SA has no shortage of entrepreneurs. According to Finscope’s SMME South Africa survey published in the latter part of 2024, there were roughly 2.6 million to 3 million small and micro-entrepreneurs, with approximately 72% of these micro-businesses operating in the informal sector.

All this would be good news were it not for the sad reality that up to 86% (variable depending on source) of promising start-ups fail to convert to sustainable businesses. It is against this backdrop that 104+ SMME Solutions raises an important point – that sustainable job creation, economic transformation and investor returns are dependent on SMMEs.

‘SMMEs span both the formal and informal economy, operate across every sector and geography, and – critically – they are labour-intensive by nature,’ says Phuti Senyatsi, Fund Manager for 104+ SMME Solutions and senior portfolio manager at Sanlam Alternative Investments.

‘When an SMME grows, it almost always creates jobs, and those jobs tend to be accessible to young, first-time workers in a way that large corporates simply are not.’

Globally, small businesses account for the majority of employment and contribute significantly to GDP. Yet, in SA, many remain trapped in what economists often describe as the ‘missing middle’ – too large for informal funding sources but too small or unconventional to satisfy traditional lending requirements. ‘The numbers underscore this reality,’ says Senyatsi. ‘South Africa’s SMME sector is vast and diverse, yet it remains chronically underfunded. Traditional lenders’ rigid credit frameworks mean that a viable, growing business that doesn’t fit a standard template simply gets turned away. That’s not a reflection of the business’ potential; it’s a structural gap in the market. And this is precisely where the opportunity lies.’

This funding gap has become particularly evident among younger entrepreneurs whose profile is changing rapidly.

‘What we’re seeing is a generation that is digitally native, globally aware and increasingly unwilling to wait for the corporate ladder,’ says Senyatsi. ‘They are building businesses earlier, thinking bigger and operating in sectors that didn’t exist a decade ago.’ And, rather than following traditional career pathways, younger entrepreneurs are increasingly building businesses in emerging sectors such as fintech, renewable energy, healthtech, agritech and digital services.

For them, access to finance is but one critical challenge, business development support is another, but access to markets may be an even bigger one. ‘Getting a foot in the door with established corporates, public sector buyers or export markets remains disproportionately difficult for young and emerging businesses,’ according to Senyatsi.

Many supplier development initiatives fall short because they ignore these three challenges, which are precisely the set of problems that 104+ SMME Solutions was designed to address – not in isolation but as a connected whole. ‘Money alone does not build a sustainable business. When it is not accompanied by meaningful non-financial support – mentorship, governance assistance, financial management skills and market access – it frequently fails to generate the intended outcomes.’

And this is where some corporates are making significant errors.

WHERE SUPPLIER DEVELOPMENT GOES WRONG

104+ has identified five key mistakes that some corporates make relative to their supplier development and SMME support programmes.

‘The first and perhaps most fundamental mistake is treating supplier development as a compliance exercise rather than a strategic imperative,’ says Senyatsi. ‘When the primary motivation is satisfying a B-BBEE scorecard requirement, the programme design reflects that motivation – it becomes about deploying the required spend, ticking the required boxes and generating the required certificates. The SMME on the receiving end of that approach receives capital or support that was never really designed around their needs. The result is a transaction, not transformation.’

The second mistake is providing capital without context. Organisations often make financial contributions to supplier development without adequately assessing whether the recipient business has the management capability, the systems and the operational maturity to absorb and deploy that capital effectively.

The third mistake is a lack of genuine integration because many supplier development programmes operate at arm’s length from the core business of the sponsoring organisation. ‘The beneficiary SMMEs are funded but never truly embedded into the supply chain, never given real commercial opportunities and never connected to the networks that would allow them to grow beyond their dependency on the programme itself,’ explains Senyatsi.

‘True supplier development means deliberately opening procurement channels, making introductions and creating the conditions for a commercial relationship that can stand on its own over time.

