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Centre for Inclusive Banking in Africa
THE STATE OF MICROENTERPRISE FINANCE
IN SOUTH AFRICA 2011
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
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
Centre for Inclusive Banking in Africa
Alexandria near Johannesburg
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Centre for Inclusive Banking in Africa
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%
Centre for Inclusive Banking in Africa
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
Centre for Inclusive Banking in Africa
Market Size and Characteristics
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
Centre for Inclusive Banking in Africa
Market Size and Characteristics
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
Centre for Inclusive Banking in Africa
Spaza shop in Alexandria
Centre for Inclusive Banking in Africa
Suppliers of Microenterprise Loans
Not-for-profit Microenterprise Lenders
Primary Banks
Financial Cooperatives
Development Finance Institutions
Centre for Inclusive Banking in Africa
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
Centre for Inclusive Banking in Africa
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
Centre for Inclusive Banking in Africa
WIZZIT Loan Officer
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
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
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
Centre for Inclusive Banking in Africa
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
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Centre for Inclusive Banking in Africa
Challenges in South Africa
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
Centre for Inclusive Banking in Africa
Pre-School, Alexandria
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
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%
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Centre for Inclusive Banking in Africa
Laundry, Alexandria
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!
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
Centre for Inclusive Banking in Africa
THE STATE OF MICROENTERPRISE FINANCE IN SOUTH AFRICA
2011
THANK YOU