SMME development support in South Africa

Written by Vernon Cheung

November 30, 2012

SMME development support in South Africa

“The private sector has a role to play in supporting SMME development,” says Mr Sisa Ntshona, enterprise development head, Absa. “Let’s create one million entrepreneurs by 2020. If we do that – and each entrepreneur employs five people – we have created 5 million jobs.”

“The private sector can buy goods and services from SME’s; more sustainable than grants or corporate social investment. Allocate 30 percent of budget towards job creation and local procurement. Look at BEE’s evolution. We transferred shares into Black hands; rather give contracts. An important obstacle is finding a market.”

Absa has Enterprise Development Centres throughout South Africa. SME’s can access non-financial support, advice and assistance in identifying business opportunities. “It’s not technical skills, but business acumen that is lacking. The plumber knows his job. There is the odd occasion where he forgets to send out an invoice.”

Siba is dismayed at South Africa having lowest Maths literacy in Africa. “We spend the highest on education in Rands, but yield the lowest results!”

Mindful that hiring people boosts the economy, Siba refers to US support of entrepreneurs in tough times. “When the US bailed out banks, a key condition was don’t stop lending to small business.” With US unemployment data standing at Nine percent, banks are putting their money where their mouth is.

“Raise more venture capital and equity at SME level. It’s easier to raise R5-million than R500 000. Rather commit security or collateral for debt, than having nothing to give. There’s a reason to succeed.”

“We overlook collateral when a SMME has landed a big contract, funding access to the contract.” Absa applies a rehabilitative approach to applications from blacklisted SMME’s. “This is conditional on acknowledging debt and producing a three-month payment plan.”

Information about SMME’s in the public space is thin. Absa is introducing a SME index much like their Home loan Index, including best performing sectors. It will communicate to regulators and reflects calls for incentives within the services sector.

The Identity Development Fund fulfils a role as South Africa’s missing middle in the SME finance and development space. “There are not many players providing capital to  businesses that have been operating for six months,” says Ms Polo Radebe, CEO, Identity Development Fund. “Traditional financial institutions won’t assist businesses without a track record and no capital.”

“Our primary role is providing appropriate financial products to our target market, combined with support. Our approach is significantly different – we give entrepreneurs hope and a chance to be successful when no one else has.”

There’s the heartwarming example of the businessman working in the Public Works programme. Provided with equipment and an office he accesses tenders at a higher level and employs 15 permanent staff.

The Identity Development Fund insists that clients convert their business to a Pty Ltd entity. “We require management accounts. Many entrepreneurs don’t have the discipline. To play in the big league, they have to operate like a serious business, adhere to corporate governance; establish a board of directors.”

In two years the Identity Development Fund has created 56 jobs and turned around businesses verging on closure. There is regular interaction with clients. Polo says: “We are passionate about Black empowerment. There is a move by people who don’t have jobs to become entrepreneurs…some are not natural entrepreneurs. Entrepreneurship needs to be properly supported.”

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