Unlocking economic growth through SME Financing
In South Africa, the SME sector is estimated to contribute between 35%-45% and 50%-60% toward Gross Domestic Product and the labour force respectively, according to research undertaken by Global Entrepreneurship Monitor and The Banking Association of South Africa – making it easy to see why it is viewed as a lever for increasing economic growth. Despite this however, one of the greatest obstacles to the SME market is access to finance.
Given that an active SME sector creates a positive knock-on effect for any economy not only in terms of stimulating production and creating employment, but also uplifting communities – it’s ironic that there is a gap in the South African lending and borrowing market for the small business funding sector, especially considering that one of our NDP goals is to create 90% of new jobs through SMEs.
Some traditional financial institutions are still generally reluctant to look at SMEs, due to the risk and high costs involved, however, the good news is that many others, and many unlikely lenders, have started to actively focus on this sector. This has opened up unconventional alternative options becoming more readily available for small businesses. Of course, this is great news for small businesses, but like all things in business there are risks that need to be addressed. Unfortunately, there are some alternative lenders out there that don’t act in the SME’s best interests – driving a need to create standards that encourage transparent and responsible lending in what is currently an unregulated SME Finance sector.
And that is exactly where SASFA comes in! Established in 2017, SASFA was created to drive industry standards that ensure SME customers are fairly treated and the reputation and sustainability of this SME Finance sector is maintained. With a Best Practices Framework that promotes Transparency, Responsible Lending and Fairness, SASFA encourages businesses that require financing solutions to verify SASFA providers and ensure they are following the principles outlined within the code – clearly understanding the type of finance product, the mechanism of repayments and the benefits and risks.
It’s important that SMEs are confident and reassured that they would be dealing with an alternative lender who embraces responsible lending practices and, from the lenders’ side, we want to work closely with other well-established finance associations to create a centralised database that opens up great opportunities to drive a thriving market, but at the same time, safeguard against potential bad transactions.
The success of SMEs in South Africa remains key and introducing a standardised marketplace – which encourages transparent and responsible lending – is a critical component to not only facilitate growth, but drive sustainable business practice.
The conventional barriers of financing are changing and as we embrace alternative sources of financial resources, let’s also embrace the true spirit of entrepreneurship and work together to unlock economic growth.