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Centre for Inclusive Banking in Africa THE STATE OF MICROENTERPRISE FINANCE IN SOUTH AFRICA 2011.

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Presentation on theme: "Centre for Inclusive Banking in Africa THE STATE OF MICROENTERPRISE FINANCE IN SOUTH AFRICA 2011."— Presentation transcript:

1 Centre for Inclusive Banking in Africa THE STATE OF MICROENTERPRISE FINANCE IN SOUTH AFRICA 2011

2 Centre for Inclusive Banking in Africa 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

3 Centre for Inclusive Banking in Africa 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

4 Centre for Inclusive Banking in Africa Alexandria near Johannesburg 4

5 Centre for Inclusive Banking in Africa Market Size and Characteristics FinScope Small Business Survey, 2010 Number of Businesses per Cluster Survivalist BSM 1 to 3 3 348 96460% Mid-Level Micro BSM 4 to 6 1 676 05230% Small BSM 7 to 8 554 75110% Total5 579 767100%

6 Centre for Inclusive Banking in Africa Market Size and Characteristics Business Owners per Province % ProvinceSurvivalistMid-Level MicroSmall Eastern Cape16.214.86.4 Free State8.87.45.3 Gauteng15.529.547.9 Kwa Zulu Natal17.48.3 Limpopo12.57.11.8 Mpumulanga7.66.25.2 Northern Cape2.72.44.4 North West12.815.45.5 Western Cape6.58.815.3 Total100.0

7 Centre for Inclusive Banking in Africa Market Size and Characteristics Demographic Profile per Cluster % SurvivalistMid-Level Micro Small Black Coloured Asian / Indian White 92.6 4.1 2.1 1.2 82.6 5.9 5.5 5.9 31.3 9.7 6.7 52.3 Primary school or less Some high school High School (Matric) Post Matric 33.0 46.3 18.5 2.2 11.3 45.8 32.6 10.4 1.3 15.6 36.9 46.2

8 Centre for Inclusive Banking in Africa Market Size and Characteristics Business Location per Cluster % SurvivalistMid-Level Micro Small Urban Formal Urban Informal Tribal Area Rural Formal 37.1 9.0 43.2 10.7 58.1 8.9 27.1 5.9 87.3 1.5 4.4 6.8 Footpath – Hawker – Vehicle Residential Premises / garage Factory – Shop – Office Online – Internet – phone selling Farm – small holding 21.6 71.9 4.8 0.5 1.3 13.7 78.2 5.6 2.4 6.4 68.8 21.3 0.3 3.2

9 Centre for Inclusive Banking in Africa Spaza shop in Alexandria

10 Centre for Inclusive Banking in Africa Suppliers of Microenterprise Loans Not-for-profit Microenterprise Lenders Primary Banks Financial Cooperatives Development Finance Institutions

11 Centre for Inclusive Banking in Africa Survivalist Market Served 2009 130 000 Active Loans SEFMarangWDBOthers Active Loans57 40024 50032 00015 000 Female99%95%100%95% Average Loan sizeR1 600R1 200R 750R1 000 Financially Self Sufficient 86%78%47%n/a Offices382327n/a

12 Centre for Inclusive Banking in Africa Mid-Level Market Served 2011 15 000 Active Loans ABSAWIZZITOthers Active Loans5 0003005 000+ Female60% Average loan size42003 800 Offices162

13 Centre for Inclusive Banking in Africa WIZZIT Loan Officer

14 Centre for Inclusive Banking in Africa Challenges in South Africa the graveyard of micro(enterprise)finance 1.Market Issues 2.Institutional Issues 3.Environmental Issues

15 Centre for Inclusive Banking in Africa Challenges in South Africa 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

16 Centre for Inclusive Banking in Africa Challenges in South Africa 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

17 Centre for Inclusive Banking in Africa Comparative Salary Burden Ratios = ______ Average Staff Salary ___ Average Portfolio per Staff Member InstitutionSalary Burden Africa Large.0958 Asia Large.0748 Latin America Large.0617 Small Enterprise Foundation.4094 17

18 Centre for Inclusive Banking in Africa Challenges in South Africa Environmental Issues SA Strengths Communications and road infrastructure Credit Bureau Sector National Credit Act SA Challenges High cost security requirements Judicial bottlenecks for taking of collateral

19 Centre for Inclusive Banking in Africa Pre-School, Alexandria

20 Centre for Inclusive Banking in Africa 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

21 Centre for Inclusive Banking in Africa Look carefully at Past Experience Steven Ngobeni, NYDA Mail & Guardian, March 2011 70% of beneficiaries defaulted An improvement over the previous figure of 89% 21

22 Centre for Inclusive Banking in Africa Laundry, Alexandria

23 Centre for Inclusive Banking in Africa 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!

24 Centre for Inclusive Banking in Africa 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

25 Centre for Inclusive Banking in Africa THE STATE OF MICROENTERPRISE FINANCE IN SOUTH AFRICA 2011 THANK YOU


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