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MILLENNIAL CAPITAL DEBACLE

26/01/2022 09:36:00 Sanele Sibiya

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Starting a business ranks high among the hardest things to do in this country.

Access to finance, specifically capital, is always an arduous mountain to climb for entrepreneurs, if one is not well connected to people with money who can assist them fund their start up, they are left out in the fringes with very little recourse. Basically, we have a lot of entrepreneurs who are stuck in nine to five jobs because they need the security of tenured employment to apply for a personal loan that can be used to start their businesses. Others are stuck because their dreams could not be financed and the day job does not even make them qualify for a sizeable personal loan so they could self-finance their businesses. It is critical that as a country we begin to have a serious conversation about access to finance; we need to move beyond the microcosm of microfinance to massive business finance to ensure that we are able to grow a domestic industry that will lead and drive growth.

Banking sector access to finance

The current banking model is skewed against start-ups; if one does not have collateral the chances of coming out of a bank with a financed proposal are very slim. This is because the bar that banks set is very high. Begging with the business plan from a bank certified or bank recognised consultant, cash flow projections check by a bank recognised audit firm. This significantly raises the cost of accessing capital; most start-ups cannot afford this cost and they are systematically excluded from bank financing. The interest rates are at an all-time low, access to finance remains very illusive, against the basic economic principle where financing through borrowing should be high at this period. This, according to me, speaks to the levels of risk pricing against the new entrant. This is yet another avenue for growth where we are not dismantling the barriers so we can reap as a country. There is need to dismantle the system so that we can build back better. Banks need to consider delving to products such as invoice financing, to assist start-ups who at least have a secured tender with access to finance. The banking sector needs to re-align with the needs of the people, strategically place the banking sector as a critical enabler to growth.

Circumventing bottlenecks

Government should do a better job in ensuring that bottlenecks can be addressed. This can be in the form of a State funded business hub, where all bank recognised consultants can be placed under retainers to provide services to start-ups at a subsidised fee, one that will be accessible to a majority of start-up companies in the country. This can be done through coordination from SEDCO, or the banks could work with SEDCO to build the organisation to a level of bank recognition so that all the services can be offered through the parastatal and the banks will recognise them. This will be instrumental in moving the country beyond the microcosm of micro-finance to potent finance for new companies.

Non-banking financial sector access to finance

Government has relentlessly tried to set-up a number of funds to bridge the gap created by the banking sector business model. However, we note that the pressure on these entities to turn a profit results in them mimicking the bank financial sector in terms of risk management strategies. One should expect these entities to act in a favourable manner towards start-up ventures as a portion of their risk can be underwritten by the public purse; one expects them to give more chances to start-ups. This we are not seeing in practice, we call on the parastatals to down grade their risk outlook so they can absorb more start-ups. We need to have a strengthened business support and business development component within these entities. Also, synergies need to be leveraged among the entities that government sets up. There is no need for a financier to embark on business incubation and support that we could leave in the hands of entities such as SEDCO.

Microcosm of microfinance

There seems to be strong focus on providing microfinance through a number of entities and funds set up by government. Albeit being good initiatives, what is the potency of microfinance on meaningful employment creation and pulling people out of poverty? We need to focus on funding ventures that will turn big enough a profit and pay a good wage to its employees so that we grow the economy. Do not get me wrong, microfinance is an important aspect of development but it remains limited in its ability to pull the population out of poverty. In most cases, ventures funded through microfinance are survivalist ventures with no ability to significantly change the participants’ lives. There is need to focus on growth oriented incubation of small enterprises, the aim being to grow them into bigger entities.

Conclusion

We need to focus on building a financial sector that contributes to broad based economic growth, through financing the most unlikely of ventures. We need to break the barriers so that we can start generating a domestic led growth spectrum.