The department of trade, industry & competition (DTIC) is pushing ahead with its planned R100bn fund to enhance black participation in the economy and provide support for micro, small and medium enterprises (MSMEs).
However, the DTIC may be solving the wrong problem. The definitive “South African MSME Access to Finance 2025" report states: “There is no shortage of funding. There is enough capital in South Africa. The supply and demand mismatch for MSME funding is not owing to a lack of money, but where it is targeted.”
While the report identifies a substantial MSME credit gap estimated at R350bn, it clarifies that this gap is a consequence of misalignment and access barriers, rather than an absolute scarcity of capital. A critical finding is that formal microenterprises, which constitute 86.5% of MSMEs applying for funding and create 80.5% of new jobs, are the least likely to receive capital.
The report was produced by Finfind in partnership with Experian, Stellenbosch University, the International Finance Corporation, African Bank and the department of small business development (DSBD).
The understanding that finance is the primary hurdle for MSMEs is deeply embedded in South Africa’s policy frameworks. The MSME and co-operatives funding policy, which the cabinet approved in September last year, states its aim is to “improve access to finance for MSMEs and co-operatives”.
It identifies specific hurdles such as significant early-stage financing gaps, severe working capital constraints (exacerbated by late payments from large clients, including the government), a persistent lack of reliable credit information, weak financial literacy and the perception of high risk among commercial lenders towards MSMEs.
Similarly, the National Treasury financial inclusion policy framework, published in November 2023 and titled “An Inclusive Financial Sector for All”, acknowledges that “MSMEs’ access to financial services remains constrained because of information asymmetry problems”.
The consistent identification of “access to finance” as the core issue reveals the complex, multifaceted nature of this problem. The problem is not a dry well that needs refilling, but a broken plumbing system with multiple leaks and blockages that requires holistic repair. The focus must shift from increasing the volume of money to improving the flow and accessibility of money.
So instead of primarily adopting a direct funding role, the DTIC’s optimal contribution lies in strengthening the overall enabling environment and actively co-ordinating the fragmented enterprise supplier development landscape.
The government’s core strengths typically lie in policy formulation, regulatory oversight and strategic co-ordination, rather than direct, agile financial innovation or large-scale, efficient capital distribution. Attempting to centralise and disburse such a vast sum, like R100bn, directly ventures into an area where the government historically faces limitations.
Also, the fund largely replicates the mandates and objectives of existing institutions such as the national empowerment fund and the small enterprise finance & development agency, albeit on a considerably larger scale.
This concern is particularly salient given the department of small business’s own policy already explicitly aims to improve co-ordination within the MSME and co-operative finance ecosystem.
Success should no longer be measured by the sheer volume of money disbursed by a state-controlled fund, but by the systemic improvement in the overall environment for MSMEs to access any form of finance and market opportunities
The MSMEs and co-operatives funding policy proposes to “improve co-ordination in the MSMEs and co-operatives’ access-to-finance ecosystem”. Such co-ordination aims to facilitate resource sharing, leverage complementary skills, achieve economies of scale and build credibility.
The department of small business development’s comprehensive policy proposals include robust business development support, credit guarantee reform and proactive measures to ease cash flow constraints. Success should no longer be measured by the sheer volume of money disbursed by a state-controlled fund, but by the systemic improvement in the overall environment for MSMEs to access any form of finance and market opportunities. This approach fosters sustainable growth, reduces dependency on government funds and builds a more resilient and dynamic MSME sector.
The DTIC should focus on the integration of MSMEs into the supply chains of large corporates and the government. Sustainable market access and capability strengthening is often far more impactful than direct financial injections. This approach is recognised globally as a best practice for fostering economic growth and advancing the UN sustainable development goals.
The DTIC’s optimal contribution lies in co-ordinating market access, leveraging and refining existing legislation — particularly the Broad-Based BEE Act and its enterprise and supplier development codes of good practice — to encourage businesses to support access to markets for MSMEs.
Large corporates must deepen their commitment to integrating MSMEs into their supply chains. This must not be a compliance exercise, but rather a recognition of the tangible benefits of leveraging broad-based BEE incentives and a diversified, resilient and innovative supplier bases.
South Africa’s existing BEE framework already provides a strong, legislated incentive for this mutually beneficial engagement. This strongly suggests that government policy should prioritise amplifying and enabling these natural market incentives rather than attempting to create parallel, potentially less efficient, state-driven direct funding mechanisms.
The DTIC’s role should be to remove regulatory friction and ensure the broader business environment supports and rewards best practices.
The banking industry supports the transformation of the economy and broad-based BEE. The private sector, driven by its inherent capacity for innovation and market incentives, is uniquely positioned to provide tailored financial solutions and to integrate MSMEs into robust, sustainable supply chains.
This collaborative approach that leverages the distinct strengths of all stakeholders — the government as architect, the private sector as innovator and driver and MSMEs as responsive, growth-orientated entities — will unlock existing capital and foster genuine and inclusive MSME growth.
• Mhlambi is a senior manager in the financial inclusion and public policy division of the Banking Association South Africa.
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