South African Government's Support to Small, Medium Micro-Enterprise (SMMEs): The Case of King William's Town Area
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© Kamla-Raj 2013 J Economics, 4(1): 19-28 (2013)
South African Government’s Support to Small,
Medium Micro-Enterprise (SMMEs):
The Case of King William’s Town Area
Stephen Mago1 and Bigboy Toro
University of Fort Hare, P.Bag X1314, Alice 5700 South Africa
KEYWORDS Small Businesses. Government Support. Entrepreneurship
ABSTRACT The aim of this paper is to evaluate the support that the South African government is giving to Small, Medium,
Micro-enterprise (SMMEs). A case study was undertaken in the King William’s Town area to establish the status of support to
SMMEs. The paper, firstly, examines measures taken by the government to address the constraints of small business development.
It further evaluates and analyses the effectiveness of the support given by the South African government to SMMEs. The focus
will be on the provision of both financial and non-financial services to the SMMEs by Khula and Ntsika. Although the government
remains committed to supporting entrepreneurship through Ntsika and Khula not much has changed in improving the performance
of SMMEs. The external desk research methodology was followed. This comprised online desk research (use of the internet)
data from funding agencies and published government data. The findings show that the awareness of programmes administered
by Ntsika and Khula is low. This proves that the South African government’s support of SMMEs through Khula and Ntsika has
not been effective because SMMEs are not aware of the programmes.
INTRODUCTION retail finance intermediaries that would deal
directly with the SMME entrepreneurs them-
Since the 1994 democratic change, the na- selves (ICC 1999). The study thus, explores the
tional government of South Africa has imple- effectiveness of the Ntsika Enterprise Promo-
mented a range of new national support pro- tion Agency (Ntsika) and the Khula Enterprise
grammes designed to assist entrepreneurship Finance (Khula) in the attainment of their in-
development and the upgrading of the Small, stitutional objectives of providing financial and
Medium and Micro-enterprises (SMMEs). non-financial services to SMMEs.
SMMEs represent an important vehicle to ad- An SMME in South Africa is any business
dress the challenges of job creation, economic with fewer than 200 employees and an annual
growth and equity in South Africa. Also, gov- turnover of less than 5 million rands, capital
ernments throughout the world are focusing on assets of less than 2 million rands and the owner
the development of the SMME sector to pro- is directly involved in the management of busi-
mote economic growth. ness (Cronje et al. 2000). The results of the state-
The role of SMMEs in the South African driven delivery approach to entrepreneurial sup-
economy was highlighted in the White Paper port have not been impressive. However, there
on Small Business in 1995 and the correspond- are continuing problems with most government
ing National Small Business Development Act support programmes.
of 1996. As a result, two agencies were created The South African government has put in
under auspices of the Department of Trade and place a number of other initiatives and institu-
Industry (DTI), which are the Ntsika Enterprise tions aimed at supporting SMMEs which in-
Promotion Agency and the Khula Enterprise clude: the Centre for Small Business Develop-
Finance (Diale 2008). The Ntsika Enterprise ment (CSBD), the Small Enterprise Develop-
Promotion Agency is responsible for non-finan- ment Agency, the Industrial Development Cor-
cial or business development services and the poration (IDC), the National Empowerment
Khula Enterprise Finance functions as a whole- Fund, the National Development Agency
sale financial institution supporting a range of (NDA), the National Youth Development
Agency (NYDA), the South African Micro-Fi-
Address for correspondence: nance Apex Fund (SAMAF), the Land Bank and
Stephen Mago
University of Fort Hare, the Micro-Agricultural Financial Institute of
P. Bag X1314, South Africa. However the study focused on
Alice 5700 South Africa Khula and Ntsika as they are the main institu-20 STEPHEN MAGO AND BIGBOY TORO
tional pillars created under the DTI that pro- sis of their effectiveness in supporting SMMEs
vide both financial and non-financial services is vital. The findings will assist policy makers,
to SMMEs (Rogerson 1999). development agencies and business
organisations to ascertain the appropriate strat-
Problem Statement egies for improving the SMME sector. In addi-
tion, the study will be beneficial to Khula and
Although the government remains commit- Ntsika in the sense that the results will indicate
ted to supporting entrepreneurship through areas that need to be restructured, thereby im-
Ntsika and Khula, seemingly, not much has proving the delivery of both financial and non-
changed in improving the performance of financial services to SMMEs. SMMEs will ben-
SMMEs. SMMEs are still struggling to have efit also from improved service delivery from
access to both financial and non-financial ser- these institutions.
