Innovative mechanisms to improve access to funding for the black-owned small and medium enterprises in South Africa

Abstract

Background: Small and medium enterprises (SMEs) in South Africa and globally struggle to gain access to external funding. The current lending instruments used by the banks are more suitable for large enterprises than for SMEs. Financially constrained SMEs are less likely to contribute to economic growth and job creation. Small and medium enterprises in South Africa are expected to create 90% of the 11 million jobs as per the National Development Plan.Aim: The objective of this study was to deliver innovatively designed funding mechanisms through which improved access to external funding can be achieved.Setting: Participating stakeholders in this research were entrepreneurs and suppliers of funding, policymakers and experts.Methods: The purposive sampling method was used in this study where 24 in-depth interviews were conducted, and 160 survey questionnaires were recorded. Mixed-methods approach was used to incorporate both qualitative and quantitative techniques. A literature review related to entrepreneurship and capital structure theories was conducted. Thematic and statistical graphical data analyses were applied in both the qualitative and quantitative data, respectively.Results: The critical findings of this study are the blended SME funding model and the SME risk reduction model. Designing the lending instruments in a way that blends both private and public financial resources increases the risk appetite on the side of the private lending institutions.Conclusion: The proposed model requires more improved public–private partnerships. Furthermore, the findings include the need for supportive regulatory framework and embracing alternative emerging technology-enabled funding options.

The importance of financial management in small and medium-sized enterprises (SMEs): an analysis of challenges and best practices

“…Despite the SMEs' crucial contribution to the socioeconomic development of the nation, it has become difficult for them to secure sources of short-to long-term, flexible finance. There are a number of reasons why SMEs do not have access to credit and finance, including high-risk lending to SMEs, information asymmetry caused by SMEs lending, high administrative transaction costs associated with SMEs financing, and weak institutional and legal structures [16].…”

Unlocking the Potential of Microfinance Solutions on Urban Woman Entrepreneurship Development in East Africa: A Bibliometric Analysis Perspective

“…Additional publications were recorded from the year 2012 with evidence of 12 individual articles published. This phenomenon indicates that research on microfinancing for woman-owned enterprises has attracted extra consideration from academics in recent years, with more results being realized in this regard [17,37,40,44,45] Therefore, woman entrepreneurship by itself attracted increasing scientific research in 2018, with a record of 12 individual peer-reviewed articles [57,[62][63][64][65][66][67] and a continuous growth in subsequent years from January 2019 to March 2023 that recorded a total of 74 published articles. The main attention was directed to examining financial inclusion and the growth of small and medium-sized enterprises for poverty reduction in developing countries [4,[8][9][10][11][12][13][14][15][16][17][18]29,41,42], while some scholars determined the impact of microfinance on microenterprise performance [19,40,43,60].…”

“…While microfinance lending is progressively gaining attention as an appealing form of finance for young high-growth companies seeking growth, still, major hindrances to adapting this financing model persist [34,64]. Against this backdrop, accelerating sustained access to microfinancing is a do-or-die role in fostering the long-term growth of women small firms in developing economies.…”

Accelerating SME growth in the African context: Harnessing FinTech, AI, and cybersecurity for economic prosperity

“…Additionally, the study on flexible working schedules in SMEs in a developing country emphasizes the need for more empirical and conceptual work to explain the richness of the opportunities for SME growth and development in Africa (Peprah et al, 2020). Moreover, the study on innovative mechanisms to improve access to funding for black-owned SMEs in South Africa highlights the struggle of SMEs to gain access to external funding, indicating the need for innovative approaches to address this challenge (Baloyi & Khanyile, 2022).…”