Ensuring that small businesses have access to funding and working capital is one of South Africa’s top priorities. The micro-lending space, where much of this funding has taken place, has been fraught with problems.
But a new and fast growing industry made up of merchant cash advance companies and SME finance companies is determined todo things differently.
The South African SME Finance Association (SASFA) has published a code of conduct on its roles and responsibilities in order to protect its customers, and ensure the industry does not fall into the same traps as micro-lenders.
“One of the challenges in this industry is that there are low barriers to entry and it can be a high margin business,” says Karl Westvig, CEO of Retail Capital. “It is also a fairly unregulated industry as deals fall outside the National Credit Regulations.”
“It is important that we have best practice guidelines on pricing, disclosure, risk assessment and collection, amongst other things,” says Dov Girnun, the CEO of Merchant Capital, who will also be a member of SASFA.
The local association is not unlike The Association of Alternative Business Finance (AABF) in the UK, which was launched in February “to champion best standards across the small business lending space.”
Founding members of AABF include Capify UK, Catalyst Finance, Credit4, Fleximize, Liberis, the Just Loans Group and YesGrowth. Members will be required to adhere to four key operating principles: transparency, responsibility, fairness and security, and adhere to a code of conduct which relies heavily on the British Bankers Association Lending Code.
“It will put pressure on less scrupulous players to provide a fair and transparent product to SMEs,” says Trevor Gosling, CEO of Lulalend.
The founding members of the SME Finance Providers in South Africa include Retail Capital, Merchant Capital and Lulalend. They provide critical financial products to SMEs to support growth and expansion opportunities as well as emergency or seasonal cash flow requirements.