vices provided by Ntsika and Khula. Program-
mes provided by Khula and Ntsika seem to have Delimitation of the Study
fallen short of their objectives. Despite repeated
policy revisions, and repeated restructuring of The purpose of demarcating a study is to
new and weak agencies, South Africa is still make it more manageable and focused. Due to
struggling to create sustainable small businesses. the logistical constraints of covering the entire
Given this situation, it becomes vital to analyse South Africa, the study will focus only on King
the effectiveness of the government’s national William’s Town, in the Eastern Cape Province.
support through the provision of services (both There are many government institutions sup-
financial and non-financial) by Khula and porting SMMEs, however, this study will be lim-
Ntsika. The question is; are Ntsika and Khula ited only to Khula and Ntsika. The study fo-
effective meeting their objectives of providing cuses on Khula and Ntsika because their pro-
financial and non-financial services to the grammes provide both financial and non-finan-
SMMEs in South Africa? cial support services to SMMEs. Their pro-
grammes cover the entire country, which makes
Objectives it easier to generalise the effectiveness of gov-
ernment support to SMMEs.
The main objective of this paper is to evalu-
ate the effectiveness of the South African na- Literature Review
tional strategy to support SMMEs. The specific
objective is to analyse the effectiveness of the Concept of Government Support
government’s national support through the pro-
vision of services (both financial and non-finan- Governments focus on designing effective
cial) by Khula and Ntsika created under the institutions as a means of providing, entrepre-
Department of Trade and Industry. neurs with a predictable framework for business
and necessary business skills to scale up their
Significance of the Study operations. As such, a framework is needed
where government interacts with micro enter-
This study is significant and relevant as a prise owners to provide them with basic foun-
means of developing a warning system which dational support through its existing agencies.
could assist both the concerned government and Thus, government support is when government
private sector structures incorporated in the na- commits itself to give assistance to the public
tional support of SMMEs. Policies and program- through its policies and institutions. Govern-
mes to support the development of SMMEs are ment gives assistance to producers or distribu-
an important part of the democratic govern- tors in an industry to prevent the decline of that
ment’s programmes to create a better life. Re- industry. Government support is aimed at im-
cognising that most programmes created under proving the welfare of its citizens. The support
the government’s national support for the de- may be in the form of financial and non-finan-
velopment and promotion of small business sec- cial assistance.
tor in this country have been operating for ten Financial assistance mainly refers to subsi-
years now, it is clear that undertaking an analy- dies, credits and soft loan guarantee schemesSOUTH AFRICA’S SUPPORT TO SMMES 21
provided by commercial and development banks SMMEs in the South African context are
(Zindiye 2008). The objectives of financial sup- classified into five categories: a) survivalist en-
port are to create an enabling environment for terprises; b) micro enterprises; c) very small
small enterprises and facilitate a greater equal- enterprises; d) small enterprises; and e) medium
ization of income, wealth and earning opportu- enterprises. The survivalist enterprise is gener-
nities. Rogerson (2004) defines non-financial ally seen as providing an income below the pov-
services as a package of services that is offered erty line. Micro-enterprises are considered as
by governments, intermediaries and donor agen- businesses with a turnover of below the VAT
cies at different stages of a project’s life. Non- registration limit of R300, 000 (Chalera 2007).
financial services comprise training, advice or Many of these informal and micro-enterprises
consulting, supply of information and network- provide the livelihoods of millions of people in
ing beneficiary enterprises in interactive rela- South Africa.
tionships to the benefit of all engaged parties In developed countries such as Britain, busi-
(Ntsika 2003). This enables entrepreneurs to nesses with fewer than 500 employees are con-
expand their operations and deal effectively with sidered small, while in developing countries
the market. such as South Africa the number employed may
be considerably smaller. “In developing coun-
Concept of Small, Medium Micro-enterprise tries a small business employs between 5 and 9
(SMMEs) employees, whilst, a medium business employs
between 20 and 90 employees” (Quartey 2001).
