While there are some opportunities to leverage various data points, the research highlights the importance of enabling business owners and their customers to adopt and use digital payment mechanisms. The prevailing wisdom is that business owners prefer cash and choose to remain un-seen in order to avoid paying tax. In reality, many business owners we interviewed indicated that they would welcome solutions that reduce their exposure to the risk of theft, a material risk in crime-ridden lower income neighbourhoods of South Africa. Of course, shifting customers and business owners out of cash will require a concerted effort. Compared to efforts to digitise payments across the continent, the lack of progress in this regard in South Africa is striking.
Beyond this, a critical barrier impacting on access to credit for small businesses is the lack of credit information sharing for business credit. Current regulations mandate information sharing pertain to individuals and small juristic persons only. In the absence of this data, lenders typically rely on data about the personal credit performance of business owners, often a poor proxy for business credit worthiness. Research by Finfind, a small business lending platform, highlights that business owners may well miss payments on personal credit obligations in order to meet commitments associated with their businesses, such as paying employees. Their research highlights that access to credit is a material barrier to business growth for very many small businesses, not only newly established entities or those that operate in townships.
New regulations will be required to mandate business credit information sharing. While the regulatory process will take time, it is critical that it is initiated in order to enable the growth of the small business sector post Covid. In the short term, in order to reduce the impact of this regulatory gap, the Minister in the Department of Trade and Industry could increase the threshold associated with small juristic entities to bring more small businesses into the domain of the National Credit Act. At the same time, the National Credit Regulator who is tasked with enforcing regulations should ensure that lenders report on small business lending in line with this newly determined threshold.
The full report is available to read here.