Africa has observed rapid growth in private credit over the last few years, and when considering this rise alongside the broader trends we are witnessing, one word comes to mind- "confluence".

Traditionally, private credit in Africa was dominated by development finance institutions (DFIs) and institutional investors. However, in recent times, a combination of factors has opened the market to broader participation, including managers who serve retail, high-net-worth, or mass-affluent investors. We are witnessing the confluence of private equity and traditional asset management, an overlap between banking and private credit, a merging of institutional investors with family offices and high-net-worth individuals, and a shift from regulation to freedom of contract.

This four-part series explores these evolving dynamics. 

Private credit at a glance

At a global level, there is a clear and rising demand from institutional investors for more liquidity options within private credit. Preqin forecasts that assets under management (AUM) in private credit will grow at a compound annual rate of nearly 10% to 2029 and from the current AUM of USD 1.7-trillion to USD 2.6 trillion. There is clear evidence that private credit has grown in Africa. The Q3 2024 Private Capital Activity in Africa report states that, amidst wider value downturns for every other asset class, private debt stood out as a growth area with deal values growing 14% year-on-year, and that private debt provided a capital lifeline for the continent's financial services sector in 2024, particularly for lending firms. The Q2 2025 Private Capital Activity in Africa report further highlights this upward trajectory of private debt, noting that deal volume rose 23% year-on-year, underscoring growing investor appetite for the asset class.

The Stears Private Capital in Africa Activity Report: Q2 2025 shows that African private capital transactions rose to 147 in Q2 2025, increasing from 105 in Q1 2025 (revised upwards to 125) and surpassing 137 in Q2 2024. The agriculture and energy sectors remained the top targets for debt financing, accounting for 40% of all debt transactions, with debt alone representing 85% of all agriculture transactions.

In Africa, growth in private credit is being fuelled by major structural trends such as infrastructure development and the energy transition.

In South Africa, Trading Economics reports that South Africa’s private sector credit inched up by 5.86% year-on-year in August 2025, following a 5.84% increase in the previous month. The South African Venture Capital and Private Equity Association (SAVCA) Private Equity Industry Survey 2025 found that local private equity firms increasingly view private credit as an attractive diversification strategy. The survey found that 86% of firms are considering or actively pursuing private credit, up sharply from 50% in the previous year. In particular, Business Tech Africareports that South Africa’s largest asset manager, the Public Investment Corporation (PIC), is focusing on private credit as a promising growth opportunity in Africa, looking to expand its investments beyond its home market.

While the absolute size of the private credit market in Africa is significantly smaller than that of developed markets, its growth trajectory is undeniable, presenting an array of challenges and opportunities.

What is a credit fund? 

Credit funds (often interchangeable with "debt funds" or "private credit") are alternative investment funds (non-bank entities), generally backed by institutional/commercial investors or family offices. They invest primarily in debt instruments, generating returns from interest income, fixed income instruments or other specialised credit opportunities. The mandate of credit funds typically relates to:

• direct lending (loans to companies);
• mezzanine financing (subordinated debt, often with equity kickers);
• distressed debt (purchasing discounted debt to profit from turnaround or restructuring); and/or
• structured credit (collateralised loan obligation, asset-backed securities, etc.)
• These may be facilitated through a myriad of strategies and fund structures. 

Rationale for popularity

Lower risk: While credit funds do not benefit from the upside exposure available to equity funds, they often include structural protections that lower performance risks. This is due to debt ranking ahead of capital, ensuring that the debt holder, being the credit fund, is paid first. When a portfolio investment underperforms or fails, the credit fund may recover a material portion of the investments because of its priority claim, whereas an equity fund may lose up to 100% of its investment. Credit funds also have a lower correlation with public markets and are therefore less volatile.

Predictability and steady proceeds: Given the fixed income or interest on debt strategy, credit funds typically see returns from contractually agreed interest, principal and/or other similar payments. Accordingly, investors may anticipate a more predictable and regular return, especially when a floating rate structure is present, providing a degree of protection against interest rate increases and permitting more steady proceeds. In contrast, pure private equity funds rely on profits on exit after long-term holds, which are subject to uncertain market conditions.

SME growth and limited availability from banks: Traditional banks are subject to stringent capital and liquidity requirements, which restrict their ability to freely provide credit. Adherence to such banking requirements was only made more cumbersome following the release of Basel III, with South Africa's implementation thereof commencing on 1 January 2013. Consequently, banks have increasingly shifted their business endeavours towards larger corporations and consumers. The Real Economy Bulletin: Second Quarter 2025 reports that in South Africa, lending disparities have been pronounced: over the past six years, retail and corporate small businesses received only 13% of bank loans, while corporate entities received 51% and bank consumer clients 36%. This has created an opportunity for private credit funds and other non-bank financial institutions to fill the lending void and provide tailored, flexible and/or innovative lending solutions with faster approval processes, particularly in relation to SMEs and other smaller corporates (which comprise the sheer bulk of businesses in Africa). This is especially lucrative for the increased capital needs of smaller businesses, which cannot access capital through traditional banks but are also reticent to relinquish ownership through traditional private equity funding. Private credit funds provide businesses with the opportunity to finance working capital expenses, growth initiatives, acquisitions, refinancings and specific projects. In turn, private credit funds typically benefit from higher returns and a greater deal of flexibility in structuring products relative to the traditional banking sector or the public market.

Investor demand: A key driver for the rapid growth of credit funds is the demand for the same by institutional investors. Pension funds, insurance firms, sovereign wealth funds and similar entities are increasingly directing a significant share of their portfolios toward investment in private credit, attracted by its potential to deliver higher returns and enhanced diversification. This, together with the predictability and steady proceeds of credit funds, as well as the opportunity to become a key player in financing the lending gap left by traditional banks, has drawn investors towards the world of credit funds.

Diversification: Private credit presents a separate asset class to that of equity instruments and bonds, with returns being potentially spread across a broad spectrum of companies, geographies and sectors, potentially leading to increased risk-adjusted returns and limiting potential losses. This is especially lucrative for pension fund investors who are looking for alternative investment avenues, whilst adhering to allocation limits under Regulation 28 of the Pension Funds Act.

Growth in African urbanisation, industrialisation and infrastructure: This has led to growth in infrastructure debt as there is a significant unmet need for long-term capital to finance infrastructure development in emerging markets. Our municipalities are financially constrained, meaning there is a gap for the private sector to fill. 

Next part of the series

In part 2 of this series, we will collaborate with private credit fund managers, offering firsthand insights into Africa’s evolving private credit landscape. Part 3 will examine the confluence with family offices and ultra-high-net-worth individuals as an investor base. Finally, part 4 will focus on private credit from the perspective of fund formation attorneys, unpacking current structuring trends and including a Q&A with some of the established private credit managers in Africa.

Written by Michael Denenga, partner and Gitte Truter, associate director, Webber Wentzel