Microfinance Practice: [MFP] Fwd: FW: Unbanked News

Interesting article on SA's attempt to assist small businesses:

From: Charles.Klingman@fsoc.gov [Charles.Klingman@fsoc.gov]
Sent: Friday, July 04, 2014 8:01 PM
Subject: Unbanked News - South Africa

Business Day

July 2, 2014 Wednesday

Survivalist ventures also merit state support

BRIAN MATHEBULA

WILL the launch of the small business ministry do anything for those who operate micro and survivalist enterprises?

Despite the National Development Plan (NDP) identifying small businesses as a focal point to reduce poverty, income inequality and unemployment, the absence of the word "micro" in all discussions about the new ministry suggests that the necessary policy overhaul for micro enterprises may not be forthcoming. This will have serious implications for the hopes of many people who operate micro and survivalist enterprises, and who have been yearning for greater support and sometimes protection from the state.

If the small business industry is to be one of the focal points of poverty alleviation, as outlined in the NDP, what is the scope for micro enterprises, commonly regarded as constituting the "missing people" from a policy perspective?

Former president Thabo Mbeki famously argued that there is a need for a nuanced understanding of SA's dual economy. He used the concepts of the first and second economy, describing the former as sophisticated, mechanised and globally competitive, and the latter as underdeveloped with little or no support - and black.

Unfortunately, the conversation around a better understanding of SA's dual economy seems to have ground to a halt. During his inauguration speech, President Jacob Zuma rallied behind the NDP as a vehicle that would launch an assault on poverty, inequality and unemployment. In the NDP, a lot of noise is made about providing better support for small businesses and, as a result, the small business ministry has been launched and branded one of the key drivers to addressing the & triple& challenge. Policies on the informal economy, including financial support for start-ups, have been extremely incoherent and fragmented to date.

The Studies in Poverty and Inequality Institute (SPII) is undertaking a pilot programme incubating 150 micro and survivalist enterprises in Evaton Township, Gauteng. From the baseline study we undertook at the beginning of this pilot, we are well aware that, despite some interesting lessons, there doesn't appear to be too much to be excited about the establishment for the new small business ministry for the types of survivalist entrepreneurs that we are working with.

The pilot project is a 24-month incubation, which includes training in basic business management skills, life skills, financial literacy, savings incentive schemes and weekly mentoring. Drawing from our preliminary learnings after eight months, it would seem that many of our vulnerable participants would not qualify to receive any support from the new department, as they remain "unbanked" and survivalist in nature, with little profit.

More than 80% of these micro and survivalist enterprises are owned by women, who are the main breadwinners in their households. Many of these women exist on the border between poverty and survival, and are often subjected to informal lending and sometimes risky savings schemes. Formal financial sector services are not considered as a viable platform for asset building and saving for many project participants. This is due to well documented excessive and exorbitant bank charges and products that do not match the participants' needs. These include banking hours that are a barrier for many entrepreneurs who work long hours and often on weekends.

Many studies have been done that highlight the importance of the informal economy in poverty alleviation and job creation in developing economies. In SA, the dominance and achievements of enterprises owned by non-nationals over locally owned ones provide an indication of what can be achieved within the informal economy. For many project participants, it is better to be informally employed than formally unemployed. If the small business ministry is to be used as a vehicle to purposively target the most vulnerable groups, it makes no sense at all that those who operate in micro and survivalist enterprises do not form part of the small business agenda.

We hope that, as the new department starts to put words into action, micro and survivalist enterprises form a key component of its work. Small businesses have a crucial role to play in economic development. Neglecting those who operate micro and survivalist enterprises is, at best, wasteful. Without them, the vision of reducing high levels of poverty, income inequality and unemployment could prove a fleeting illusion.

Mathebula is a researcher at SPII.

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Posted by: Jami Solli <jamisolli@gmail.com>

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