Banks and equity funders in South Africa plan to ramp up their support for SMEs over the next five years as they are critical to help rebuild the economy. According to panelists at a Standard Bank SME Summit in partnership with Business Day webinar on reigniting businesses in the new economy, investing in the SME sector market can be mutually beneficial for financial institutions, investors and smaller businesses.
Although SMMEs are the lifeblood of South Africa’s economy and employ around 60% of the workforce, they are most at risk due to very little support and limited access to capital. But both Standard Bank and Jaltech Fund Management told the webinar that they were looking to change this situation. Jaltech Fund Management co-founder and partner Gaurav Nair said that already investors were moving away from the traditional markets of listed equities for their returns.
“So what lies ahead is investing into the alternatives and the alternatives are equity funding into small and medium-sized businesses and what lies over there is that you have really good deals as an equity investor because a lot of the other funders are not looking there… it’s the really good deals that you are not competing for,” he said.
“They are great businesses (and) they can give great returns if only they could get the equity funding. And so, what we see coming ahead, is more and more investors realising the opportunity and more and more money coming into this sector and that providing business owners much needed growth… and the growth that the country needs.”
Bernadette Colborne, who heads up trade and supply chain finance at Standard Bank, said it was in the interest of the bank to grow its client base as this would have a positive knock-on effect for the institution. “I think the key strategic focus is growing the market in South Africa and particularly SMMEs (is) because the International Chamber of Commerce (says) that is where the financial need is,” she said.
“(We want) to help those customers grow and to help them expand their businesses cross-border into Africa, globally, earn Dollars, Pounds, Euros (which is) awesome against the Rand and help them move their goods as well.” However, Colborne said that the bank needed to consider various risks before “investing” in a company, which included if its product in the supply chain could be expanded into other markets domestically or internationally.
She said to help companies grow, the bank placed them on an online marketing tool that gave them local, continental and international reach, and trusted partners from South African and global banks. On equity funding, the panelists reminded SMEs that they were selling part of their business, which meant they would have to bring a new partner on board. But that money would be used to grow their business to the next level.
However, funders eventually wanted to get out of the business to get their returns. Nair said at this stage, equity investors looked at ensuring that the business was in a position where its cashflow could support an owner to take on debt for the business and buy out the investor.