The concept of small businesses is diverse For example in Zimbabwe the Ministry of Small
and depends on the level of economic develop- and Medium Enterprise Development (2002)
ment in each country. There are different char- defines an SMME as a registered enterprise with
acteristics of SMMEs such as entrepreneurship, employment levels ranging from 30 to 70 em-
ownership, labour status, revenue, assets (ex- ployees and depending on the type of industry
cluding fixed property), the formal economy and will be referred to as a small or medium scale
the size of the entity. Internationally, the size of
enterprise. According to the European Union
an entity is the criterion adopted mostly in
(2004), an SMME is a small firm which em-
SMME studies. What constitutes a small, me-
dium or large company is by no means clear or ploys fewer than 50 employees and a medium
uniform, even within individual countries. In firm has fewer than 250 employees.
Chile, companies are generally classified accord- An analysis of both the South African and
ing to annual turnover; in South Africa, by turn- international definitions of SMMEs shows that,
over, gross asset value and the number of em- there is agreement on what constitutes an
ployees. In many cases, these classifications are SMME in terms of the number of employees.
enshrined in legislation; for example, in South The minimum number of employees is between
Africa by the National Small Business Act 1 and 50 and the maximum is approximately
(1996) and related Amendment Bill (2003). 500 for medium enterprises depending on the
An SMME in South Africa is any business industry. What is crucial is that sufficient capi-
with fewer than 200 employees and an annual tal must be made available so that SMME will
turnover of less than 5 million rands, capital be successful and will be able to grow and de-
assets of less than 2 million rands and the owner velop.
is directly involved in the management of the There seems to be an agreement in both South
business (Cronje et al. 2000). The National Busi- African and international definitions of SMMEs
ness Act of 1996 defines SMMEs as a separate that an SMME must be registered and be for-
and distinct business entity, including coopera- mal. This is essential as it enables government
tive enterprises, sole proprietorships, partner- to assess the contribution of the SMME to the
ships, close corporations, and non-governmen- economy. As per definition the asset base dif-
tal organisations, managed by one owner or fers across borders, but is essential that a com-
more which, including its branches or subsid- pany have a sufficient capital base for produc-
iaries, if any, is predominantly carried on in any tion purposes and also for everyday operations.
sector or sub-sector of the economy (Govern- Nevertheless, this study adopts the definition
ment Gazette of the Republic of South Africa by The National Business Act of 1996 which
1996). defines an SMME as a separate and distinct22 STEPHEN MAGO AND BIGBOY TORO
business entity, including cooperative enter- economy in order to promote industrialisation.
prises and non-governmental organisations, Other policies that were recommended were fis-
managed by one owner or more which, inc- cal (taxes and government spending) and mon-
luding its branches or subsidiaries, if any, is etary (money supply and interest rates) in na-
predominantly carried on in any sector or sub- ture (Contreras 2004). Love (2005), explains
sector of the economy. This definition is adopted that government planning should follow a strat-
because; it gives a standpoint of how the govern- egy of balanced growth, that is, “investment
ment defines SMMEs. would have to proceed simultaneously in vari-
ous sectors and industries
Theoretical Framework While the structuralist theory made signifi-
cant contributions to our knowledge of the pro-
The structuralist theory was used to under- cess of development, their prescriptions were
pin this study. Based on the works of not successful in many cases. Government-led
Mahalanobis (1953), one of the prescriptions initiatives to industrialise could not effectively
of the structuralist paradigm was that countries create the most important phase of industriali-
change their institutional structures. The struc- sation relating to heavy machinery and plant
turalist theory argues that, traditional structures installation. Moreover, the heavy involvement
are not effective enough to provide financial and of the state in the market created inefficiencies
non-financial services to SMMEs. That is, tra- eventually caused major internal and external
ditional structures such as banks are not able to economic problems. In addition, the drive to
provide sufficient financial support to SMMEs, industrialise led, ironically, to increased dual-
due to their lack of collateral. In response, the ism in developing countries as the gap between
South African government created Khula and the rich and the poor widened. Therefore, gov-
other financial institutions to support SMMEs. ernment interventions are held to be bureau-
In the structuralist paradigm, development cratic, inefficient, harmful to individual incen-
tives, and frequently characterized by policy
has to include the expansion of new technology
mistakes which destabilise the economy (Hyman
and methods of production in order to elimi-
1997)
nate the gap between the most advanced sectors But yet, despite these limitations, this study
of the economy and those that lag behind still supports major government intervention in
(Contreras 2004). The goal is to have an eco- the economy in order to promote industriali-
nomy where the total output, is divided equally sation. This will help to improve neglected sec-
among all of the country’s economic sectors. tors with more access and opportunities to both
Economic development, thus, can only be ach- non-financial and financial services. The exist-
ieved through the expansion of those sectors of ing traditional structures are failing to provide
the economy which have been neglected (Portes sufficient support to SMMEs. There is a need
et al. 1989). for structural changes which will assist SMMEs
Structuralists state that the government has with access to non-financial and financial ser-
a role to play in developing their people. For vices.
