments that may be come with a higher risk,” Ms Wangusa adds in a paper titled A Guarantee Fund for East African Creative Industries — Pitch by CDEA.
“You may approach a bank to fund your forthcoming music concert at Ush500 million ($131,658), but the bank will discount it to 10 per cent because of the high risk involved.
“The bank is not sure you will actually gather the crowd that you claim will attend your concert in order to repay its money,” the Ugandan Intellectual property lawyer and filmmaker, Norman Mbabazi, said.
“Banks in Uganda will not accept Intellectual property or copyright as security for a contract worth $6 million to supply books to government schools. They will most likely ask for your land title deed to guarantee it,” said Charles Batambuze, a Ugandan book publisher.
According to Ms Wangusa, impact investment has tried to fill the gap for early stage investments; however, the sectors that seem attract these funds are tourism, consumer goods, construction, manufacturing, infrastructure, healthcare, financial services, extractives and education.
“Heva Fund is the only impact capital vehicle that has a financial model specifically for the East African creative economy and has invested in more than 20 creative businesses in the fashion, digital content, crafts and decor value chains,” Ms Wangusa adds.
“In June, Heva Fund signed a credit investment agreement with Agence Française de Développpement to advance credit and technical assistance for creative industries in Kenya. This is a project worth Ksh90 million ($878,000),” she said.
“In 2019, Bayimba Foundation, CDEA and the Nest Collective will launch the East Africa Social Impact Fund for Creative Enterprises,” Ms Wangusa added.
According to her, there is no investment capital flowing into the creative industries in the other East African countries.
“SMEs in the creative industries have found it challenging to get access to loans due to the nature of their business, a lack of tangible assets or the uncertainty of demand,” Wangusa adds.
She attributes this financing gap to lack of legal regulatory and policy frameworks and legal professionals to enable Intellectual Property securitisation to become a mechanism for commercialising Intellectual property.
There is also a lack of credit from development finance institutions and investment vehicles for the few creative industry in East Africa.
“We propose that EAC member states attract development financing from institutions like the World Bank and the DfID Impact Programme to establish a guarantee fund for the underserved creative businesses in East Africa,” Ms Wangusa said.
“The fund should be managed by the East African Development Bank on behalf of the EAC member states. It should aim at strengthening cultural and creative sector companies’ financial capacity and competitiveness. It should also address financing creative industries, economy incubators, accelerators, technical advisers, Intellectual property management and monitoring service providers and research organisations,” Ms Wangusa told The EastAfrican.
She suggested that the fund be modelled along the lines of both the Cultural Industries Guarantee Fund that was created by the International Francophonie Organisation in Lomé in 2003 and the Creative Europe Cultural and Creative Sectors’ Guarantee Facility.