Date: 17 December 2020

The ongoing COVID-19 crisis has had a devastating impact on small and medium-size enterprises in South Africa. Stringent lockdown measures imposed early on caused consumer spending to dry up and revenues to fall, almost overnight, threatening the livelihoods of an estimated 60% of businesses. And while conditions have since eased, many SMEs remain vulnerable.

The government has acted swiftly to provide relief to these businesses. However, the R200bn loan-guarantee scheme launched in partnership with commercial banks in May 2020 has had minimal take-up. Five months after the scheme went live, only around 8% of the available funds had been approved for disbursement, according to an October 2020 update from the Banking Association South Africa. We estimate that this equates to about 12,000 businesses, which means that less than 1% of the country’s 2.5 million SMEs have benefited from the scheme.

This situation has highlighted a long-standing financing challenge facing SMEs in South Africa. In this article, we look at what’s stopping the country’s SMEs from accessing the funds they need. And, using insights gained from interviews on SME lending across different stakeholder groups, we describe how banks could serve this important segment better, including by drawing inspiration from the best practices of nonbank financial institutions (NBFIs) operating locally. Although small, SMEs play an outsize role in the economy, and optimal support is needed to ensure their recovery and growth into the future.

Note: An extract from an article by McKinsey South Africa (11 December 2020):

  • The complete article can be accessed here.