FinScope MSME Survey

South Africa 2020

4 May 2020
Overview

• Objectives and background

• Methodology
• Size and scope of the MSME sector
• Impact of Covid-19
• Financial Inclusion
• Deep dive on non-life insurance
• Challenges
• Key take-outs

1 Making financial markets work for the poor

Objectives & Methodology

2 Making financial markets work for the poor

Why FinScope MSME?
• Small businesses are a critical component of and major contributor to
the strength of local economies.
• Small businesses present new employment opportunities and serve as
the building blocks of the South African largest corporations.
• Small businesses contribute significantly to job creation.
• Small businesses contribute to local economies by bringing growth
and innovation to the community in which the business is established.
• The small business sector has also been observed to be the main
absorber for marginalised segments such as women, youth and poor
communities (township and rural population).

3 Making financial markets work for the poor

Survey objections
• Assess the size and scope of the MSME sector in South Africa
• Identify the main binding constraints to MSMEs development and growth with a
focus on access to markets
• Segment the small business market into homogenous market segments and to identify
the financial needs of the different market segments in order to stimulate segment
related product innovation
• Track the progress of both sector developments and financial inclusion in South Africa
using the FinScope MSME 2010 as a benchmark and to provide an assessment of
changes and factors in the future (including possible impacts of future interventions)
• Support evidence-based policy and provide reliable baseline for monitoring and
evaluation of initiatives and contribution to critical studies on the sector.

4 Making financial markets work for the poor

Why FinScope MSME
• Stimulate debate & dialogue
• Policy regulation
• General understanding - speak the same language
• Look at the findings through different lenses for different audiences
• Product innovation
• Development intervention
• Focus on Rural and Township economies

• Impact assessment
• Baseline/benchmark
• Repeat cycles

5 Making financial markets work for the poor

Why are MSMEs important?
Globally:
• MSMEs are the most important engines of innovation, growth, job creation and
social cohesion in most emerging economies
• MSMEs contribute (on average) more than 50% of employment and 40% of
GDP and contribute significantly to poverty reduction.
• General problem: Access to finance
• In Africa:
• 51% MSME finance gap (% of formal MSMEs that cannot or can only partially access
credit)
• An additional 450 million job entrants will have to be accommodated in Africa
by 2050
• The informal sector contributes an estimated 38% of sub-Saharan Africa GDP –
even less access to finance

6 Making financial markets work for the poor

Why are MSMEs important? (cont.)
In South Africa:
• Crucial element in the National Development Plan
• SMMEs contribute more than 40 percent of total GDP and account for more
than 87 percent of all employment
• Micro-enterprises are often the only practical means available to the poor to
generate some income.
• More than 60% of the people who start an informal business do so because
they are unemployed and have no alternative source of income
• Number of MSMEs: 1,65 m informal enterprises
0,96 m formal businesses

7 Making financial markets work for the poor

MSME Access to Finance Landscape
Government Policies and Departmental Mandates

Legal
Policymaker Frameworks

Regulators

Credit
and Regulatory Framework Infrastructure

Credit Providers
Capital
Markets
MSMEs and the MSME Environment

8 Making financial markets work for the poor

Sample and weighting
Target population Multi-stage sampling process Comprehensive listing
exercise
Nationally representative Enumerator areas (EAs)
sample of small business Using probability proportional to size 400 EAs covered
(PPS)
owners who:
Businesses or Households to
• Are 16 years or older Business / Households be listed and identifying
• Perceived themselves to be Using systematic random sampling MSME owners
business owners/ 8-12 qualifier businesses or households
generating an income from each EA were selected TOTAL: 4 897
through business activities Face-to-face interviews
completed
• Definition of MSME as Individual (MSME owner)
applied in South Africa via Kish Grid

➢ Sampling frame and data weighting was done by a sampling expert in consultation with FMT
➢ Geospatial sampling also used to identify EAs that have (i) High, (ii) Moderate and (iii) Low probability of
finding businesses
12 Making financial markets work for the poor
Data collection process

DESCRIPTION DETAILS
Methodology Computer Assisted Personal Interviews (CAPI)

Survey of MSME owners, defined as individuals who are:

• 16 years or older
Respondents interview • Consider themselves to be business owners/generating an income through small
(Definition of MSME owners) business activities
• Employing less than 251 employees
• Nationally representative sample
Number of interviews n=4 897
completed (n)
The MSME survey questionnaire was designed to gather information on MSME
Questionnaire Design business owners in South Africa and it was based on the FinMark Trust MSME Model
with input from the syndicated members

