State of Social Enterprise Africa 2025

Lack of access to finance Lack of access to support services Cash flow Market competitiveness Limited public understanding/ awareness of social enterprises Lack of access to customers/markets Economic climate Limited organizational capacity Political/regulatory environment Staff skills Other55% 29% 28% 27% 26% 25% 24% 23% 19% 18% 4%small or perceived as too risky for traditional commercial financing. Limited access to growth capital forces many enterprises to scale incrementally through retained earnings, significantly slowing their expansion trajectory.69 Reliance on international grants and informal funding reflects structural gaps in local financing ecosystems. Many domestic institutions lack the products, risk appetite or understanding needed to serve impact-oriented models, while local impact investment markets remain underdeveloped. In this context, donor and philanthropic capital often become the default source of funding, providing essential early support but rarely enabling long-term growth, financial resilience or independence. Funders and investors also need to recognize the unique nature of social enterprises. They operate in markets alongside traditional for- profit businesses and, in many cases, alongside government programmes and international non- governmental organizations (NGOs) that provide subsidized or free services. This competitive landscape can make it difficult for social enterprises to establish a sustainable market presence or to differentiate their offerings, especially when operating on tight margins and with limited resources.70 Many investors show limited appetite or understanding of this unique nature, as social enterprises are often perceived as “too commercial” by philanthropic donors or “too impact-focused” by traditional investors. This creates a funding dilemma where social enterprises are unable to neatly align with either type of capital provider, further restricting access to critical financial resources.71 Demonstrating impact is critical for social enterprises to secure access to finance to support their recognition and their contributions; however, demonstrating this remains a challenge for social enterprises. This applies only to social enterprises that wish to access formal finance, noting that not all social enterprises wish to access these sources of finance or support mechanisms. For social enterprises that rely on support from friends and family or community support, impact is likely to be more informally determined by perceived and experienced community benefit. A challenge for social enterprises is that there is little alignment among investors and grant-makers as to which impact metrics are sufficient, and this can often lead to social enterprises having to manage too many data requests to meet reporting requirements, and they can become inefficient. Potential funders and financiers often impose financial return expectations more appropriate for conventional businesses, which tends to undervalue the distinctive social impact these organizations pursue.72 Impact measurement and management emerged as a major capacity challenge, driven by limited staff, resources and technical expertise. Many social enterprises struggle to access affordable, user-friendly tools and lack clarity on tracking outcomes, collecting meaningful data and communicating impact effectively. These challenges are acute for early and growth- stage enterprises, which often prioritize product development or marketing. Support organizations observed that while impact measurement is valued, it frequently competes with other operational priorities. An organization in Ethiopia noted many entrepreneurs find promoting their impact “unnatural” as they see their work simply as “the right thing to do”. 2.2 Regulatory challenges Where organizations must choose either a for- profit or a non-profit form, practical constraints often emerge in the areas of governance, taxation and eligibility for both commercial and philanthropic capital, suggesting a case for the consideration of context-specific legal structures for social enterprises. In South Africa, the lack of a dedicated legal form generates compliance complexities, with fragmented definitions forcing enterprises into “dual registration” across multiple government departments depending on turnover, income or governance structures.73 In Cameroon, a social entrepreneur noted that the absence of a legal framework has led many to miss opportunities by self- identifying as NGOs or being required to register as “associations”. In many rural areas, enterprises delivering social impact may not identify as social enterprises, often due to limited awareness of the concept or the absence of frameworks that offer recognition or tangible benefits. Their legitimacy instead derives from informal, community-based trust rather than formal designation. Whether formally registered in the absence of dedicated frameworks or operating without formal recognition, social enterprises face consistent trade-offs and challenges in their access to support – finance (philanthropic and commercial), government incentives, procurement, enterprise development and technical assistance. In several countries, researchers echo this, noting the impact of weak institutional support, including the absence of targeted policy incentives, social procurement mechanisms, technical assistance programmes and formal engagement with social enterprise actors in policy-making.74 There are substantial financing gaps, particularly for enterprises in the “missing middle”. The State of Social Enterprise: Unlocking Inclusive Growth, Jobs and Development in Africa 43