This report says East Africa’s creative industry is still being held back by a lack of finance, with commercial banks treating the sector as too risky to back.
Evidence cited in the story points to the Global Impact Investing Network 2015 Report, which found that lenders in the region often demand collateral above 100 per cent. That requirement, the report notes, shuts out many early-stage businesses before they can even apply.
Anne Wangusa, executive director of Culture and Development East Africa, said the problem is not only whether credit exists, but also what it costs.
“Even where it is available, bank financing is expensive,” said Anne Wangusa, the executive director of Culture and Development East Africa.
World Bank indicators cited in the article put lending rates in Kenya, Uganda, Tanzania, Rwanda and Burundi at above 15 per cent. Wangusa said those rates are especially punishing for creative enterprises, where returns may take longer than the usual 5-10 year loan period.
She argued that the market still lacks early-stage capital willing to take on higher risk. In a paper titled A Guarantee Fund for East African Creative Industries — Pitch by CDEA, she said the financing gap leaves many small and medium creative firms stranded.
The article also quoted industry players who said banks rarely accept intellectual property or copyright as security. Ugandan intellectual property lawyer and filmmaker Norman Mbabazi said a bank might heavily discount a music concert proposal because it cannot be sure the audience will show up and repay the loan.
“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.
Charles Batambuze, a Ugandan book publisher, said lenders in Uganda are more likely to ask for land titles than accept copyright as security for a contract to supply books to government schools.
“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.
Wangusa said impact investment has helped some creative firms, but most of that money still flows to tourism, consumer goods, construction, manufacturing, infrastructure, healthcare, financial services, extractives and education. She said Heva Fund is the only impact capital vehicle with a model built specifically for the East African creative economy, and that it has invested in more than 20 businesses in fashion, digital content, crafts and decor.
She also pointed to a June agreement with Agence Française de Développpement, under which credit and technical assistance will be advanced for creative industries in Kenya. The project is worth Ksh90 million ($878,000).
Looking ahead, Wangusa said Bayimba Foundation, CDEA and the Nest Collective will launch the East Africa Social Impact Fund for Creative Enterprises in 2019. She added that there is still no meaningful investment capital flowing into creative industries in the other East African countries.
According to Wangusa, the financing gap is being worsened by weak legal and policy frameworks, a shortage of legal professionals able to support intellectual property securitisation, and limited credit from development finance institutions and investment vehicles.
To address that, she proposed that EAC member states work with institutions such as the World Bank and the DfID Impact Programme to create a guarantee fund for underserved creative businesses 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.
She said the fund should be managed by the East African Development Bank on behalf of EAC member states and should support cultural and creative sector companies, incubators, accelerators, technical advisers, intellectual property management services, monitoring providers and research organisations.
Wangusa told The EastAfrican that the model could draw from the Cultural Industries Guarantee Fund, created by the International Francophonie Organisation in Lomé in 2003, as well as the Creative Europe Cultural and Creative Sectors’ Guarantee Facility.
