Slow growth hits lending to SMEs

Slow economic growth is throttling the development of small and medium enterprises (SMEs) and lending by the major banks to black-owned small businesses shrank by 7.7% between 2016 and 2017, according to figures from the Banking Association South Africa (Basa).

Alongside issues such as the level of black ownership of banks, the lack of funding for small black-owned business is often cited as a stumbling block to transforming the sector and the wider economy.

Basa officials say sluggish economic growth has meant the number of SMEs is not increasing, and many of them need significant nonfinancial support and forms of investment other than debt financing by banks to develop.

Lending to SMEs has remained a problem and their number has stagnated for the past 10 years, Basa’s head of financial inclusion, Khulekani Mathe, says.

“The pipeline of new SMEs coming in is pretty much broken. And that talks about the whole ecosystem to support small and medium enterprises that … is not allowing new organisation to come in, grow and become successful.” Small businesses also face nonfinancial difficulties, according to Basa managing director Cas Coovadia, such as labour legislation.

“It’s not what you pay workers; it’s the ease or difficulty of hiring or firing people,” he says.

South Africa’s venture capital market for SMEs is also undeveloped, he says.

“Banks do debt finance; they don’t do venture capital finance and no business, let alone an SME, can survive on debt finance alone,” he adds.

Mathe says about 75% of the funding for SMEs comes from the banks, which is not ideal. Nevertheless, according to a report released by FinFind last year, the credit gap for SMEs in South Africa was between R86-billion and R346-billion, suggesting there is significant demand for funding.

Although there has been growth in certain other areas of transformation in the sector, such as lending for affordable housing, Basa concedes improvement is needed in other areas.


Black ownership of banks according to several measures, outlined in a report for Basa by Intellidex, has declined because a number of black economic empowerment deals matured between 2015 and 2017.

Black ownership measured by voting rights fell from 34.8% to 30.5% between 2016 and 2017 and black economic interest fell from 30.3% to 25.4%.

But the representation of black people in the banks’ management has increased. For instance, among middle management, the proportion of employees who are black increased from 59% to 61%, and the proportion of those in senior management who are black increased from 25% to 37%.

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.
Advertising

ConCourt settles the law on the public protector and interim...

The Constitutional Court said it welcomed robust debate but criticised the populist rhetoric in the battle between Busisiwe Mkhwebane and Minister Pravin Gordhan

Small towns not ready for level 3

Officials in Beaufort West, which is on a route that links the Cape with the rest of the country, are worried relaxed lockdown regulations mean residents are now at risk of contracting Covid-19
Advertising

Press Releases

Covid-19 and Back to School Webinar

If our educators can take care of themselves, they can take care of the children they teach

5G technology is the future

Besides a healthcare problem Covid-19 is also a data issue and 5G technology, with its lightning speed, can help to curb its spread

JTI off to court for tobacco ban: Government not listening to industry or consumers

The tobacco ban places 109 000 jobs and 179 000 wholesalers and retailers at risk — including the livelihood of emerging farmers

Holistic Financial Planning for Professionals Webinar

Our lives are constantly in flux, so it makes sense that your financial planning must be reviewed frequently — preferably on an annual basis

Undeterred by Covid-19 pandemic, China and Africa hold hands, building a community of a shared future for mankind

It is clear that building a community with a shared future for all mankind has become a more pressing task than ever before

Wills, Estate Administration and Succession Planning Webinar

Capital Legacy has had no slowdown in lockdown regarding turnaround with clients, in storing or retrieving wills and in answering their questions

Call for Expression of Interest: Training supply and needs assessment to support the energy transition in South Africa

GIZ invites eligible and professional companies with local presence in South Africa to participate in this tender to support the energy transition

Obituary: Mohammed Tikly

His legacy will live on in the vision he shared for a brighter more socially just future, in which racism and discrimination are things of the past

The best local and international journalism

handpicked and in your inbox every weekday