4.5. Strategies used to improve the competitiveness of SMMEs 102
4.5.4. Facilitating access to finance for SMMEs 116
business opportunities that did not exist before (Sanchez, 2006). Sanchez (2006) indicated that subcontracting practices provided opportunities for the development and transfer of managerial and technical skills. He further indicated that through the scorecard elements of enterprise development and Corporate Social Investment, government and private companies were encouraged to invest in the development of smaller businesses. Sanchez (2006) argued that it seems that BEE has served to encourage several private and public enterprises either to start to implement or strengthen existing initiatives supporting small businesses. The activities of companies like Electricity Supply Commission (ESKOM), Amalgamated Bank of South Africa (ABSA), South African Brewery (SAB) Miller and others serve to highlight these initiatives.
The ESKOM Development Foundation assists many promising new businesses with grants and also offers mentoring provided by its own staff (Business Day, 17 October 2005). The ABSA Business Centre in Pimville provides access to small businesses including informal traders and spaza shop owners in Soweto with the aim of bringing the informal business sector into the formal economy and into the banking system (Sanchez, 2006). The whole notion of BEE has to some extent achieved the objective of increasing access of SMMEs to markets. It is evident, according to Sanchez (2006), that despite the good intentions of the BEE policy; in most cases it served primarily the interest of the Black elite as opposed to the redistribution of wealth as it was originally intentioned.
According to Levy (1996), South African banks were also accused of either lending to established White companies or requiring collateral that was unaffordable to the SMMEs and especially previously disadvantaged entrepreneurs. However, Levy (1996) argued, following the interviewing of entrepreneurs, that South Africa’s banking system was far more flexible than its developing counterparts when it came to issues such as age, size of business as well as collateral discrimination. Recent studies (Lance, 2003; Motsa, 2004) have indicated that banks these days have more readily embraced SMMEs. They have become more conscious of the needs of SMMEs and some tend to aggressively market themselves as being SMME friendly.
Business angel finance is often viewed as an alternative to bank finance. This type of financing refers to the granting of finance from bigger companies who choose to invest in smaller companies that are not their own. According to the South African Executive Report (GEM, 2001:
32-33), the most recent statistics on angel finance suggest that in the past few years, approximately 1.1% of South Africans have privately invested into firms that were not theirs.
While this may be significantly lower than other developing countries, the culture of business angels is growing.
According to Hussain (2006), efforts were being made to improving the offer of financing to SMMEs. For example, a separate SMME department was established for the purposes of responding specifically to the financing needs of SMMEs. This newly established Department, according to Hussain (2006), was tasked with creating an “environment that is conducive for banks to increase the flow of credit to SMMEs, to promote a strategic focus on SMMEs on the part of banks and to help banks adopt best practices in the development of their SMME business lines”. Following their investigation on challenges SMMEs faced with regards to the finance, Falkena, Asedian, von Blottnitz, Coovadia, Davel, Madungandaba, Masilela and Rees (2001) argued that banks were found not to be the sole actors who are able to provide debt finance to SMEs. He further argues that their capability to influence the quantity and quality of SME finance could be done through their particular refinancing capacities and by providing a back-up line to non-bank financial intermediaries.
Motsa (2004) argued that changes may be required in the regulatory environment to give momentum to diminish the separation between bank and non-bank lenders, particularly the emerging ‘middle class’ of formal, registered and better administered small lenders. She further argued that there is a need for improved research and disclosure on the precise extent of banks’
participation as it is argued that banks are getting more involved but are not reporting it sufficiently. Further, Motsa (2004) indicated that the costs of administering loans and granting borrowers vital business support were seen to still be a massive challenge and more competent and innovative mentorship schemes were recommended to overcome this challenge.
According to Lance (2003), in the Commercial Lending Review (CLR), as the small business banking market becomes more lucrative for financial institutions today, many are struggling to define their strategies, implement the right technologies and attract the right small business customers. Lance (2003) indicated that small business is the great, untapped market for United States (US) banks and represents the latest and greatest market opportunity for banks. This Review pointed out that industry consultants claim that small business customers are five to seven times more profitable than the average consumer household, however, without the right strategies and the right tools to service small businesses, a financial institution cannot maximise the revenue opportunity from this valuable, untapped segment (Lance, 2003).
The above discussion on strategies is simply recommendations made by various contributors which enhance our understanding of how SMMEs can become more successful and thus ensuring that they become more sustainable in their operations. According to Maranto-Vargas and Gómez-Tagle (2003), firms whose managers have been able to make a shift in their business paradigms and are open to change and to incorporate new business practices have at least been able to match multinational competitors. In addition to this, they added that firms whose explicit business strategy emphasises innovation and knowledge creation have been able successfully to participate in global contexts.
Maranto-Vargas and Gómez-Tagle (2003: 91) argued that a “market-oriented strategy supported by more specialised competitive advantages contributes to an above-average performance”.
Ensuring that pro-SMME policies are put in place also contributes significantly to the success of
SMMEs. In addition to this, as statistics have revealed, a large proportion of SMMEs are women-owned and therefore having gender sensitive policies in place is critical. Further to this, Maranto-Vargas and Gómez-Tagle (2003) believed that training and development has been identified as a key strategy that would assist in increasing the firm's competitive advantage by having highly skilled and committed employees. Another strategy outlined was the introduction of technology which has been identified to improve the overall operation of SMMEs. Soft technology (that is, technical knowledge, administrative processes and organisation procedures) more than hard technology (that is, state-of-the-art machinery) contributes to the development of competitive advantages. Maranto-Vargas and Gómez-Tagle (2003) contended that even though financial resources are important for a firm to leverage performance it was found that development of internal capabilities has been more important than limited financial resources to develop competitive advantages to compete with larger and multinational competitors.