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DFIs need to market better to small enterprises

by BuaNews
on 15 Mar 2011
BuaNews Online
BuaNews Online

Development finance institutions (DFIs) should develop communication, training and marketing strategies to better publicise the funding they offer small businesses, the Economic Development Portfolio Committee said in a report tabled in Parliament today.

The report on access to funding for Small, Micro and Medium Enterprises (SMMEs), which makes several recommendations on how to improve the availability of finance for small businesses, follows public hearings the committee held in November last year.

"Although government is spending millions to boost the SMME sector in the country, it seems that due to the failure to effectively communicate with the public and market what is available, the funds are not reaching the target market," said the report.

In the report, the committee also suggests that DFIs should be more flexible in allocating appropriate seed capital to start-ups, that Khula should consider setting up regional equity funds, which target key sectors identified by the Department of Trade and Industry and that SMME database should be set up to help promote business opportunities for small enterprises.

The committee plans to monitor and evaluate the performance of DFIs through insisting that quarterly reports "spell out outcomes and progress made in impacting the marginalised SMMEs."

These reports to the committee should request both statistical and qualitative evidence on lending by DFIs to small businesses.

Although the report does not make any suggestions on how DFIs can deal with the high default rates that many have to contend with, the report does state that the default rates of government lending agencies should be closely monitored and that a strong focus on the sustainability of lending institutions should be maintained, along with quick turnaround times for those entrepreneurs that apply for finance.

The report makes little suggestion on how to revive the government's Khula guarantee scheme, which sees the agency back loans that business owners take out through banks.

The number of guarantees has fallen from a high of 797 in 2002 financial year to 53 in the 2010 financial year, while the scheme has averaged at a default rate of 42 percent between 2006 and 2010, according to a report released in January by Trade and Industrial Policy Strategies (TIPS) titled "How South Africa can boost support to small businesses: Lessons from Brazil and India."

The committee also suggests the setting up of a SME forum of experts to advise on best practices in the small business sector.

The report did not say whether this might complement the National Small Business Advisory Council which is chaired by the Minister of Trade and Industry Rob Davies and advises the minister on challenges facing small businesses.

The report also made several other recommendations to improve finance to small businesses including: putting in place tax breaks to reform venture capital finance and encouraging the state to partner with the private sector to reach small businesses.

In all, 42 written and 26 oral submissions were made from business owners, small business funders and experts.

The committee said it may have to consult with experts and that the Department of Economic Development might have to look at the issue of SME financing in more detail. - BuaNews


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