By Lerato Mpembe
In a significant move to bolster South Africa’s economic growth and enhance job creation, the Cabinet has approved the final funding policy for micro, small, and medium enterprises (MSMEs) and cooperatives. The announcement was made by Minister in the Presidency, Khumbudzo Ntshavheni, during a media briefing held on Friday, following the Cabinet meeting that took place on Wednesday.
This new funding policy, aimed at removing the financial barriers that have long hindered the growth of MSMEs and cooperatives, is designed to foster a more inclusive and supportive environment for small businesses across the country. With a particular focus on vulnerable groups such as youth, women, and persons with disabilities, the policy seeks to create a more equitable and dynamic business landscape.
“The policy seeks to eliminate obstacles that prevent MSMEs and cooperatives from obtaining financial support. These interventions will also enable seamless transition from informal to formal enterprises and from small to medium enterprises,” Ntshavheni explained.
The implementation of this policy is expected to address the long-standing credit gap in the MSME ecosystem, helping small businesses grow and, in turn, stimulate South Africa’s economy.
Targeted Support for MSMEs and Cooperatives
MSMEs and cooperatives form the backbone of South Africa’s economy, creating the majority of jobs and providing essential services to millions of people. Yet, despite their importance, many of these businesses struggle to access the financial resources they need to grow and thrive. This new funding policy is designed to change that by addressing the specific challenges that MSMEs and cooperatives face in obtaining credit and financial support.
Minister Ntshavheni emphasized that the policy is particularly focused on supporting the most vulnerable groups in society:
“The policy provides for the creation of a funding environment for targeted groups such as youth, women, and persons with disabilities. This is in recognition of the fact that these groups are often disproportionately affected by financial exclusion, which limits their ability to participate fully in the economy.”
By prioritising support for youth, women, and persons with disabilities, the government aims to create more opportunities for these groups to establish and grow their businesses. This, in turn, will help to address the broader socio-economic inequalities that persist in South Africa.
Bridging the Credit Gap for Small Businesses
One of the most critical issues facing MSMEs in South Africa is the lack of access to credit. Many small businesses struggle to obtain loans and other forms of financing, particularly those operating in the informal sector or those owned by historically disadvantaged individuals. This has created a significant credit gap that has hampered the growth of the MSME sector.
Ntshavheni highlighted that the implementation of this policy will help bridge that gap:
“The implementation of the policy will eliminate the credit gap in the MSME ecosystem and enable economic growth, which is the priority of government.”
By providing easier access to financial resources, the government hopes to unlock the potential of MSMEs and cooperatives to drive economic growth and create jobs. This is particularly important as the country continues to recover from the economic impact of the COVID-19 pandemic, which has disproportionately affected small businesses.
The National Integrated Small Enterprise Development Framework
The newly approved funding policy is part of a broader suite of interventions that the government has put in place to support small businesses. In 2022, the Cabinet approved the National Integrated Small Enterprise Development Framework, which outlines the government’s strategy for supporting MSMEs and fostering entrepreneurship.
This framework provides a comprehensive approach to small business development, including measures to improve access to finance, reduce regulatory burdens, and provide support for capacity building and skills development.
Ntshavheni referenced the framework in her address, noting that the new funding policy aligns with the government’s broader goals:
“The new policy forms part of other interventions to support small businesses, including the National Integrated Small Enterprise Development Framework that was approved by Cabinet in 2022. Together, these initiatives will help to create a more supportive environment for MSMEs and cooperatives, enabling them to grow and contribute to the country’s economic development.”
The framework also emphasizes the importance of transitioning informal businesses into the formal economy, a goal that the new funding policy is expected to facilitate.
Promoting Economic Growth and Job Creation
MSMEs are widely recognized as key drivers of economic growth and job creation in South Africa. According to data from the Small Enterprise Development Agency (SEDA), MSMEs account for more than 60% of the country’s employment and contribute significantly to GDP. However, despite their importance, many small businesses continue to face challenges in accessing the financial and non-financial support they need to grow.
The government’s decision to prioritize MSMEs and cooperatives reflects its understanding of the critical role that these businesses play in the economy. Ntshavheni noted that supporting MSMEs is essential for achieving the government’s broader economic goals:
“Government has prioritised support for MSMEs and cooperatives because these businesses create the most jobs and provide the most opportunities for people to earn a living. The implementation of this policy is therefore not just about supporting individual businesses, but about driving economic growth and reducing unemployment.”
By helping MSMEs overcome financial barriers, the government hopes to unleash their full potential, enabling them to contribute more effectively to the economy. This, in turn, will help to create jobs, reduce poverty, and promote inclusive economic growth.
Youth, Women, and Persons with Disabilities: A Priority for Support
As part of its commitment to promoting inclusive economic development, the government has made it clear that the new funding policy will prioritise support for youth, women, and persons with disabilities. These groups have historically been underrepresented in the business world and often face additional challenges in accessing financial support.
By targeting these groups, the government aims to create more opportunities for them to participate in the economy and benefit from the growth of the MSME sector.
Ntshavheni explained that this focus is essential for addressing the broader social and economic inequalities that persist in South Africa:
“Supporting youth, women, and persons with disabilities is not just about providing financial assistance – it’s about empowering these groups to become active participants in the economy. By doing so, we can help to reduce inequality and create a more inclusive society.”
A Seamless Transition from Informal to Formal Enterprises
One of the key goals of the new funding policy is to facilitate the transition of businesses from the informal to the formal economy. Many MSMEs in South Africa operate in the informal sector, where they often lack access to the financial and regulatory support available to formal businesses. This can limit their growth potential and make it difficult for them to access markets and resources.
The new policy aims to address this by providing targeted support for informal businesses, helping them to formalise their operations and access the benefits of the formal economy.
Ntshavheni explained that this transition is essential for the long-term growth of the MSME sector:
“These interventions will enable the seamless transition from informal to formal enterprises and from small to medium enterprises. By doing so, we can help businesses grow and contribute more effectively to the economy.”
Implementation and Next Steps
With the final funding policy now approved, the focus will shift to implementation. The government has committed to working closely with financial institutions, development agencies, and other stakeholders to ensure that the policy is implemented effectively and that MSMEs and cooperatives receive the support they need.
Ntshavheni noted that the government will also continue to monitor the impact of the policy to ensure that it is achieving its intended goals:
“We will work with our partners to ensure that the policy is implemented in a way that maximises its impact. We will also track the outcomes to ensure that it is creating the opportunities and driving the growth that we expect.”
The government is confident that the new funding policy will have a positive impact on the MSME sector and contribute to the broader economic recovery efforts.
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