This is government’s big plan to help businesses in South Africa

 ·3 May 2023

The Department of Small Business Development plans to introduce a host of new policies designed to help Small, Medium and Micro enterprises (SMMEs) in South Africa.

In the draft South African SMME and Co-Operatives Funding Policy gazetted this past week, the department said that SMMEs are seen as the engines of growth and the sector which will provide the most job opportunities in the country.

The National Development Plan (NDP) envisions 90% of the 11 million jobs in the plan being generated by smaller enterprises by 2030.

However, these smaller businesses face major economic headwinds and struggle with funding most of all.

A 2020 FinScope Micro, Small and Medium Enterprises (MSME) Survey noted that South Africa has roughly 2.6 million entrepreneurs, with 37% of these entrepreneurs being young business owners.

The majority of SMMEs in South Africa are micro-enterprises (54%) and mainly operate on an informal basis, with only 37% registered with the Companies and Intellectual Property Commission (CIPC). However, the formally registered SMMES are major drivers of the economy and contribute R2.9 trillion to GDP.

The department said that SMMES, at the beginning of their lifecycle, usually struggle to access bank financing as they lack tangible assets or a revenue track record, resulting in many using their personal savings or funding from friends and family.

However, most South Africans do not have personal assets or extended networks that can provide early-stage investment.

Cash flow constraints are also cited as a major problem. For instance, the department said that the late payment of invoices by large clients, mainly the government, often leads to significant cash flow challenges.

The department has thus given a long list of interventions that it said can help SMMEs reach their full potential and lead to economic growth:

  • The department said that it wants improved access to the finance ecosystem for SMMEs and Co-operatives, with help from the National treasury.
  • It wants to create a database of small businesses which will gather much-needed information on businesses in the SMME sector.
  • It wants to develop centralised fund structures in partnership with the private sector to improve the provision of start-up capital. 
  • The department, in partnership with other role players, should determine the funding instruments for SMMEs, which are required for the whole life cycle of a business.
  • There should be improved business development support, such as the use of appropriate financial products and informed interaction with FSPs.
  • The de-risking of SMME finance through credit guarantees was also called for by the department, with further support for the implementation of the recommendations to reform the Khula Credit Guarantee (KCG) scheme.
  • The department added that it should engage with stakeholders regarding the implementation of a movable asset collateral registry. 
  • South Africa needs to establish simplified business registration and legal processes for SMMEs.
  • SMMEs also need greater access to credit information systems. 
  • To ease cash flow constraints, legislation must ensure that invoices are paid out quickly. 
  • SMMEs should also have access to affordable insurance, with the department saying that a demand-side survey should be conducted to understand the insurance needs of SMMEs.
  • The department should improve and monitor the access that SMMEs have to the finance market while ensuring that informal readers also have access to the market.
  • There should also be a funding environment for targeted groups (Youth, Women, and Persons with disabilities), with constant engagement with organisations representing them.
  • SMMEs should also have greater access to digital financial services, with regulators monitoring the conduct of financial service providers.
  • Public and pricvate sectors need to work together to improve the capacity of Microfinance Institutions to deliver sustainable financial solutions. 
    • Finally, dedicated funding instruments should be developed to improve the access SMMEs have to finance.

The full gazette can be found below:

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