instance, the government has to assist the ne-
glected sectors in accessing loans from finan- METHODOLGY
cial institutions. In order to achieve this, the
South African government has designed pro- The study depended solely on desk research,
grammes to support SMMEs, and these include and used secondary sources which include; pre-
the Centre for Small Business Development vious research reports, newspapers, company
(CSBD), the Small Enterprise Development websites, magazines and journal contents, gov-
Agency, the Industrial Development Corpora- ernment and NGOs statistics. The researcher
tion (IDC) ,the National Empowerment Fund, also relied largely on the internet which has
the National Development Agency (NDA), the become a reservoir of information in modern
Umsobomvu Youth Fund (UYF), the South Af- society. However, the challenge that arose from
rican Micro-Finance Apex Fund, Ntsika and using the internet is crafting searches and ques-
Khula. tions that will return the most relevant infor-
Furthermore, the structuralist theorists, called mation. Despite this challenge, much data was
for major government interventions in the gathered from this source.SOUTH AFRICA’S SUPPORT TO SMMES 23
FINDINGS AND DISCUSSION date, no coordinating committee has been es-
tablished. Thus, a committee to formulate a com-
Awareness of Ntsika and munication strategy that is based on target au-
Khula programmes dience using appropriate media needs to be
formed to reach these groups.
Among people or potential clients in KWT, The marketing of Khula and Ntsika and their
awareness of programmes administered by service to SMME development stakeholders and
Ntsika and Khula is low. Although all 792 SMMEs themselves, in particular is considered
SMMEs that participated in the 1999 survey poor. As a result, SMMEs do not know who to
were formal, only about two thirds were aware approach for services. The exact role of Ntsika
of DTI programmes (Berry et al. 2002), and, and Khula is therefore not generally understood
only one-third of the sampled SMMEs had, on at SMME level. The problem of poor market-
average, heard about these programmes. These ing and publicity is also attributed to the strat-
findings support the general perception that egy itself (Chalera 2007).
SMME support programmes need to be mar-
keted more effectively. Chalera (2007) in his Attempted Usage of Ntsika and
study noted that out of 59 % of the respondents Khula Programmes
who know about Khula and Ntsika programmes,
70 % did not know how the programmes oper- Of those SMMEs that know about the Khula
ate their business and how to access their ser- and Ntsika programmes, only 15% approached
vices. They had no contact at all with any of the these institutions for assistance. The local in-
institutions. termediaries that implement Ntsika and Khula
According to Chandra (2001), the Instika/ programmes were approached by 19% of those
Khula programmes helped small business people SMMEs that were aware of them. More than
with business training services. The program- 80% of the SMMEs in the sample did not ap-
mes involved the establishment of a Local Busi- proach either institution for assistance despite
ness service centre, Tender advice centre, Re- being aware of their programmes (Berry et al.
tail Financial Intermediaries centre, Techno- 2002). These findings suggest that the respec-
preneur programme, and Training and capacity tive institutions need to work on establishing
building programme. More than 65% of the reg- links between SMMEs and their clients.
istered SMMEs benefited from the programmes.
There are indications that the originally well- Satisfaction with Ntsika and
intended policy measures suffer from subopti- Khula Programmes
mal implementation. General distrust of exter-
nal agencies among SMMEs on the one hand, Contrary to general perceptions, the vast
and the incapacity of support institutions to per- majority of SMMEs that use support program-
suasively raise awareness about their existence mes appear to be satisfied with the assistance
and effectiveness on the other, are said to be at they obtain in terms of reception, quality and
the heart of the problem. Moreover, the poor cost. Nevertheless, Ntsika’s ‘flagship’ LBSC
co-ordination of service providers results in a programme was rated worst (40% of SMMEs
replication of services (Berry et al. 2002). did not find it useful). Likewise, the costs of
With regard to Ntsika, Chandra et al. (2001) loans provided by Khula were perceived as too
noted that, most service providers find that high by 69% of the sampled SMMEs (Berry et
Ntsika has ineffective communication strategies al. 2002). Stronger marketing efforts will help
with all levels in the provinces. They indicated to increase the awareness among potential ben-
that most of the marketing and educational eficiaries, but perceptions of institutions and
materials are in English, not in the local lan- selection criteria for programmes, decide
guages, and these are poorly adapted to the re- whether usage follows awareness. Contrary to
alities of most local, especially rural, SMMEs, general assumptions, SMMEs that received as-
therefore missing their target market. Further- sistance are generally satisfied with the quality
more, the targets of the marketing programme and costs of services.
