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Centre for Inclusive Banking in Africa

THE STATE OF MICROENTERPRISE FINANCE

IN SOUTH AFRICA 2011


TOPICS

1. Definitions

2. Market Size and Characteristics

3. Number and Type of Suppliers

4. Challenges in SA

5. Challenges for Retail DFIs

6. Recommended Role for Government


Definitions

Loans from R1 000 to R80 000

Loans primarily 6 to 12 months; a portion up to 36 months

Income from microenterprise, the primary source of income in the HH

Utilization of loan not always in the business; 50% goes to consumption smoothing


Alexandria near Johannesburg

4


Market Size and CharacteristicsFinScope Small Business Survey, 2010

Number of Businesses per Cluster

Survivalist BSM 1 to 3

3 348 964 60%

Mid-Level Micro BSM 4 to 6

1 676 052 30%

SmallBSM 7 to 8

554 751 10%

Total 5 579 767 100%


Market Size and Characteristics

Business Owners per Province %Province Survivalist Mid-Level Micro Small

Eastern Cape 16.2 14.8 6.4

Free State 8.8 7.4 5.3

Gauteng 15.5 29.5 47.9

Kwa Zulu Natal 17.4 8.3 8.3

Limpopo 12.5 7.1 1.8

Mpumulanga 7.6 6.2 5.2

Northern Cape 2.7 2.4 4.4

North West 12.8 15.4 5.5

Western Cape 6.5 8.8 15.3

Total 100.0 100.0 100.0



Demographic Profile per Cluster %

Survivalist Mid-Level Micro

Small

BlackColouredAsian / IndianWhite

92.64.12.11.2

82.65.95.55.9

31.39.76.7

52.3

Primary school or lessSome high schoolHigh School (Matric)Post Matric

33.046.318.5

2.2

11.345.832.610.4

1.315.636.946.2



Business Location per Cluster %

Survivalist Mid-Level Micro

Small

Urban FormalUrban InformalTribal AreaRural Formal

37.19.0

43.210.7

58.18.9

27.15.9

87.31.54.46.8

Footpath – Hawker – VehicleResidential Premises / garageFactory – Shop – OfficeOnline – Internet – phone sellingFarm – small holding

21.671.9

4.80.51.3

13.778.2

5.65.62.4

6.468.821.3

0.33.2


Spaza shop in Alexandria


Suppliers of Microenterprise Loans

Not-for-profit Microenterprise Lenders

Primary Banks

Financial Cooperatives

Development Finance Institutions


Survivalist Market Served 2009130 000 Active Loans

SEF Marang WDB Others

Active Loans 57 400 24 500 32 000 15 000

Female 99% 95% 100% 95%

Average Loan size R1 600 R1 200 R 750 R1 000

Financially Self Sufficient

86% 78% 47% n/a

Offices 38 23 27 n/a


Mid-Level Market Served 201115 000 Active Loans

ABSA WIZZIT Others

Active Loans 5 000 300 5 000+

Female 60% 60% 60%

Average loan size 4200 3 800

Offices 16 2


WIZZIT Loan Officer


Challenges in South Africa

“the graveyard of micro(enterprise)finance”

1. Market Issues

2. Institutional Issues

3. Environmental Issues



Market Issues

• Low density of microenterprises

• Tendency towards non-compliance and non-payment

• Competition from formal businesses in the trading sector

• More opportunities in services, but these require higher level of skill



Institutional Issues

• Shortage of skilled staff and managers

• Very high costs; highest “salary burden” ratio in the world

• Shortage of TA from outside SA; reinventing the wheel

• Donors and investors not providing sufficient patient capital

• Finding appropriate functional and scalable financial and loan tracking systems


Comparative Salary Burden Ratios = ______Average Staff Salary ___

Average Portfolio per Staff Member

Institution Salary Burden

Africa Large .0958

Asia Large .0748

Latin America Large .0617

Small Enterprise Foundation .4094

17



Environmental IssuesSA Strengths

• Communications and road infrastructure

• Credit Bureau Sector

• National Credit Act

SA Challenges

• High cost security requirements

• Judicial bottlenecks for taking of collateral


Pre-School, Alexandria


Challenges for Retail DFIs

• Sense of entitlement; why repay?

• Confusion when some services are “free”

• Political reluctance to be tough on late payers

• Vulnerable to political interference on allocation of loans

• Personnel policies constrained

• Decision-making less flexible

• Compelled to serve wide geographic area

• Compelled to serve higher risk markets


Look carefully at Past Experience

Steven Ngobeni, NYDA

Mail & Guardian, March 2011

• 70% of beneficiaries defaulted

• An improvement over the previous figure of 89%

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Laundry, Alexandria


Recommended Role for Government

1. Continue to support private credit suppliers through Apex organizations

• On-lending finance and capacity building grants• Recognize necessary role for grants

• Build expertise of Apex and ministry staff; CGAP funder workshops

• Muhammed Yunus “microfinance is not for amateurs”

• Continued support to CBDA• Consider Public Private Partnerships – IMPORTANT!


Recommended Role for Government

2. Continue to support enabling environment• Collateral environment; magistrates courts

• Debt counsellors

• Encourage foreign donors and investors

• Encourage foreign TA providers and networks

• Post bank deposit service

• Dedicated Banks Bill of 2004

• Support to branchless banking

• Develop overarching policy on financial inclusion


THE STATE OF MICROENTERPRISE FINANCE IN SOUTH AFRICA

2011

THANK YOU

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