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Challenges in SMME financing and support

Vijay Valla, Director of the DSBD Funding Support Unit, and Darlene Menzies, CEO of Finfind.

In a step towards empowering small, medium, and micro enterprises (SMMEs), a recent forum was held in KwaZulu-Natal aimed at developing and growing SMMEs through public-private collaboration. The forum, a programme of the Department of Small Business Development (DSBD), was held in collaboration with the KZN Department of Economic Development, Tourism and Environmental Affairs, Trade Investment KwaZulu-Natal, Ithala Bank and Finfind.

The forum was established to address the uncoordinated resources and fragmented policy interventions that have hampered access to finance support for SMMEs and cooperatives. The initiative seeks to streamline and synergise efforts to provide more effective support to this crucial sector of the economy.

The forum's objectives include:

• Identify existing programmes and ensure new ones align to support SMMEs and co-operatives.

• Building synergies among the DSBD and other key stakeholders in the SMME and co-operatives sector.

• Developing a comprehensive database and directory of key stakeholders and support programmes offered to SMMEs.

• Continuously updating this database and directory of key stakeholders and programmes of support.

• Revisiting and revising the common application form and business plan template for use across DFIs and development corporations.

Vijay Valla, Director of the DSBD Funding Support Unit, reinforced the importance of these objectives. He stated, “For the past 30 years, we have been talking about integrating SMMEs and cooperatives from historically disadvantaged backgrounds into the mainstream. Despite significant investments, we hear from townships that securing even a R5000 business loan requires a R15 000 business plan. Who is this system truly supporting – SMMEs or intermediaries?”

“Our Development Finance Institution (DFI) criteria seem designed to exclude, rather than include, those in need. We expect every financed venture to succeed exceptionally. However, development finance should not be driven by fear of failure, but by the genuine developmental needs of our people. We are, after all, a developmental state”.

Darlene Menzies, CEO of Finfind and a special advisor to the public sector forum, highlighted several key challenges in the SMME funding landscape that must be overcome to ensure the growth of this vital sector. Menzies specified, "The lack of available, verified SMME data in the country, and the absence of SMME credit data, is a significant barrier to lenders being able to provide finance. Another systemic challenge is the inappropriate credit risk assessment and scoring models used by finance providers, especially banks, for SMME lending."

Menzies also pointed out the need for an effective collateral solution by the government to assist finance seekers who do not own assets and she addressed the epidemic of poor financial recordkeeping and the lack of funding readiness among SMMEs. She added, “Late payments to SMMEs by government and corporates, and the absence of scalable funding solutions to address the associated cash flow challenges are critical issues that need immediate attention."

This forum represents a concerted effort to create a more coordinated and effective support system for SMMEs and co-operatives, ensuring they receive the necessary resources and policy support to flourish. Public-private initiatives like this are essential in overcoming the SMME sector's challenges and unlocking its full potential for economic growth and job creation.

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