The critical thinking forum discussion was divided into three broad areas based on the questions and dicussions: Access to finance, understanding the small, medium and mocro enterprise (SMME) market and its segments, and streamlining the SMME support for ease of access to support by enterprises.
The discussion on the access to finance proposes that both government and commercial banks, and other funders need to package support to be able to facilitate access.
There is also an issue of alternative funding mechanism, such as venture capital and angel investments. The ability of SMMEs to access finance is constrained by a variety of factors.
There are vast sections of the economy that are grossly underserved by the current dispensation. Government efforts to provide relief have been undermined by the enormity of the demand and resource limitations.
Although there are several positive developments, such as the Financial Sector Charter, these initiatives are unlikely to comprehensively address the needs of the marginalised sectors of our economy.
Consequently, the government should remain an active participant in addressing the market failures that lead to restricted access to finance by SMMEs.
Looking at the challenge from a supply point of view one is confronted with a variety of constraints in the private capital markets that limit access to finance for SMMEs.
One of them is the inability to assess the credit risk appropriately.
Existing enterprises of this nature tend not to have comprehensive records of trading history.
If they are start ups there are usually questions about the depth and reliability of the market research that informs the business plan.
In addition, the cost associated with conducting an in depth risk assessment versus the loan size is regularly cited as being prohibitive.
Unfortunately, there are limited opportunities on these two areas. Some years ago national treasury developed a tax incentive for venture capitalist to invest in this market.
However, the take up has been very low and this necessitates the review of this incentive. Recently, the Reserve bank convened a start-up summit, which comprised of several venture capitalists.
It became clear however, that the accessibility to this type of funding is only for enterprises within particular sectors, such as ITC and manufacturing.
Even then some of the entrepreneurs who came up with exciting innovations failed to attract investors in their inventions.
There are also public sector venture capital initiatives, such as Technology Innovation Agency and the Industrial Development Corporation venture capital.
Closing the the gap
Our view is that there is a lot of funding in the market and the only challenge for enterprises is inability to meet the requirements for funding.
This means therefore that there is a gap between the need and the accessibility. There is a need for a system that can package enterprises and prepare them for funding.
The department of trade and industry (dti) together with the Human Resource Development Council, under the Deputy President, is working on a programme called FiNfind.
Finfind attempts to close this gap by linking the entrepreneur and the funder through support measures provided by qualified “middlemen” to do the packaging referred to above.
The programme is envisaged to be launched during the new financial year. The need for the SMME segmentation and packaging of programmes tailor-made for a particular segment need to be emphasised.
We need to recognise a particular need for formalised enterprises visa-vis micro, informal and township businesses.
The latter need particular attention and specific support services and financial instruments to graduate and be formalised.
The informal business strategy being conceptualised by the dti will go a long way in addressing these.
The rollout of the incubation support programme also provides for a platform to assist business to be sustainable enterprises.
The high enterprise dead rate is raised by a number of studies in the country.
Few years after Seda was established, it adopted the technology related programmes including the incubation programme to form the Seda Technology Programme (STP).
Under this programme, there were about 30 incubators monitored and tracked over time.
Based on their performance and increase in survival rate of enterprises under this programme, the dti took a decision in 2012 to increase its incubation support and launched an Incubation Support Programme.
The take up to this programme is growing in lips and bounds and to-date, 30 companies/applications have been approved with an investment totalling just over R400 million in a space of just seven months.
The accessibility of support services is hampered by the fragmented nature of support provided by both the public and private sector.
A need arises therefore for all parties to streamline their efforts and build strategic partnerships that will enhance the support and identify areas of need.
The private sector is beginning to hear the call hence this dialogue and there is a need to scale up these efforts if we are to succeed.
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