Questionnaire Length Around 67 minutes

Questionnaire Translation The survey questionnaire was developed in English and then later translated into
local languages

Fieldwork period 19 October 2020 – 29 January 2021

13 Making financial markets work for the poor

Areas of data collection
Sampled enumeration areas by
geographical area 400 EAs

Rural Urban
15

85

Listed 61 000
structures and 15 800
businesses

14 Making financial markets work for the poor

Areas of data collection

Medium businesses
Small businesses

Micro businesses
All businesses

16 Making financial markets work for the poor

Objectives & Methodology

Benchmarking the FS MSME 2020

survey

17 Making financial markets work for the poor

• SARS – excludes micro
enterprise registered for
turnover tax
• Survey of employees and
self employed – not
regularly updated
• CIPC – Does not include
sole proprietors &
partnership that do not
need to register with CIPC
• Statistics of liquidation –
covers a small portion of
business termination
• Global Entrepreneurship
monitor – May not count
one-person/self-
employed/informal
business in the new
business categories

18 Making financial markets work for the poor

 Other MSMEs (or related) surveys in SA

No. Source Data used 2010 2010 2013 2014 2015 2016 2017 2018 2019
The Small, Medium and
Micro Enterprise Sector of
South Africa
1 StatsSA (QLFS) 2,205,000 2,290,000 2,309,000 2,557,762 2,550,540
***(SEDA/BER) uses
StatsSA data
Global Entrepreneurship Adult population
2 2,866,890
Monitor (GEM) Survey
Primary data
3 FinScope MSME 2010 5,979,510 2,882,392
(Business-people)
SARS Firm-level
4 SARS/ National Treasury 816,726
panel
Survey of Employers and
5 StatsSA SESE 1,517,000
the Self-employed
Adult population
6 FinScope Consumer 2019 2,769,791 2,847,062
Survey

19 Making financial markets work for the poor

Size and scope of the MSME sector

20 Making financial markets work for the poor

21 Making financial markets work for the poor
MSMEs size by number of employees

By the number of employees Closed due to Covid-19

• Out of 15977 residential
premises who were willing to
No of participate in this survey, 1150
Category Employees Size (thus 7.2%) indicated that their
businesses business closed due of Covid-
19. Unfortunately, it can not be
Micro- generalised to the population
0 to 10 84.8% 2 219 026
enterprise
Small enterprise 11 to 50 14.4% 375 809
Medium
51 to 250 0.8% 20 916
enterprise

Focus on high impact

businesses !!!
22 Making financial markets work for the poor
Size and scope of the MSME sector

2,615,751 Employing Owning Estimated StatsSA and

turnover 2019 Annual
12,947,125 3,223,001 Financial Statistics
MSME
owners Employees* MSMEs R3.1 trillion (AFS)
Full + Part time +
Seasonal Estimated R2,6
trillion from MSMEs

Please note that the AFS report formal businesses only so this compares with R2.9 trillion, see next slide
23 Making financial markets work for the poor
MSME impact to the economy

Contribute around 87% of the total labour force

Formal businesses contributes R2.9 trillion

Informal businesses contributes R147 billion
Township economy R1.5 trillion
Rural economy R139 billion

24 Making financial markets work for the poor

Sector view

• Service == “personal services,

Business sector - MSMEs operate predominantly in education, financial and insurance,
the service and trade sector. professional services….“

• Trade == “wholesale retail,

accommodation, real estate
activities”
58% 26% 12% 4%
• Industrial == “mining,
manufacturing, construction, gas
supply “

Service Trade Industrial Agriculter

25 Making financial markets work for the poor

MSMEs main sectors - Agriculture represents a small part of the
country's GDP, the services sector employs 49% of the MSME sector

Size Employment Revenue

Service 1.5 million 6.4 million 1.6 trillion

Trade 0.7 million 2.9 million 365 billion

Industry 0.3 million 3.3 million 1 trillion

Agriculture 0.1 million 390 thousand 101 billion

26 Making financial markets work for the poor

Size and scope of MSME segments

FinScope 2020 STATS SA (2019)

Formal MSMEs 966 000 736 198
Informal MSMEs 1 648 000 1 814 342
Township MSMEs 1 067 452 -
Rural MSMEs 360 713 -

• CIPC registrations – 789 194 businesses

• SARS registered – 782 927 businesses
• Other registered (BBEEE, municipal, industrial licence, Dept of
Labour, UIF, etc) – 912 456 businesses

