How tokenization can accelerate financing of small and medium enterprises in Africa

In 2025, artificial intelligence (AI) dominated the news, with the global community divided about its impact on jobs. However, the untold story of AI is its impact on payment systems and liquidity—especially for small and medium enterprises (SMEs). AI-based tokenization could substantially improve access to finance, payments, and liquidity for SMEs.

SMEs are the backbone of Africa’s private sector, representing 90% of all firms.¹ In Nigeria, SMEs account for 60-70%² of employment and nearly 50%³ of GDP. However, Africa in general faces an estimated SME financing gap of over $331 billion.⁴ Moreover, despite their importance, public sector arrears condemn SMEs to finance the government at their own expense and sometimes to their own demise.⁵ AI and tokenization could help remedy this.

What is tokenization, and how does it work?

Tokenization means creating digital representations of traditional assets via the blockchain so they can be traded, tracked, and managed more easily.⁶ The issuance, recording, and transfer of tokens depend on the applications executed on programmable platforms according to the Bank for International Settlements (BIS).⁷ By creating provably unique digital tokens that can be issued, stored, and traded on these ledgers, tokenization enables the exchange of information and value. A “token,” in this context, represents something of value that can be legally and operationally exchanged on a programmable ledger.⁸ Regulated tokenized assets are traditional financial assets and not crypto assets. With digital tokens, investors can convert real-world assets into digital tokens on a blockchain. This process not only makes it easier to trade and invest but also improves security and transparency because there are independent controls, such as access controls, controls over stability, control over finality, and oversight over anti-money laundering regulations.

How can tokenization facilitate greater access to liquidity and capital for SMEs?

The plague of unpaid government bills: World Bank survey data⁹ indicates that across all regions, firms in sub-Saharan Africa have the highest participation rates in public procurement (22% compared to a global average of 18%). These firms, including SMEs, supply various services to the government (e.g., transportation, courier services, construction, even maintenance and repairs). However, failure by the government to meet its payment obligations constrains growth of these firms. Many SMEs are forced to go into liquidation due to unpaid bills—more formally known as government arrears. In countries like Egypt,¹⁰ Kenya,¹¹ and Cameroon,¹² arrears clearance has been highlighted as a key issue impeding private sector growth by both the IMF and World Bank. A 2019 IMF study further concluded that average arrears in sub-Saharan Africa were about 3.3% of GDP.¹³ The same study estimates that a 1 percentage point increase in the arrears-to-GDP ratio is associated with a 0.3 percentage point decline in real GDP per capita growth—implying that with an average of 3.3 % in arrears, sub-Saharan Africa is giving up almost 1 percentage point of GDP growth.

While SMEs are less likely to participate in public procurement than large firms, they are disproportionately impacted by arrears due to cash and credit constraints. For most SMEs, access to bank lending is constrained or prohibitive due to a lack of consistent and transparent credit history, and/or a lack of registered collateral. In the rare cases where SMEs have access to finance and transact on banking sector platforms, the transaction costs are high, and settlement is slow—it can take over a week for transactions to clear—and the costs of bank accounts are onerous.¹⁴ The lack of capital markets also means SMEs cannot create funding streams by listing on the capital markets.

Technology, and in particular tokenization, can help solve these challenges while at the same time deepening secondary market trading and creating more (and muchneeded) liquidity. Concretely, for countries with high domestic arrears, tokenizing arrears gives the SMEs tradable assets. These tokenized assets can enable the development of a secondary market in which the assets are traded—or derivative baskets created—allowing for better price discovery, cost reduction, and access to extra credit lines. For example, a government service provider with a verified invoice can tokenize the claim and sell it to investors or secondary market participants at a discount. This allows the service provider (maybe a restaurant owner or construction company) to access cash (liquidity) immediately, while the new creditor can hold the token until the government can honor the debt. In the secondary market, agents can bundle these receivables into new baskets by lender and resell them.

Tokenization also enables SMEs to convert future revenue streams into affordable investable equity offerings, thereby allowing SMEs to raise capital.

Moreover, by providing a history of the firms’ revenue and payment obligations, tokenization can help SMEs build a credit history that would, in turn, improve their access to credit. For example, when an SME tokenizes its outstanding invoices, the blockchain on which the token is built records the issuance of the invoice, the debtor/service contractor, payment due date, and ultimately payment performance. Likewise, each time the SME pays out an obligation, it gets recorded, and this can count positively towards its credit score. The combination of both transactions across time helps to build the credit history of the SME and the level of credit the SME can manage or needs.

3 recommendations for Africa’s successful adoption of tokenization and potential risks

Despite its clear benefits and applicable use cases for Africa, and despite Africa’s unique position to leapfrog with this technology, several regulatory and infrastructure conditions must be met. Security concerns, infrastructure gaps, and a lack of common standards impact adoption plans. In Africa, there is also a knowledge gap that must be filled.¹⁵

Tokenization is one financial innovation race where Africa could position itself to be on par with other emerging markets. Africa has the market and could go to scale much faster. The overall size of transactions on the continent also lends itself to the use of tokenization. To move ahead, three things are the most crucial:

• First, a financial jurisdiction should work on a regulatory sandbox (before the launch) to perform simulated transactions. This regulatory sandbox would bring together (or be led by) a regional regulator authority, with asset managers, banks, custodians, a financial infrastructure provider, and exchanges as needed. An example of such a sandbox effort is the Canton Network pilot in Singapore, which brought together 45 institutions over a six-week period to execute and decentralize interoperable transactions in a safe and secure network.¹⁶
• Second, to enforce regulation and transparency, the Securities and Exchange Commission (or equivalent body) of each country would need to work with the central bank and other relevant regulatory authorities to ensure the right regulation is in place. Regulation could benefit from the support of institutions like Goldman Sachs, the BIS, and others that are testing and/or providing regulatory advice on tokenized development.
• Finally, there is a need for financial literacy education, as well as the development of requisite infrastructure. Here policymakers need development partners (as well as public and private-sector collaboration) to build technical capacity and interoperable ecosystems. For tokenization to deliver results, the region needs a well-managed and developed technology stack building on distributed ledgers, smart contracts, custody systems, anti-money laundering infrastructure, and compliance automation.

Despite the significant benefits it could provide, tokenization is not without risk. Authorities, especially securities and exchange commissions and central banks, must be aware of the risks which include deficiencies in data quality and weak governance. These risks could expose countries to financial crime and undermine their anti-money laundering efforts. Without the right regulatory and due diligence frameworks, investors may not be sufficiently protected, leading to fraud and lack of transparency in the markets.

For a continent where SMEs employ the greatest number of people, but also suffer the most from clogged financial plumbing, there is an urgency to find a solution. Tokenization based on AI can provide a solution. Indeed, for Africa’s SMEs, artificial intelligence (AI) might be less about destroying jobs, and more about getting paid on time, faster, and more securely.