‘The fourth mistake is short-termism. Building a sustainable SMME takes time, typically years, not months. Programmes that are designed around annual budget cycles, or that measure success purely on short-term financial metrics, systematically under-invest in the businesses that need the longest runway to reach their potential. Patient capital and patient support are not optional features of effective supplier development; they are fundamental requirements.’

Last but not least is poor beneficiary selection. Senyatsi says that not every SMME is the right candidate for a supplier development programme at any given point in its journey. ‘Selecting beneficiaries without a rigorous assessment of their commercial viability, management integrity and growth potential sets the programme up for failure and wastes resources that could have been deployed more effectively elsewhere. The most impactful programmes invest heavily in their selection process, precisely because the quality of the beneficiary pipeline determines the quality of the outcomes.’

For corporate boards, investors and policymakers, this evidence suggests that SMME development should not merely be about supporting small businesses, but about strengthening supply chains, increasing economic resilience and creating employment at scale so that everyone in the chain benefits, inclusive of those with existing jobs.

JOB PRESERVATION

Seapei Mafoyane, head of 104+ SMME Solutions, notes that the SMME conversation should not only be about creating jobs but preserving those already in existence.

‘In the South African context, job preservation directly supports the localised circular flow of income,’ she says. ‘While historically much focus has and should be paid to the rate of job creation, job preservation can be indicative of the longer term, sustained quality of jobs.’

This distinction is important. Temporary employment gains often disappear during economic downturns. Sustainable businesses, by contrast, create enduring employment opportunities and strengthen local economic ecosystems. ‘In short, all job creation activities need to also be intent on a strategic focus to safeguard those jobs which are already in the market,’ says Mafoyane.

It is this broader perspective that has brought 104+ to set itself meaningfully apart from its competition.

VIABLE MODELLING

The first feature that 104+ introduces is its structural flexibility. Where traditional lenders offer a narrow range of standardised products, 104+ can deploy senior debt, mezzanine instruments, subordinated debt and equity or quasi-equity – selecting the instrument that best fits the business rather than forcing the business to fit the instrument. ‘This is a rare capability in the South African SMME funding landscape,’ says Senyatsi.

The second is its dual mandate architecture. The programme operates across both an empowerment mandate – targeting enterprise and supplier development beneficiaries – and a growth mandate, open to a broader universe of SMEs, including those operating across the rest of Africa. This range allows 104+ to serve a wider spectrum of businesses than most comparable programmes.

The third is its institutional backing. ‘While independent, 104+ was seeded by the Sanlam Group – Africa’s largest insurance group with a presence in 31 countries – which gives 104+ credibility, network depth and an operational infrastructure that standalone SMME funds simply cannot replicate. For investee businesses, association with that ecosystem is itself a form of value.’

The fourth is experience. 104+ presents a female-led investment team with more than a decade of dedicated SME private debt experience and a depth of sector-specific expertise that distinguishes it from generalist fund managers who treat SMME lending as one allocation among many.

‘We also ensure all these steps are aligned to a rigorous ESG and impact framework that is integrated into every stage of the investment process – not appended as an afterthought,’ adds Senyatsi.

FUTURE OUTLOOK

The greatest untapped opportunity lies in moving from parallel participation to genuine co-investment – where institutional investors, corporates and the SMME sector are deliberately brought together around shared objectives rather than operating through separate, disconnected channels.

‘Corporates hold procurement power and supply chain access. Institutional investors hold patient capital and sophisticated risk management capability. SMMEs hold the entrepreneurial energy and community embeddedness that neither can replicate,’ says Mafoyane.

‘When these three forces are co-ordinated through a well-governed platform – one that aligns incentives, standardises impact measurement and creates transparent reporting – the combined effect is exponentially more powerful than the sum of its parts.

‘The opportunity now is to build the connective tissue between these motivations. Vehicles like 104+ give all three parties a credible, professionally managed home for their collective ambition and demonstrate conclusively that collaboration at scale is not just desirable, but commercially viable.’

[email protected]
www.104smme.co.za