27 Making financial markets work for the poor

Business overlaps (in terms of formal vs informal)

37 27 7 29

Formal Township Rural Other

Total % Employment Turnover

contribution contribution
Formal form other areas 431 459 17 4.1 million 1.4 trillion
Formal from townships 368 128 14 4.4 million 1.5 trillion
Formal rural 167 221 6 1.1 million 113 billion

Other areas informal 756 128 29 1.6 million 78 billion

Township informal 699 324 27 1.3 million 43 billion
Rural informal 193 492 7 0.5 million 25 billion

28 Making financial markets work for the poor

Compliance
Compliant with…. % of MSME Formal MSMEs Informal
businesses MSMEs
UIF (Unemployment Insurance Fund) 22% 54% -
Income tax 25% 64% -
PAYE (Pay As You Earn) 21% 53% -
VAT (Value Added Tax) 23% 57% -
Minimum wage requirements 18% 44% -
Workman’s compensation 14% 36% -
Basic Conditions of Employment Act 17% 42% -
Employment Equity Act 19% 49% -
Labour Relations Act 19% 50% -
SETA and Skills Development Levy 14% 35% -
Access to Information Act 15% 38% 1%
Health Regulations (Health and Safety) 20% 46% 4%
Zoning laws / regulation 15% 36% 2%
29 Making financial markets work for the poor
Formally registered businesses
• CIPC registrations – 789 194 businesses
• SARS registered – 782 927 businesses
• Other registered (BBEEE, municipal, industrial licence, Dept of
Labour, UIF, etc) – 912 456 businesses

• 37% Registered enterprises

• 35% Licensed enterprises (other registrations)

63% Informal enterprises

37% Formal enterprises

31 Making financial markets work for the poor

Formalising the informal MSMEs
1 656 223 informal
MSMEs

Micro Small Medium

699 324 at 193 492 at Rural
1 587 003 66 443 2 777 (0.2%)
Townships areas
(96%) (4%)

• Collectively employ a significant number • Priority could be given to the Small

Opportunities • Ripple effect of developing township and and Medium but focus on Micros
rural communities with a potential for growth and in
• Have purchasing power high impact sectors (e.g. industrial)

• Need infrastructure to be setup as well • Incentives for formalisation may

Challenges • Road and transport network to be need to be defined and offered
efficient to aid accessing markets • Business coaching and support may
• Availability of government services and be required
finance options to be within reach
32 Making financial markets work for the poor
Formalising the informal MSMEs
Perceived benefits

Main benefits of being a registered business (%)

Complying with the law 37
No benefits / None 13
Don’t know 13
Access to government assistance 7
Access to finance 7
Avoid harassment from authorities 6
Avoid fines 6
Access to new clients 3
Access to tenders 3
Less bribes to pay 2
Issue receipts 2
Access to raw materials 1

Making financial markets work for the poor

Formalising the informal MSMEs
Perceived barriers

Reasons for not being registered (%)

Business is too small 16
Tried but did not succeed 11
Too complicated 9
Do not have money to register 9
Do not have time 8
Not applicable 7
Do not know how 6
No benefit 6
Do not know 5
Registration is being processed 4
Avoiding tax 2

Making financial markets work for the poor

 Provincial and Gender distribution of business owners

Gauteng 41 Gender
KwaZulu-Natal 22
Eastern Cape 10
Limpopo 8
46
Western Cape 6
Free State 5 54

North West 4
Northern Cape 2
Mpumalanga 2
Male Female
Province

35 Making financial markets work for the poor

Size and scope of the sector (cont.)
Micro Small Medium

54% Mainly micro entrepreneurs

85% 14% 1%
Gender
Male 83% 16% 1%
46% Are female and largely micro (87% ) Female 87% 12% 1%
Age
Under 35 years (youth) 90% 9% 1%
15% Are located in rural areas, 64% in Over 36 years 82% 17% 1%
Metro areas
Education
Matric and less 92% 7% 0.4%
Young business owners (below 35
37% years) More than Matric 69% 29% 2%
(tertiary and vocational)
Location

67% Education – have Matric or less Metro 81% 18% 1%

Urban 89% 11% -
Rural 96% 4% -

36 Making financial markets work for the poor

Business lifecycle
Put definition
here

33% 33%

17% 17%

ESTABLISHED
START-UP

GROWTH

MATURE
37 Making financial markets work for the poor
Access to communication and other devices
Business uses the following (%)
Cellphone 53
Generator 20
Internet 18
Car/Minibus 15
Computer/laptop 14
Security system 12
Cash register 11
Printers 11
Copying machine 9
Website 8
Speed point 8
Fax machine 8
Landline 8
Device to monitor access 6

