By Vimi Sookun, General Manager, Intercontinental Trust Ltd (ITL)
One of the fastest-growing asset classes, the global private debt market has grown ten-fold since 2007 to between USD1.6 and USD2 trillion by current estimates.1 Preqin forecasts that private debt assets under management (AUM) globally will reach USD2.8 trillion by the end of 2028.2 Meanwhile, fund manager BlackRock is even more bullish, estimating that private debt AUM will reach USD3.5 trillion by the same year.3
The US is the largest global market for private debt, followed by Europe.4 In the US and European markets, private debt is a recognised asset class for institutional investors, who vouch for its potential to provide attractive risk-adjusted returns and help with portfolio diversification. However, industry onlookers note that Emerging Markets (EM) continue to lag, currently accounting for less than 3% of global private debt issuance annually. 4
The rise of private debt in Africa
The EM private debt sector hit a peak of USD10.5 billion in 2018, before slowing in 2019 due to the tightening of credit conditions in the US and then the COVID-19 pandemic in 2020. 4
Activity picked up in the second half of 2020 and momentum was maintained into 2021, but still at a slower pace than pre-pandemic. Within the EM private debt sector, the largest portion of fundraising has gone to Emerging Asia, representing a staggering 80% of the total funds dedicated to emerging markets. In contrast, the total number of firms operating in private debt in Central and Eastern Europe, Africa, and the Middle East remains limited. 4
Meanwhile, Africa faces a credit gap of USD360-400 billion5, highlighting the urgent need for new financial tools to support economic growth and financial liquidity. Here, private debt has enormous scope to grow, as it currently accounts for only 7% of total funding raised in Africa5. Indeed, private debt is a nascent asset class compared to others such as venture capital and private equity, but it has the potential to grow fast as an alternative to traditional banking channels.
On the borrower side, the demand for alternative solutions such as private debt is clear as Africa’s mid-cap businesses frequently find themselves in a bind. Too large for micro or SME finance but too small or unproven for traditional private equity, they are forced to rely on expensive or inflexible debt solutions, or miss out on growth opportunities altogether. Private debt provides a balanced solution, allowing these businesses to grow without reeling under the burden of strict conditions or facing the prospect of sacrificing ownership.
On the lender side, when it comes to returns in this rising asset class, private fund managers are fast finding out that private debt can provide a stable income compared to private equity, with a significant premium over what they can expect in developed markets.6
Is Africa still profitable for investors globally?
Indeed, notwithstanding the rise in interest rates and the increase in public debt following the pandemic, Africa remains attractive for a number of reasons. Crucially, the leverage in the market is still quite low compared to developed markets – private debt fund managers note that the businesses they finance on the continent have leverage of 2 to 3 times, compared to 5 to 6 times in developed countries.
They comment on the importance of backing regional champions that are resilient to interest rate rises and can weather economic and political challenges on the continent. Private debt managers believe that this rising asset class is set to provide a premium in Africa compared to developed markets, made all the more attractive by the extremely low default and loss rates of companies in the continent. 6
A key obstacle in attracting institutional capital to Africa is the gap between the perceived risk of doing business in Africa and the real risk. Often, important themes that make the continent an attractive investment destination, – such as the youth demographic dividend, political stability in key markets, and the potential for technology to leapfrog traditional economic models – are not adequately factored in by investors.
Private debt can help shift this narrative by unlocking the growth opportunity in the mid-market segment, which can power the growth of the real economy in key African countries. Here, private debt fund managers note that, in terms of the economic and political environment, firms must be conversant with the environment and be specialised in navigating it. Key considerations to keep in mind are the kind of markets the company operates in, how strong is the shareholder/management, how resilient is the business case to economic and political shocks, and what is the long-term future of the business in the markets where it operates. This helps manage the default risk and assess the borrower’s creditworthiness. Finally, when it comes to currency risks, providing debt financing in USD can help to hedge the risk of local currency volatility, and forms a good option if the borrower has income in USD; else, prospective portfolio companies can be stress tested to currency shocks before undertaking local currency lending. 6
Why should investors consider structuring a fund from Mauritius?
Successfully launching and managing a private debt fund in Africa requires more than investment appetite – it demands operational excellence, regulatory certainty, and deep regional insight. Key enablers include a robust fund domicile, efficient SPV and investor servicing structures, accurate performance reporting, and compliance with international standards.
At Intercontinental Trust Limited (“ITL”), we believe that Mauritius possesses all the key enablers for successfully launching and managing a private debt fund targeting African markets. As a strategic gateway for Africa-focused funds, Mauritius combines legal clarity with regulatory oversight. The jurisdiction provides investors with a favourable investment environment by offering incentives such as 100% foreign ownership, tax-free dividends, and no capital gains tax. Mauritius also boasts a deep network of double taxation avoidance and investment promotion agreements with many African economies. Finally, the jurisdiction offers innovative fund structures such as Variable Capital Companies (VCCs), positioning fund managers to respond with dynamism and efficiency to evolving investor demands. 7
How does ITL support private debt fund managers operating in Africa?
At ITL, we understand the operational rigour and agility needed to successfully manage private debt funds in dynamic markets like Africa. As a leading fund administrator regulated by the Financial Services Commission (FSC) in Mauritius, we offer end-to-end fund administration services, from fund set-up and compliance to investor servicing, accounting, and reporting. Our strength lies in our ability to bridge global standards with regional realities.
We support private equity and private debt managers with a robust suite of digital tools, including an advanced fund accounting platform tailored for the complex structures of closed-end funds. This allows for timely, transparent, and audit-ready reporting, giving fund managers and investors alike peace of mind.
Leveraging this robust economic and regulatory framework, together with our strong track record across fund administration, ITL enables fund managers to operate with transparency, agility, and institutional-grade governance across diverse African markets. With deep familiarity across multi-jurisdictional regulatory regimes, we ensure seamless coordination among fund vehicles, asset managers, and service providers. Our scalable solutions are built to support growth, drive transparency, and uphold institutional standards across the full fund lifecycle.
Ultimately, Africa’s private debt landscape presents a significant yet underexplored opportunity for institutional capital. With its combination of creditworthy borrowers, resilient mid-market demand, and evolving infrastructure needs, the continent offers meaningful potential for impact and returns. As fund managers increasingly seek diversified and sustainable portfolios, jurisdictions like Mauritius play a critical role in enabling efficient, well-governed investment vehicles into Africa.
Sources:
2https://www.preqin.com/insights/global-reports/2024-private-debt
3https://www.blackrock.com/institutions/en-zz/insights/growth-drivers
4https://fsdafrica.org/wp-content/uploads/2022/10/FSD-Africa-Private-Debt-Markets-Study-Report.pdf
