R44 BILLION BOOST FOR SMALL BUSINESS
Financial services firms invest in growing MSME sector of which only 14 percent is formalised
AN Analysis has found that the International Finance Corporation (IFC) and the World Bank are set to channel up to $3 billion (R44 bn) in the next seven years to South Africa, increasing lending for small businesses and optimising job creation potential for Micro, Small and Medium Enterprises (MSMES).
Paul Noumba Um, World Bank country director for South Africa, said the Bank aims to facilitate further dialogue and innovation that would lead to greater small business financial inclusion.
“To have a strong small business sector we need to support not only access to finance but also opportunities including the tools and information small business owners need to thrive.
That’s why the work we are doing together with our partners is so important,” said Noumba Um. IFC and World Bank said a study they conducted in partnership with the National Treasury found that the MSME finance gap between supply and demand in South Africa was $30bn.
The World Bank said it estimated the size of South Africa’s MSME market, including formal and informal enterprises, is 5.78 million of which only 14 percent is formalised. It said 86 percent of MSMES comprised of informal and survivalist businesses and that these businesses struggled to grow out of this classification mainly because of the poor business environment in the sector.
The Washington-based lender said total funding provided to MSMES currently stood at $16bn and that commercial banks accounted for the majority of the financing extended to formal MSMES, representing 68.9 percent.
Kevin Njiraini, IFC’S regional director for Southern Africa and Nigeria, said South Africa’s financial institutions and policymakers had a big opportunity to create jobs by expanding financial services in a stronger business environment for smaller businesses.
“By working together, we can increase the ability of small businesses to access finance and markets, making them visible to the broader economy and thus bigger job creators,” Njiraini said.
Small businesses received a R3.2bn boost from the National Treasury in the 2019 budget to lend to small business intermediaries such as fund managers and incubators.
South Africa’s financial services firms in recent months upped their game in lending to small businesses.
In November, Capitec bought Mercantile Bank in a R3.2bn deal the bank said would allow it to offer compelling products to small businesses. Financial services group Sasfin last month acquired “a strategic stake” in fintech lender Payabill. Payabill offers loans of up to R150 000 to businesses.
Experian South Africa this week launched smartphone app GELEZAR that aims to bring more MSMES into the mainstream economy.
The mobile phone app is designed to provide financial education and credit scoring to micro-entrepreneurs and individuals.
Simon Rudman, social innovation lead at Experian SA, said entrepreneurs would be able to build an alternative credit score using hundreds of mobile data points through the GELEZAR app, to determine creditworthiness.
“GELEZAR has been developed to help such entrepreneurs gain basic business and financial education skills and also so that they can more easily access personalised financial products at interest rates that work for them,” said Rudman.