Making financial markets work for the poor

Business owner characteristics

Started business (%)

73

18

4 4

Individually With a business partner Inherited/took over/bought an With a family member(s)

already operating business

Making financial markets work for the poor

Business owner characteristics
Hours spent on business in a typical week (%)

34

21
18

12

6 5
3

Less than 1 hour 1-20 hours 21 - 40 hours 41 - 60 hours 61 - 80 hours 81 - 100 hours 101+ hours

Making financial markets work for the poor

Business owner characteristics
Motivation to start business

45

28

21 20
17
11 10

3 3 2

Saw an Could not find a Have my own Lost my job Make more Interested in Makes me Took over the Inherited the My family
opportunity job/ business/ to be money/provide offering the happy/use my business business expected me to
Unemployed my own boss for my family product/service skills

Making financial markets work for the poor

Challenges starting a business
Start up challenges (%)

Sourcing money 38
Cash flow 35
Too many competitors 16
Not enough customers 16
Registering business 13
Equipment 10
Crime/theft by others 9
Laws and regulations 8
Finding business premises/space 8
Who to sell to 7
What product to sell 7
Tax compliance 7
Lack of skills/experience 7
Finding staff with right skills/experience 7
Raising awareness of products 6
Problems with stock 6
Opening a bank account 6
Crime/theft by staff 6
Banks did not want to help with the funding 6
Writing a business plan 4
Transport 4
Financial records 4 This 3% is equal to
Connecting electricity 4
Being owed money/debtors 4 82 071 businesses
Getting insurance for the business 3
Connecting water services 3
Internet connectivity 2
Making financial markets work for the poor
Access to markets – who MSMEs conduct trade with
10% trade with larger business

21% trade with other

MSMEs
4% government

91% private customers

44 Making financial markets work for the poor

Access to markets: Clientele base and how to reach them?
43% come through references /
recommendations
36% digital marketing (website,
social media), 4% cold calling,

12% contractual
arrangements

47% repeat business, returning 84% walk-in, walk-by, private

customers customers

45 Making financial markets work for the poor

Where MSMEs trade from
Place of business operations (%)
Residential premises 49
Street/pavement 18
Business park/premises 14
Door to door/visits customers 7
Shopping/trading mall 3
The next wave of the MSME survey will
Stall/table in a designated area 3 provide trends of changes in location the
Office block/park 2 MSMEs trade from.
Farm/small holding 1 Current hypotheses:
Car/truck 1 • Could MSMEs be adapting and changing place to
offer business?
• Could MSMEs be turning to online or mobile due to
Covid-19?

Making financial markets work for the poor

Where MSMEs trade from
Ownership status of place of operation (%)

Business operates from the house l own 43

Business operates from a business premise l rent 25

Business operates from the house l rent 11

Business operates on an open space where no rent is

6
required

Business operates from a business premise l own 6

Business operates from a business premise but no rent is

3
required
Business operates on an open space where rent is
2
required

Business operates from a family member's house 1

Making financial markets work for the poor

MSME business characteristics

50 Making financial markets work for the poor

Shareholding and ownership

Business has Written partners/shareholders’

partners/shareholders (%) agreement (%)

21 60

40

79
Yes No
Yes No

Making financial markets work for the poor

MSME characteristics

Method of paying full-time employess/self (%)

64

22

8
3 2 1

Cash Internet bank Bank Wallet money Other Cheque

transfer telegram/payroll

Making financial markets work for the poor

MSMEs have “Key man dependencies”
Long term plans incase owner is unable to work (%)
Person responsible for finances (%)
Family would run it 33
Owner 42
Close down 31

Accountant 4 Have not thought about it 14

Business partners would continue 10
Business partner 3
Hire someone to run it 10
Rent it to someone 8
Non- business 2
Would be sold 7
Manager/employees will run it 5

The dependency on the MSME owner is very high and creates a challenge on the sustainability of the business as a going concern

Making financial markets work for the poor

Business records and accounting packages

Business keeps financial records (%)

45

39

18

61 7 5

Yes No Manual Computerised Accountant Keeps records

system does it in my head

Making financial markets work for the poor

Business records kept MSMEs

Financial records kept (%)

44

32 30
26 24 23
17
14
7
2

Total sales Cost of sales Stock Number of Expenses Income after Revenue/Sales Debts/debtors Hire of Do not know
made customers expenses before expenses equipment

Making financial markets work for the poor

Impact of Covid-19

59 Making financial markets work for the poor

MSME Voices

Industry/Sector – Other services Industry/Sector – Accommodation and

@Business size – Micro
food services
@Business size – Micro
“I lost my other job”
“A lot of loss. We had to throw away a lot of
stock (during lockdown)”

Industry/Sector – Wholesale and retail

trade; repair of motor vehicles and Industry/Sector – Construction
motorcycles @Business size – Medium
@Business size – Medium “It was difficult for my employees because
everything had to shut down but fortunately,
“Staff loss and production was down” they were proactive in terms of doing some
house calls to get jobs.”

