A significant portion of South Africa’s business owners operate in the informal sector resulting in much of their economic and financial activity not being recorded. The absence of adequate credit history impedes on individuals and micro, small and medium sized enterprises’ (MSMEs) ability to access credit from formal credit providers. A previous study by the IFC estimates that of the 5.78 million MSMEs in South Africa in 2017, only 14% were formal and, of these, over 22% were credit constrained with a finance gap estimated at $30 billion.

The objective of this study was to produce an alternative data landscaping report which identifies the potential data points, data sources, regulatory and legal challenges and concerns in sharing and using alternative data. In addition the study set out to provide recommendations on integrating alternative data in the Credit Information Reporting system in South Africa.

The study focussed on township businesses given the high concentration of more informal businesses operating in these areas. However, given the pressing need to enable access to credit for all MSMEs, including those that are more established and that operate within South Africa’s formal economy, the report also references existing data and research on the MSME sector as a whole.

The project team conducted telephonic interviews with 58 MSME owners who operate in two large townships in South Africa; Khayelitsha in Cape Town and Orange Farm in Johannesburg. Interviews with these business owners sought to map their data footprints, detailing where and with whom the data sits (telco providers, mobile phones, financial services providers, business systems, etc. ).

An additional 12 interviews were conducted with more established MSEs who had recently visited the Finfind website, either to request funding or access content related to accessing finance. The interviews captured their experiences of, and attitudes towards, accessing formal finance

The project team also reviewed key regulations that shape the credit information sharing environment and interviewed sector participants including industry associations, credit bureaus, lenders and alternative data providers.

The team prepared a detailed report and put forward a number of recommendations with regard to MSME credit information sharing. The recommendations focus on four specific areas:

• Enabling business credit information sharing for MSMEs;
• Incorporating specific sources of alternative data within this new enhanced credit information environment that provide insight into business activity;
• Supporting the adoption of digital payment solutions to augment the universe of useful and accessible alternative data;
• Supporting the development of data sharing models that are led by business owners. These so-called data sovereign models are particularly important when data providers cannot be compelled to share data and where no adequate incentive exists for them to do so. A critical example includes MNO data which has been widely used in other countries to support credit decisioning particularly of previously excluded segments