are often unclear, as evidenced by Khula’s poor On average, two-thirds of the SMMEs that
efforts to market to the banking community. To applied to Ntsika or Khula, and 88% of those24 STEPHEN MAGO AND BIGBOY TORO
approaching the DTI received assistance. The Ntsika Funding Allocation
remaining SMMEs apparently did not meet the
requirements for assistance (Berry et al. 2002). Ntsika’s prioritisation is reflected in budget-
This may indicate that the selection criteria are ary allocations. The programme received R245
not made sufficiently clear to potential appli- million, the vast portion of which goes to the
cants. Impact of South Africa’s SMME programmes.
By contrast, funding to Ntsika in support of the
Distribution of Ntsika and Khula Services provision of non-financial services amounted to
R40 million. It is clear from Ntsika’s annual
Service providers feel that both Khula and reports that the agency’s actual programme
Ntsika could be more effective if they were physi- funding is even lower. Ntsika’s actual budget
cally located in the provinces at the local level, for direct programme funding was cut from R31,
adapting their programmes to local circum- 5 million in 2001 to R27, 6 million in 2002
stances (Chalera 2007). Most service providers (Berry et al. 2002). Within this funding alloca-
suggested that Khula and Ntsika should have tion, is the budgetary support for the LBSCs,
provincial offices. SMMEs in remote areas find which the 1995 White Paper had identified as
it difficult to get assistance, as these institutions ‘the most important vehicle for small business
are located away from them. Berry et al. support in the near future’? Foxcroft et al (2002)
(2002:38) note that, often ‘there is no lack of added that, funding allocations for SMMEs have
support services as such, but there is an uneven inevitably favoured and been biased heavily to-
spread of where, how and in which fields ser- wards support for established small and medium
vices are offered’. This is exacerbated by the enterprises (often white owned) rather than
high search costs imposed on SMME entrepre- emerging microenterprises and the informal
neurs for accessing services, and the often cum- economy.
bersome administrative procedures alongside the
continual changes in programmes that act to Ntsika Outreach to SMMEs
frustrate SMMEs in applying for support to
available programmes (Kesper 2002).
Both emerging and established SMMEs show
little awareness of the existence of Ntsika sup-
Skill and Experience of Ntsika Mentors
port initiatives. Established SMMEs, by con-
The quality of LBSCs was inconsistent and trast, are embedded in a network of “traditional
Ntsika’s attempts at accrediting service provid- institutions”, such as the industrial councils and
ers did not work. The main reason for this seems industry associations, but perceive them to lobby
to be that unqualified and inexperienced busi- for large firms only and largely on labour-re-
ness advisors were employed (Berry et al. 2002). lated issues (Karungu et al. 2002). The lack of
Participants noted that serious re-training of faith in the ability of the government to make
service providers was needed for better service interventions in the economy that would lead to
delivery, or people with some business experi- an improved environment for small business
ence should have been employed to interact with contributes to SMMEs not looking for Ntsika
the business clients. assistance. Nevertheless, South African SMMEs
A big problem that was identified was that have seemingly not developed a culture of us-
not many mentors were able to help small busi- ing private consultants and tend to underesti-
ness owners. A mentor’s intervention must be mate the usefulness of these services (Berry et
tailor-made and highly individually crafted for al. 2002)
the specific business owners. Mentors were of a
low standard. They were not equipped with the Small, Medium Micro-enterprise
right knowledge, and many tended to mentor Access to Khula Loans
businesses in such a way that the businesses
became dependent on them (Foxcroft et al. According to Khula, the advancement of
2002). An organisation which had the experi- loans to SMMEs is based on ‘sound business
ence of dealing with a range of service provid- principles.’ Commercial banks have channelled
ers found that the Ntsika service providers were the bulk of the R138 million so far they have
the weakest when it came to delivery. been advanced to the target market. ABSA Bank,SOUTH AFRICA’S SUPPORT TO SMMES 25
for example, has introduced a cash bonus sys- Performance of the Khula Credit
tem for staff that advance loans to SMMEs and Guarantee Scheme
has forwarded 71.8% of the R50 million guar-
antees allocated in the financial year 1998/1999 Khula and the government’s expectations
(Berry et al. 2002). Nevertheless, after public regarding the role of guarantees in providing
small enterprise hearings in parliament, the an incentive to lenders to provide loans to mi-
Minister of Trade and Industry, Alec Erwin, la- cro enterprises have not been met. The 2002
mented that the banking sector had failed to GEM report (Foxcroft et al. 2002) found that
provide finance to emerging small businesses. Khula’s guarantee scheme was regarded as a
Until February 2001, only 2612 loans had good idea in principle, but was believed to have
been extended under the Individual Guarantees been poorly implemented and ineffectively mar-
Scheme, and the monthly reports from the RFIs keted.