60
Large businesses have closed due to impact of Covid-19,
what abouts MSMEs?
• Closed due to Covid-19
• Within travel and tourism sector
• Greyhound, Comair (Kulula) FlightCentre (40% of its stores), restaurants

• Within lifestyle and retail sector

• Edcon (Edgars), luxury stores (Prada,

• Media and communications

• Media24 publications, Cosmopolitan,

61 Making financial markets work for the poor

MSMEs pay the price for flattening the curve….

• Flattening the curve meant more restrictions on mobility

• Curfew – limited operating times
• Categorisation of businesses according to definitions of ‘being essential’ (or not)

• Cashflow
How do the rest
problems
32% classified as earn money to
pay rent, debts • Liquidity
essential service
during lockdown and employees? problems
• Limited
access to
Translating to 838 000 safety nets
businesses

62 Making financial markets work for the poor

How MSMEs are coping during Covid-19
Covid-19 safety and health coping mechanisms(%)
46
43

32
25 24
17 17 15 15 13
10

Social Sanitation Distributed Screening Staff Random Office space Implemented a Have not made Work from Operate with
distancing set stations persona station temperature screening deep cleaning safe working any changes home minimal staff
up protective check and sanitation environment yet programme onsite (i.e.
Equipment for both Rotation
(PPE) employees and schedule for
visitors staff)

Making financial markets work for the poor

 Could MSMEs recover from Covid?

• How long could MSMEs survive if restrictions continue?

At time of
survey
Less than 3 3-6 7 - 12 More than 12 Indefinitely
months months months months

12% 16% 15% 18% 20%

I don’t
know
Cumulatively, as much as 60% of MSMEs face the real risk of closure
20%
64 Making financial markets work for the poor
Could MSMEs recover from Covid?
Top 3 support business need to survive Covid-19 effects
Cash flow 71
Advice with business continuity 21
Guideline on how to access available relief funds 15
More information on transmission and spread of the virus 13
Provided training/business advice to manage the crisis 13
Advice how to negotiate with Financial Services Providers 10
Advice on labour regulations during crisis 9
Emergency loan to meet business expenses 9
Existing loan repayments 9
VAT refund 8
More clarity on officials/FSP measures to contain the crisis 6
Information and support on digital transactions 6
Any other taxes assistance 6
Moratorium on loan repayment 2

Making financial markets work for the poor

Post Covid-19 scenarios / could MSMEs embrace 4ir?
What are the risks of those that rely Restricted mobility results in MSMEs losing 84% of
on mobility (walk-in) during clientele,
lockdown

Social networks (20%), email address (17%), internet

Do they have access to digital access (15%), have speed-point (8%),
platforms?

business as usual /not doing anything (32%), don’t know

Can they switch and adapt? what to do (37%)

Automating processes (13%), using digital payments

Do they have the means? (11%), enabling business to work remotely (10%),
generator (20%)

About 6% are using cryptocurrencies. Those who don’t,

How many are ahead of the curve? cite: need enough customers (9%), ability to convert to
66 Making financial markets work for the poor cash immediately (8%), don’t know (76%)
Access to Finance Instruments
Two basic types:
• Loans – credit instruments
• Equity
Grants could be considered “access to finance” as well

Credit Instruments:
• Credit facility (e.g. overdraft)
• Loans – short-term and long-term, with and without collateral
• Asset-based financing
• Leasing
• Factoring
• Could include structured finance, e.g. project finance “shaped” to meet the demands of a project

67 Making financial markets work for the poor

Financial inclusion framework

Total business owner (BO) population = Minimum age defined by the age at which individuals can enter
into a legal financial transaction in their own capacity

Financially included = BOs who have/use Financially excluded = BOs who do not have/use any
financial products and/or services for business financial products and/or services – if borrowing, they rely
purposes – formal and/or informal only on friend/family; and if saving, they save at home

