Among the most critical hurdles that SMEs face are access to funding and markets, and financial literacy


On 27 October last year, FNB was named – out of more than 100 global participants – as the SME Bank of the Year at the Global SME Finance Awards 2020. The awards are organised by the International Finance Corporation and endorsed by the G20’s Global Partnership for Financial Inclusion (GPFI). FNB was recognised for, among other things, the solutions-focused manner in which it approaches the many challenges facing SMEs as they incubate, start, run and grow their businesses.

FNB’s strategy for the SME sector is underpinned by several initiatives to support businesses throughout their life stages. FNB’s SME customer segment head Jesse Weinberg says that early-stage businesses often lack investment readiness in terms of compliance and record keeping. ‘A lack of business knowledge and skill often means a misunderstanding of what funding is appropriate at which stages of business growth and, therefore, what funders should be approached and the funding options available at different stages of a business growth journey,’ he says.

While funding is one element required to fuel a business’ growth, Weinberg says there is much additional work to be done in building the business accordingly for growth, and utilising funding to best effect. ‘The know-how and navigation of this journey is normally the largest constraint to the growth of a business, as opposed to the availability of the funding.’ Business education, financial management education and technology-driven administration and management tools and solutions can be very useful in this regard, along with access to mentors, coaches and peers, he says. FNB’s non-financial support offerings vary from broader business education and content to bespoke, focused developmental programmes targeting various sectors of the economy. The FNB Business Hub is  a central, digital support platform that offers educational and current information, developed specifically to help entrepreneurs start, run, grow or even pivot their businesses. The hub includes business toolkits, thought-leadership content and business commentary and forums, as well as Fundaba, an interactive business platform focused on education. The bank also hosts monthly Fundaba masterclasses.

In addition, FNB has various developmental interventions in place for suppliers, early-stage and female-owned fund managers, social entrepreneurs, high-growth-potential businesses focused on job creation, and emerging agricultural businesses within corporate supply chains. The bank also supports a business advice/mentoring initiative called Mentor Hotline, while Vumela, its alternative funding vehicle, is mandated to focus on non-traditional, earlier-stage funding provision.

Vusi Fele, Absa Group chief procurement officer, argues that SMEs can best benefit from solutions that address their key challenges in a ‘holistic manner’. He says these challenges include business-development support and access to finance and markets. ‘Despite the vast opportunity for providing finance to SMEs in Africa, a traditional approach to lending creates very real challenges. These include a lack of financial records, zero collateral and a poor credit record, thus prohibiting SMEs access to their most notable funding requirements, such as working-capital facilities.’

To overcome this challenge at Absa, Fele says the bank has, in partnership with corporates, devised an innovative solution to provide credit to SMEs that improve access to finance and lower the cost of financing. ‘The solution offers short-term credit to optimise much-needed operating cash flow for SMEs. It is linked to the invoice approval and settlement process from initiation to completion of the transaction,’ says Fele. He describes the benefits of this as ‘substantial’, as it enables financial institutions to consider new credit-evaluation approaches linked to future cash flows, which are assured through participation in corporate supply chains.

Fele says Absa’s value proposition spans all business requirements, thus ensuring financial inclusion. Among the assistance offered is SME Contract Finance (backed finance for 100% black-owned SMEs with government contracts, up to a maximum of R3 million), the Women’s Fund, and the Khula Fund. The Women’s Fund offers a 50% security guarantee and targets 51% black-women-owned SMEs up to a maximum of R60 million, while the Khula Fund offers an 80% security guarantee for SMEs pursuing agri or equity deals, up to a maximum of R15 million. The latter also offers development-finance solutions, and access to market opportunities; technology platforms to facilitate corporate lending to SMEs; business-development services (including incubation); and tools and infrastructure. Through its enterprise development initiatives, which assist emerging black-owned SMEs, Absa offers preferential interest rates of prime less 2% for qualifying SMEs, and has eased collateral requirements to facilitate access to funding, now using the secure supply or service contract as the basis of funding.

Simone Cooper, head of business banking at Standard Bank South Africa, says the greatest hurdle most businesses face when it comes to funding is understanding the various options available to them, accessing those options and applying for them. The bank has simplified the application process for its business customers, and claims to be the first commercial bank in SA to offer business loans of up to R6 million within three minutes. ‘We use the information on the business transaction account to score our clients for credit, making the application process quick and convenient,’ says Cooper. ‘Our clients also have the option to apply for a business overdraft online through internet banking by themselves at any time.’

Standard Bank has several business development programmes in place that cater for businesses at various stages. ‘From idea-validation boot camps, aimed at start-ups, to acceleration programmes, aimed at businesses looking to expand, we aim to grow sustainable businesses that are able to access financing from lenders, investors and funders alike,’ says Cooper. ‘Our approach to development focuses on the “what next” rather than just creating programmes without walking the journey with the businesses.’

Under the umbrella of consumer education, Standard Bank also runs annual programmes targeted at small businesses in less-accessible areas. The programmes cover topics including financial literacy; access to finance; compliance; financial management; human capital; and marketing. ‘The programmes are geared towards creating communities to share skills, along with mentorship and advisory services that help break the isolation with which many small business owners contend,’ says Cooper.

Nirmala Reddy, Nedbank’s senior manager of enterprise development, says the ongoing pandemic has shown the strengths and weaknesses of SMEs, particularly as to how they are able to reinvent themselves and get back on their feet as the world struggles with the ‘new normal’. It has also showcased the importance of compliance and governance – particularly when it comes to accessing funding, she adds. ‘The pandemic has highlighted the importance of good governance and compliance. When these fundamentals are in order, it elicits confidence. It demonstrates professionalism and expertise, which helps the overall request for funding. These are critical points to consider when one is applying for funding in a high-risk economic environment.’

Asked what assistance she feels might best benefit SMEs, Reddy says it is not always about funding. ‘If you are in a flat-out panic you might not utilise funding to the best effect,’ she says. ‘I think that being able to leverage mentoring and coaching, such as we offer through our supplier-development programme, is critical.’

Its supplier-development programme aside, Nedbank offers financial assistance – from funding to training – by way of accelerator programmes, its BackaBusiness initiative, and its Shifting Gears programme, the latter being a business learning and coaching boot camp. ‘We use a multi-pronged approach in our response,’ says Reddy. ‘At the forefront of all that we do is to provide relevant, value-added support to our clients. We try to keep our foot on the pedal so that we can be consistent for the SMEs during all this uncertainty.’

With regard to what local SMEs most need, Reddy believes balance is crucially important. ‘One of the key learnings of [last] year has been how important it is to take care of the entrepreneur; the business owner. Because they have to get out of bed every day and open the door for staff members and keep it together.

‘There’s no silver bullet in terms of how we are going to rebuild and get back to stability in this “new normal”. It’s going to take collaboration, and we’ve got to leverage each other’s strengths. Whether you’re a big corporate, a conglomerate or an SME, everyone is building again and we’ve got to work together.’

By Toni Muir
Image by Muti