The banking sector can continue to play a catalytic role in the financing and investment of SME’s through continuing and expanding traditional banking financing and non-financing instruments (e.g. loans, overdraft facilities, credit and business development support). However, we must align these more closely with the kinds of high growth potential, high-value enterprise types and industries contemplated in the NDP to place the country on a higher, more developmental and sustainable growth trajectory. This does not suggest that traditional enterprises that have been, and continue to, be funded by banks are ignored, but that there is orientation to a critical mass of enterprise types that help reposition the economy as contemplated by the NDP.
The existing bank-led credit guarantee scheme can be enhanced through being more innovative. Banks can provide credit, finance and loans to bankable and viable enterprises tendering for state procurement contracts for the delivery of goods, services and infrastructure in key state-led development programmes and projects with catalytic economic impacts as contemplated in the NDP. This will enable these enterprises to effectively and efficiently deliver to the state. The state should in turn provide guarantees to banks on two fronts, namely:
- 30-day payment turnaround time to SME’s for goods and services delivered
- Financial guarantees to repay banks where the actions of the state or the enterprise, results in the enterprise being unable to meet repayment commitments to banks
- While South Africa possesses a number of venture capital organisations in both the private and public sectors and a number of lesser-known venture capital citizens, this represents a largely untapped but potentially significant SME resource sector. There is very little data and information on these funds, in both the public and private sectors. We must collaborate to develop this sector, and communicate more effectively about it, so that SME’s have access to a blend of venture capital and debt finance. Some of these venture capital funds already work in close collaboration with banks and public sector development finance institutions. Recently, the notion of venture capital funding has been receiving more attention from government, especially within the context of the Industrial Policy Action Plan (IPAP).
Banks could also participate meaningfully in the design and operation of one or more state backed national venture capital fund, possibly segmented and diversified for various SME types and sizes in line with the NDP, The New Growth Path (NGP) and IPAP sector priorities.
The banking sector should intensify on-going efforts to influence the regulatory environment for SME development. The sector’s experience in lending to SME’s and engaging with owners and managers of businesses gives it the necessary information to lobby and advocate for facilitating regulations. We must promulgate regulations that make it easier for SME’s to establish their businesses, including registration of companies, tax matters, payments for services and others. Such a regulatory environment also helps to address particular risks banks experience in the SME sector.
The NDP advocates for stronger public and private sector resourcing and investments in the country’s SME backbone, including public procurement, improved access to debt and equity finance and a simplified regulatory environment. The NDP also acknowledges and affirms the NGP as government’s key programme to take the country into a higher growth trajectory, repeatedly emphasising and clarifying the complimentary roles between the NDP and NGP.