the evolution and opportunity in south africa’s private credit market

31 March 2025 | Southern African Venture Capital and Private Equity Association (SAVCA)

Since 2008, global private credit assets under management (AUM) have grown exponentially and are projected to reach $3 trillion by 2028.

In South Africa, private credit is emerging as an essential funding solution, especially as traditional bank lending becomes increasingly constrained and regulated.

This was a key takeaway from a dynamic panel discussion at the recent Southern African Venture Capital and Private Equity Association (SAVCA) Private Equity (PE) Conference in Cape Town, where industry leaders unpacked the evolution of private credit, the growing opportunities within the sector, and how South Africa compares to developed credit markets.

A new era for private credit in South Africa
Brent Blankfield, Head of Private Credit at Westbrooke Alternative Asset Management, set the scene by defining private credit’s broad scope. “While often associated with non-bank lending to middle-market companies or funding buy-ins, private credit is much broader than that. It encompasses any loan that is not publicly listed, which means there is significant scale within this market for investors to participate.” Brent further explained how allocators must be clear about their objectives, risk appetite and the context, as these factors would direct them on where in the capital structure they should sit, and which instrument, senior debt, mezzanine or hybrid, is more appropriate.

Speaking to the growing opportunity within the market, Mokgome Mogoba, Founder and Managing Partner at Kholo Capital, explained how private credit has stepped up to fill the funding gap left by banks. “Since the 2008 financial crisis, banks have had to contend with liquidity and capital adequacy requirements and pull back from lending to medium-sized clients who are deemed to be ‘risky’, leaving a significant gap which private credit funds have moved to fill.”

Mogoba went on to note that in the United States, private credit AUM now surpasses $1trillionI. “That’s more than half of the US banking loan market. It’s only a matter of time before South Africa and other emerging markets catch up,” he added.

The best of both in mezzanine financing
Vukile Themba-Mketo, Senior Portfolio Manager at Sanlam Investments, noted that South Africa is already seeing a growing appetite for mezzanine financing. “In the current economy, we are dealing with multiple factors – low growth, but ironically a high demand from businesses, especially mid-cap SMEs, that are hungry for mezzanine capital.”

Mezzanine financing sits between senior debt and equity, offering a blend of both, explained Luc Albinski, Executive Chairman at Vantage Mezzanine. “We combine some of the best features of debt – such as security, an interest coupon, and a defined cash flow profile – with the upside potential that often makes equity attractive,” he said.

Albinski noted that mezzanine is all about fueling growth. “So, when the economy is stagnant, you need to look carefully for sectors where there are opportunities for growth.”

“There are many big ‘boulders’ (challenges) in South Africa right now,” added Themba-Mketo. “But within those boulders there are opportunities of gold and diamonds – it is our responsibility as fund managers to be able to find those opportunities and make them work for our investors.”

Profit with purpose
Private credit is not just about financial returns; it plays a crucial role in economic and social transformation too. This was a central theme in the discussion, particularly for fund managers who are focused on SME lending.

Themba-Mketo highlighted the sector’s ability to unlock growth for underserved businesses. “Post 2008, we saw banks scale back from offering opportunities to SMEs. That’s where we step in – we see this as an opportunity for investors to create a return, but also to make a difference.”

She shared a real-world example of balancing commercial viability with social impact. “We worked with a rent-to-own vehicle business that faced rising defaults as interest rates climbed. Rather than repossessing vehicles outright, we collaborated with the borrower to resize their business, sell excess stock gradually where possible, and take a more measured approach. For us, impact investing isn’t about chasing what’s trendy, it’s about finding solutions that work.”

Synergies with private equity
Explaining how investors should identify the best strategy, Blankfield emphasised that it’s important that they consider the current context and prevailing interest rate cycle, as well as their overall risk appetite, as this will determine where in the capital stack, they should position themselves. He further highlighted that there were many sub-sectors, as private credit was not limited to just senior debt and mezzanine. Various legal structures can also be adopted to match the liquidity needs of investors and provide fund managers with the required flexibility.

Private credit and private equity have great synergies – when undertaking new acquisitions, fund managers can stretch their equity cheque by bringing in private credit, which enables them to share risk and because its nimble, to move quicker. Furthermore, PE funds looking for liquidity against their assets can also access private credit at either holding company or portfolio company level, to service investors.

The role of technology in private credit’s evolution
One of the key opportunities for private credit’s future in South Africa sits in the technology sector. Themba-Mketo pointed out that fintech could revolutionise the way capital is deployed. “There’s a clear opportunity to leverage technology to deploy capital more efficiently and integrate better with traditional banking systems. Revenue-based financing and SME lending platforms could be game changers in reaching smaller businesses that have historically been underserved.”

The panel agreed that if there is demand for agile and creative financing, the private credit market will continue to grow. “For clients and businesses seeking to work with nimble teams that can execute quickly and offer innovative funding solutions, private credit remains an attractive option,” concluded Mogoba.