the Portfolio Committee on Economic Development on the public hearings on the Small
Medium and Micro Enterprise’s
access to funding, dated 31 March 2011
South Africa is a United Nations (UN)
member state with one of the highest rates of unemployment and poverty,
especially among its peer countries. In terms of the United Nations Millennium
Development Goals (MDGs) poverty and unemployment should be halved in the
country by 2014. In this regard, there is growing recognition of the important
role that Small, Medium and Micro Enterprises (SMMEs) can play in job creation,
poverty alleviation and economic development. SMMEs are often described as
efficient and prolific job creators, the seeds of big businesses and the fuel
of national economic engines. However, it is also reported that SMMEs have a
high failure rate due to lack of access to finance. In South Africa,
there are State-Owned Microfinance Institutions (MFIs) which report to the
Department of Economic Development (EDD). The overseer of this sector is
Parliament’s Portfolio Committee on Economic Development (referred to here as
part of a Parliament of the people, the committee decided towards the end of
2010, to conduct hearings on SMMEs and the microfinance sector. A key objective
of conducting the hearings was to highlight the challenges faced by role
players and to formulate a way forward that is intended to begin a process of
addressing the structural constraints faced by the sector within a context of
economic development, job creation and poverty alleviation, particularly after
the industry was hit hard by the 2008/09 global financial crisis.
2. Purpose of the public hearings
- The aim of the hearings was to provide a platform for
the SMME and microfinance stakeholders to give their first hand experience
and raise their concerns regarding microfinance services offered by Government.
- The committee also wanted to ascertain the extent to
which Government’s SMME services are reaching and addressing the needs of
- Furthermore, the Committee intention for hosting the
hearings was also to involve the public in establishing relevant
intervention mechanisms that will enhance the delivery of the appropriate
services to those SMMEs who need them the most.
- In addition, the Committee wanted to ascertain the role
that Parliament and the Department should be playing in order to intensify
the fight against the high levels of unemployment, poverty and the huge
income gap that is plaguing South Africa.
- Finally, the Committee wanted collective participation
in finding solutions to the high failure rate of SMMEs in the country.
3. Public hearings
Committee decided to conduct public hearings on SMMEs’ access to funding in the
country. Public hearings took place on
16, 23 and 24 November 2010. There were 42 written submissions and 26 oral
Committee received written submissions from the following people and
- Eastern Cape Youth Development Board ,
- TF&B Media cc,
- South African
Constitutional Property Rights Foundation,
- Money Mentor Finance,
- Ekasi Youth
- Baloyi BridgeFin
- An employee from
Harrismith Galvanising Steel,
- Developing Poultry
- Mr M Hlongwane,
- Mr T Bevie,
- Africa Empowered,
- Ms P Zono,
- Mr MT Mbatha,
- Ms N Msibi,
- Ms A Smith,
- Dr R Smorfitt,
- Ms Mampholo,
- Mr J Larney,
- Mr F Abrahams,
- Dr V Bahadir,
- South African
Chamber of Commerce & Industry (SACCI),
- Business Unity South Africa
- World Vision South Africa,
Management Services and the National Accommodation Association (NAA),
- Ms N Mapetla, Mr M
Mkhize and Mr Bukula,
- Mr T Mokoena,
- Mr KP Molieleng,
- Mr LT Kubheka,
- Ms D Moopeloa,
- Battlebay Trading,
- Mr M Thango,
- Ms N Khambule,
- Mr F Gongqa,
- Mr R Hendricks,
- Women Enterprise
Development Initiative, and
- Mr S Timm.
would have wished to engage with all those who made written submissions but due
to logistical and cost implications, the Committee invited 26 participants to
make oral presentations before Parliament.
Many participants stated that access
to finance is the main bone of contention which often leads to the high SMME
failure rate. They mentioned that banks deem SMMEs too risky to be granted
loans because of insufficient start up capital and inadequate collateral.
Development Finance Institutions (DFIs) are criticised for poor visibility and
little or no communication strategy. There is also no information provided to
communities about the roles and responsibilities of these institutions and what
is required to access funds. Those who are aware of the DFIs are unhappy with
the customer service ethos at DFI offices and the cumbersome processes that
Poor coordination and conflicting
policies between relevant financial institutions or agencies have been
identified as some of the glaring challenges in accessing government financial
services. Participants are dissatisfied with the lack of skills, poor
leadership and competency levels displayed by the DFIs’ staff. On the other
hand, potential participants and actual recipients also lack the necessary
skills and expertise to help them qualify for financial assistance to manage
financial matters. In many instances this is due to the high levels of illiteracy
in the country. Some participants are unhappy with the apparent nepotism practiced
in the DFIs. There is also disgruntlement over Government tender processes that
do not create jobs, but tend to favour big businesses and large corporations.
Recommendations focused mainly on
the provision of training for staff in order to develop the skills required to
manage services provided by DFIs. Furthermore, it was suggested that communities
also be trained and educated about business and financial management. There is
a plea for Government to support SMMEs in any manner possible, including the
provision of working capital and mentorship. A change in the regulatory
environment was highlighted as necessary to make access to finance easier for
SMMEs are struggling to survive in a
competitive environment because of the following:
- SMMEs lack access to finance
because of a lack of adequate equity capital and collateral often required
by banks before they can fund small businesses.
- A lack of awareness of
available Government services offered to SMMEs and the role of the DFIs.
In addition, many rural areas and informal settlements do not have access
to information and the technology used in accessing microfinance.