to Khula reveal that micro-enterprises only con- Schoombee (2000) argues that Khula’s port-
stitute about 15% of their clients. The provi- folio guarantees have not been successful in pro-
sion of finance to emerging SMMEs has been viding additional credit in less onerous condi-
restrained by both banks and micro-entrepre- tions. He argues however that this should be
neurs being unaware of the existence of Guar- compared with international evidence from both
antee Schemes (Berry et al. 2002). This developed and developing countries that shows
prompted Khula to initiate a communication and that there is very little evidence of additionality
marketing campaign in 2001 that targeted banks found in dozens of such schemes.
only, and this boosted Standard Bank’s lending On the positive side, Khula set up a dedi-
to SMMEs. cated business development unit in their Mar-
Most micro-enterprises are not able to pass keting Division to liaise with banks on a con-
the hurdle of providing a business plan, which stant basis, in order to try and increase the up-
is the minimum requirement of banks to qualify take of banks within this programme. Addition-
for a loan. Chalera (2007) explains that, many
ally, the training of bank staff was intensified
micro-entrepreneurs do not know what a busi-
and meetings with senior management were
ness plan is. Bankers, in contrast, are usually
well informed, but often not willing (or able) to conducted (Khula 2003).
guide the potential client through the lending
procedure. In addition, banks have little to no Khula Funding Gap
experience in communicating with micro-entre-
preneurs or assessing their operations, and in In a study by Chalera (2007), most service
some rural towns, SMME lending facilities are providers said that, while there are Retail Fi-
completely absent. nancial Intermediaries (RFIs) to conduct micro
lending and the banks to conduct lending for
Khula Capacity Building larger, even medium size business, there is a
significant gap between the two. Small busi-
The biggest problem that Khula‘ experiences nesses, that is, those needing between R30 000
is the lack of capacity of the RFIs. It takes time and R200 000 are too big for Khula RFIs, yet
to build up the experience, capacity, and work- too small for the banks. Frequently these small
ing models needed for success. Yet there has to medium business are the ones that have the
been tremendous pressure on Khula to disburse greatest potential for job creation. This leads to
its funds. These organisations have been expe- SMMEs seeking financial assistance from pri-
riencing problems and the success rate of the vate lending institutions which charge high in-
established RFIs has been minimal. Khula tried terest rates.
to disburse its funds but RFIs in particular, were
not yet in a position to get the funds to the final CONCLUSION
beneficiaries on a sustainable basis. The result
was that Khula had to write off R30 million in The study found that Ntsika and Khula pro-
loans. Of the existing 50 odd RFIs that receive grams have fallen short of their objectives of
support from Khula, only 20 or even fewer are providing financial and non-financial services
expected to survive in the medium term to SMMEs. It is generally agreed that the origi-
(Karungu et al. 2002). nally well-intentioned support programmes fo-26 STEPHEN MAGO AND BIGBOY TORO
cus on the main SMME constraints, but suffer grammes and techniques so as to reach their
from sub-optimal implementation. Contrary to intended target and also bring about awareness
such perceptions, however, the incapacity of of the programmes.
