CURRENT TRENDS IN TRADITIONAL COMMERCIAL LENDING AND THE ROLE OF DEVELOPMENT FINANCE

MARIA NKHONJERA & NICHOLAS NHUNDU

Small and Medium Enterprises (SMEs) are key drivers of inclusive growth in the South African economy, contributing about 55% to the gross domestic product, while their contribution towards employment is as high as 60%. In addition, small firms and new entrants enhance competition within different economic sectors, resulting in lower prices and greater variety for consumers, as well as dynamic and productive efficiencies.

Despite the importance of small and medium-sized enterprises and their significant economic contribution, they face limited funding options from both traditional financing institutions and government initiatives. For smaller businesses, building scale and being able to compete effectively in a market takes considerable time. This is exacerbated by the long periods it takes to develop the business including investing, trying out new approaches and strategies, innovating and expanding, along with obtaining regulatory approvals in some sectors. As such, these businesses need to have patient capital to support their growth.

This article reflects on the status quo of traditional commercial lenders in South Africa while considering the importance of development finance. We make recommendations on how the financial system can better address capital market constraints in the provision of finance to underserved sectors of the economy.

By: CCRED – https://www.competition.org.za/review/2017/8/29/the-case-for-patient-capital-small-business-funding-in-south-africa-yskg2