- Participants who know about
Khula, South African Micro-Finance
Apex Fund (samaf) and IDC complain about the red tape and
cumbersome processes that are a barrier to accessing the financial
- Applicants find it difficult to
meet the DFI requirements. DFIs seem to be structured in more or less the
same way as banks. For instance, they require the same threshold of own
capital contributions and collateral as commercial banks.
- Poor visibility of DFIs in
communities, particularly in under resourced, remote areas where poverty
- Funding agencies’ marketing is
reportedly weak and sporadic.
- Recipients are sometimes
offered inappropriate products with dire consequences. Several
participants complained that the structure of the funding package provided
was inappropriate for the specific sector. For instance, participant, Mr
T. Mokoena told the committee that his company Katlego Chemicals approached
several government finance institutions but his pleas fell on deaf ears
until the IDC decided to finance his company. Mr T. Mokoena reports that
he was granted funds but it was the wrong type of funding which became
burdensome. The company, which he says had a potential of creating jobs
ended up losing money, business opportunities and it finally shut down
some of its factories.
- Some DFI staff lack the skills
while others lack a sense of urgency to provide services to SMMEs and
- There is little or no
structured interagency referrals, tracking and aftercare.
- Co-ordination between DFIs is
poor and renders them inefficient and ineffective. For instance, where
there is a samaf and a Khula office in the same area, there is sometimes a
duplication of roles and responsibilities.
- The corporate sector and Government
are not doing enough to support SMME development. The main challenge being
the problem of late payment, especially when one takes into account that
cash flow is a critical element of a small business’s operation.
- SMMEs and cooperatives suffer
from poor or non-existent business planning, business risk assessment,
financial reporting, financial controls and business performance
Informed by the submissions and
findings, the Committee recommends the following:
of Economic Development should do the following
- Reform the legal and regulatory
framework which impacts negatively on SMME development.
- Revisit Small Enterprise Development
Agency’s (SEDA) mandate.
- Align incentives for SMME
financing with other policy objectives e.g youth employment initiatives.
- Review tendering processes and
exclude politicians from being involved in tenders and from getting funds
- Use partnerships with CIPRO and
SARS more effectively for financing and regulatory support initiatives.
- Create conditions conducive to
venture capital development, perhaps use tax incentives to encourage risk
- Explore more innovative methods
of ensuring that candidates are properly assessed and trained to ensure
sound SMME management.
in more partnerships with the private sector and banks to reach small
businesses through innovative methods and the structure of financing needs
to be simplified.
- Establish an “SMME University” that is a centre of
excellence which would create a forum of the country’s best thinkers,
together with stakeholders from the public and private sector and SMME’s
themselves. Such a university and the participants of this forum should
adhere to best practices.
- Avoid a culture of dependency
but create one that makes businesses viable and self-sustaining.
- Accelerate initiatives to make
DFIs more accessible.
Development Finance Institutions
(DFIs), reporting to the Economic Development Department, should:
- Commit to educating business
owners about generally acceptable business conduct and practices.
- Ensure adequacy of staff
resources, staff knowledge and ongoing training should feature prominently
in SMME institutions.
- Provide SMMEs with research and
development (R&D) and technical advice to mitigate lending risk. For
focuses on research and development as an important factor to
understanding the needs of SMMEs.
- Encourage business plan
competitions aimed at people with business ideas, seeking working capital.
- DFIs should make a strong
commitment to implement Government policies that are intended to support
- Reduce the red tape that
businesses encounter when they seek advice or need assistance to register.
- Focus strongly on institutional
sustainability and emphasise quick turnaround time.
- Develop a monitoring and
evaluation tool to ensure SMME growth and sustainability.
- Importance should be placed on
ongoing communication with SMMEs.
- Create networking platforms and
establish a national SMME database which would be regarded as useful for
promoting SMME business opportunities and facilitating interaction between
DFIs and SMMEs and cooperatives.
- Establish one stop centres with
SMME specialists who will empower business people with the required
- Set up Business Assesment
Centress (BAC)/Multi-Purpose Centres on a public-private-partnership
basis. BAC accreditation would be issued after a successful assessment and
would be subject to quarterly reviews. Failure to submit a quarterly
review would lead to immediate suspension of bank accounts. There would be
a panel of mentors, coaches and or rescue practitioners that would be
agreed upon by relevant stakeholders. BAC would have to be run by individuals
with a proven commitment to upholding the agreed accreditation criteria.
- Any SMME incubation process
should focus on entrepreneurial stimulation and development, human capital
development through training and mentoring.
- Establish SME Mentorship Programmes
which will provide opportunities for SME entrepreneurs (who are at their
early stages of business) to learn from and be guided by accomplished
entrepreneurs and professionals through one-on-one counselling. Mentorship
will raise individual performance, educate SMMEs to set realistic goals
and draw up business plans.
- Consider sectoral solutions
rather than a “one size fits” all approach.
- Khula needs to consider
regional private equity funds which target key sectors – as identified by
the Department of Trade & Industry.
- Strong emphasis should be
placed on credit risk management, close monitoring of client default data
and ease of access by SMMEs through an extensive network of branches.
- DFIs should be more flexible in
allocating appropriate seed capital.
- Credit guarantee schemes should
focus strongly on networking and learning.
- Provide SMMEs with working
capital as well as start up finance.
- Focused capital rather than
loan finance, is more appropriate for creating world class manufacturing
- Aggressive marketing is
required to promote the work of the DFIs.
Careful consideration should be
given to recommendations concerning the introduction or amendment of
legislation. In particular, legislation pertaining to the creation of an environment
that is more conducive for SMMEs to access finance and that help SMME businesses
Report to be considered.