Traditional funding models remain largely standardised, relying on uniform criteria that do not reflect the diversity of today’s SME landscape, the writer says.
Despite the importance of small and medium enterprises (SMEs) in South Africa as critical drivers of economic development, survival remains the exception rather than the norm. Research from the Global Entrepreneurship Monitor (GEM) and World Bank Enterprise Surveys shows that in South Africa, 60% to 80% of small businesses fail within their first years, with only a small proportion surviving beyond five years.
Instead of asking why they fail, one should ask why the systems designed to support them continue to fall short. While SME failure is often attributed to managerial capability, market access or regulatory burdens, research consistently identifies access to finance as one of the most significant binding constraints.
In South Africa and comparable developing economies, SMEs face a financing environment shaped by structural exclusion rather than isolated credit decisions. Traditional banking systems typically rely on high collateral requirements, which exclude entrepreneurs without asset bases. Even when collateral is available, borrowing costs, including interest rates and transaction fees, often make formal credit economically unviable.
