Private credit and tomorrow's wealth: Earning returns while powering South Africa's growth

Zawya

17-04-2025

In today's uncertain global economic environment, traditional pillars of investment such as stocks, bonds, and real estate have grown increasingly volatile. Rising interest rates, inflationary pressures, and geopolitical uncertainty are all contributing to a sense of instability in global markets – leaving everyday investors wondering where to turn for stable, inflation-beating returns.
This evolving landscape has prompted a growing number of South African investors to consider private credit – a segment of the financial market where capital is lent directly to businesses outside of traditional banking institutions. Specifically, private credit aimed at growth-stage, mid-sized local businesses is gaining popularity. These funds not only offer the potential for consistent returns, but also provide a way for investors to play a direct role in powering South Africa's economic development.
Why focus on mid-sized, growth-stage businesses?
Businesses valued between R5m and R60m form the backbone of the South African economy, contributing over 30% to GDP and employing more than 60% of the workforce (SEDA, 2022).
However, despite their vital role, these businesses face systemic barriers to accessing capital – including limited collateral, informal governance structures, and inconsistent cash flows. As a result, they are often underserved by traditional banks, which tend to prioritise large, low-risk borrowers.
This is where private credit stands out as a compelling investment opportunity. These funds are uniquely positioned to provide flexible, tailored financing solutions that meet the evolving needs of growing companies. In doing so, they open the door for investors to access a high-demand segment of the market that is often overlooked by traditional lenders.
The advantages are significant. Mid-sized businesses are typically willing to pay a premium for quick and adaptable funding, resulting in yields that often outpace inflation. With fewer competitors operating in this space, fund managers can negotiate favourable terms and apply more robust risk management strategies. Beyond strong financial returns, private credit investments can drive measurable impact – supporting job creation, regional economic development, and the expansion of local supply chains.
South Africa's SME funding gap: A strategic opportunity
Despite their importance, small and medium enterprises (SMEs) in South Africa face a funding shortfall estimated at R590bn (SEDA, 2025). Many of these businesses are profitable and resilient, but they require growth-focused funding to reach their potential.
Private credit funds are increasingly stepping in to bridge the financing gap, offering agile and personalised solutions tailored to the specific needs of businesses. These funds can provide working capital to address short-term cash flow challenges, asset-backed lending secured against machinery, vehicles, or receivables, and expansion capital to support product development, operational scaling, or entry into new markets.
This positions private credit as a bridge – connecting capital to businesses that are underserved yet essential to real economic growth.
What this means for the everyday investor
Private credit was once the domain of institutional investors, but that's no longer the case. With the evolution of structured investment vehicles, retail investors now have access to this once-exclusive asset class.
It offers several compelling benefits for investors seeking stability and predictability. One of the key advantages is the steady, fixed income it provides – typically through monthly or quarterly interest payments – which offers more consistency than traditional equities or unit trusts. Additionally, private credit tends to have a lower correlation with public markets, as returns are tied to loan repayments rather than stock performance, making it more resilient in times of market volatility.
Beyond financial returns, private credit can also serve as a meaningful ESG-aligned investment. By supporting local businesses, investors can contribute to social development, inclusive economic growth, and environmental innovation. Many leading funds also provide transparent impact reporting, offering clear metrics that allow investors to track the tangible outcomes of their capital – ensuring both financial performance and purpose-driven value.
What to look for in a private credit investment
Not all funds are created equal, and investors should carefully evaluate each opportunity to ensure alignment with their financial goals and risk appetite. A key consideration is the fund's due diligence process – strong funds will have robust credit assessment procedures in place to evaluate potential borrowers. Equally important is the experience of the management team; a seasoned fund manager with a deep understanding of the South African business environment can make more informed investment decisions and navigate market complexities effectively.
Risk mitigation strategies are another critical factor. Investors should look for funds that prioritise secured lending structures, ideally backed by physical collateral or personal guarantees, to protect capital. Additionally, understanding the fund's liquidity terms is essential – know the lock-in period and any exit conditions to ensure the investment remains aligned with your financial flexibility and evolving needs.
Investing in real-world impact
Unlike abstract financial instruments, private credit allows you to align your portfolio with real-world outcomes. For South Africans looking to diversify their investments while contributing to inclusive economic growth, this approach combines purpose with performance.
Investing in private credit offers the opportunity to access stable, above-inflation returns while diversifying away from traditional markets. It also enables investors to support the growth of high-impact, job-creating businesses, contributing to broader economic development.
What next?
As volatility persists across global markets, the shift toward private market investing continues to accelerate. Aluma Capital offers access to a carefully selected range of private credit and private equity products – many of which include capital protection and fixed annual returns above a 10% hurdle, with typical investment terms over five years.
Our strategies are designed to help investors protect their capital during uncertain times, achieve consistent and predictable returns, and contribute meaningfully to the growth of a resilient South African economy.
To learn more about our private market investment opportunities, including flexible access to funds supporting real businesses, visit our Private Equity page or speak with one of our trusted financial advisors at aluma.co.za.