support institutions to persuasively raise aware-
ness of their existence and effectiveness explains RECOMMENDATIONS
the low usage of programmes better than their
poor implementation. Except for the LBSC and Raising Awareness of Ntsika and
loan programmes, SMME entrepreneurs are Khula Programmes
seemingly satisfied with the assistance they re-
ceive. Research evidence shows that SMMEs’
Throughout the study, it was noted that there awareness of Khula and Ntsika is generally low.
is general lack of awareness in the field of the Disappointment prevails among SMME entre-
government’s support strategy. Stronger effort preneurs whose applications were turned down,
is needed to raise awareness. Apart from these and frustration about the discontinuing of spe-
general findings, research evidence of the short- cific schemes is high. Nevertheless, a first pre-
comings of specific programmes is critical for requisite for SMME promotion to occur is
their revision. The skill and knowledge trans- awareness of such efforts. SMME support ini-
fer between consultants and business owners is tiatives need to reach their target groups.
not sufficient, leaving the client continually de- There should be proper training of advisors
pendent on consulting advice and technology. and mentors and researching of topical small
Lastly, the study found that there is huge vari- enterprise issues. This challenge falls on edu-
ability in the quality of the consulting profes- cation, training and research centres across the
sion. Most Ntsika mentors were inexperienced country. Small enterprise owners are often un-
and unskilled. This resulted in poor dissemina- aware of market opportunities or feel too inhib-
tion of much needed information the SMMEs. ited to explore new avenues. This calls for more
Khula has extended a guarantee scheme to than just the dissemination of general informa-
most of the major commercial institutions but tion. Special programmes, training workshops
has had less success than anticipated in encour- and group efforts are a few examples of initia-
aging commercial banks to increase access to tives prepared for specific target groups of small
finance for smaller businesses and start-ups. The enterprises.
success of Khula’s credit programme depends
almost entirely on the commercial banking Provision of Aftercare Services
sector’s willingness to lend to SMMEs, which
banks are not inclined to do. Khula is heavily Given the general financial and capacity con-
dependent on commercial banks, yet it has not straints of Khula and Ntsika and their need to
developed effective mechanisms for bringing the meet performance targets, provision and train-
banking sector into small business lending as a ing in evaluation, a need arises of client after-
partner. care services. This would benefit both the indi-
The level of utilisation remains far below vidual intermediary and overall service deliv-
expectation. Research evidence suggests that, ery. Whilst training is essential, proper after-
the coordination and communication between care needs to follow in order for the process to
and within networks is poor. Moreover, both the have more impact on small business develop-
marketing and implementation of the LBSC and ment. Measures should be taken not to over-in-
RFI programmes seemingly leave room for im- vest in training at the expense of aftercare ser-
provement. Furthermore, the communication vices.
strategies of both Ntsika and Khula are aimed
towards the developed sectors of the economy. Co-operation between Khula and Ntsika
For instance, their reliance on very professional,
attractive English-language brochure means that If financial and non-financial services are not
they do not communicate effectively with their closely co-ordinated, many benefits are lost. It
targeted market. There is need for Ntsika and is extremely beneficial to combine financial and
Khula to develop strong communication pro- non-financial services. To conduct training andSOUTH AFRICA’S SUPPORT TO SMMES 27
mentoring before and after the SMME owner Programmes should be tailored, as much as pos-
receives a loan to make sure that the best and sible, to the needs of SMMEs in specific loca-
most appropriate use is made of borrowed funds. tions rather than be generic and inflexible.
Therefore, Khula and Ntsika need to operate
together at the local level and at headquarters. LIMITATIONS AND AREAS FOR
Strict separation of the two organisations is self- FURTHER RESEARCH
defeating for both. While they should obviously
not be merged, it would be beneficial if they are The paper was limited to two funding agen-
physically housed under one roof. Technical cies in South Africa. This initial study could be
support programs must be in place before fi- expanded to include more funding agencies in
nancial support is given. the country. Comprehensive results could be
As capacities vary and non-financial support obtained from the inclusion. Furthermore, the
is separated from the financial, stronger inter- use of field research would also improve the find-
ference between intermediaries is needed to af- ings by getting the perceptions of the people
fect the delivery of ‘packaged’ support services involved in the funding (agencies and recipi-
to SMMEs. This would entail awareness of the ents). Our forthcoming paper will take that into
existence of other service providers in the area consideration.
and regular and interactive meetings amongst
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