Formally served Informally served

= BOs who have/use formal financial = BOs who have/use financial products and/or services
products and/or services provided by a which are not regulated, e.g. farmer associations, saving
formal financial institution (bank and/or clubs/groups, private money lenders
non-bank)

Banked Served by other formal financial

= BOs who have/use financial institutions
products and/or services = BOs who have/use financial products and/or
provided by a commercial bank services provided by regulated non-bank formal
regulated by the central bank financial institutions, e.g. insurance companies

68 Making financial markets work for the poor

Financial inclusion among South African MSME owners

Total business owner (BO) population

100% (2 615 751)
Formally served 81

Financially included Financially excluded

84% (2 206 689) 15% ( 409 062) Banked 80

Formally served Informally served

Other formal (non-bank) 36
81% (2 115 975) 28% (719 595)
Driven by informal savings
Informal 28
Banked Served by other formal
80% (2 089 059) financial institutions
Driven by cash 36% (928 612) Excluded 15
transactions and
savings

69 Making financial markets work for the poor

What are challenges of using personal financial accounts in
running a business?

• Personal Accounts = 70% of

the banked businesses

• Of those borrowing money, • Only 36% have insured

35% use personal loan their businesses

Opportunity to convert personal accounts to business accounts – to clearly differentiate the two entities

70 Making financial markets work for the poor

Market share analysis

• Bank market share

• Insurance market share

• All analysis still being done

71 Making financial markets work for the poor

More businesses are using bank accounts to manage their
businesses needs
• About a third (31%) of businesses need access to finance to grow their businesses
• Close to 70% business experienced access to finance services problems when they
started or took over the business:

Cash flow Banks refusing 11%

50% to help

Sourcing Opening
8%
money 11% bank account

72 Making financial markets work for the poor

2020 Financial Access Strand and Overlaps
1 4 15

Banked Other formal (non-bank) Informal only Excluded

Banked 22.6
Other
34.3 formal
11.9 0.7

11.1 0.4

Informal
4.1
Excluded 15

73 Making financial markets work for the poor

Financial inclusion: Area and region
Urban 81 1 4 14
Metro 80 1 4 15
Rural 78 1 5 16

Kwazulu-Natal 90 3 7
Northern Cape 84 4 2 10
Eastern Cape 81 2 5 12
Mpumalanga 68 18 14
Free State 81 12 16
Western Cape 77 4 2 17
Gauteng 78 1 4 17
Limpopo 72 1 6 21
North West 62 2 5 31
Banked Other formal (non-bank) Informal only Excluded
74 Making financial markets work for the poor
Financial inclusion: Business Life cycle
Start-up (0-2 years) 69 1 6 24

Growth (3-5 years) 82 1 4 13

Established (6-10years) 86 12 11

Mature (10+ years) 91 4 5

Banked Other formal (non-banked) Informally only Excluded

Medium enterprise 100

Small enterprise 100

Micro enterprise 76 1 5 18

Banked Other formal (non-bank) Informally only Excluded

75 Making financial markets work for the poor

 Financial inclusion by business size, sector and formal
Micro enterprise 76 1 5 18
Small enterprise 100
Medium enterprise 100

Service 78 1 4 17
Trade 79 1 5 15
Industry 94 1 5
Agriculture 78 5 17

Formal businesses 91 11 7
Township informal 73 1 6 20
Other areas informal 74 2 6 18
Rural informal 74 2 7 17

Banked Other formal (non-bank) Informally only Excluded

76 Making financial markets work for the poor

Financial inclusion by sector

Construction 97 30

Business services 96 2 11

Tourism 90 5 3 2

Community and household 36 45 10 9

Agriculture / Farming 33 32 24 11

Wholesale / Retail 21 30 20 29

Manufacturing 16 30 48 6

Agroprocessing 10 84 6

Natural resources & Mining 6 21 91

Banked Other formal (non-bank) Informal only Excluded

77 Making financial markets work for the poor

 Access to credit by business size, sector and formal
Micro enterprise 23 4 71
Small enterprise 74 26
Medium enterprise 83 2 15

Service 29 3 68
Trade 30 4 66
Industry 57 3 40
Agriculture 39 1 4 56

Formal businesses 60 1 39
Township informal 18 5 17
Other areas informal 18 5 77
Rural informal 17 3 80

Banked Other formal (non-bank) Informally only Excluded

78 Making financial markets work for the poor

Financial inclusion – Access to Credit
Credit strand

Medium enterprise 88 1 11

Small enterprise 72 1 27

Micro enterprise 25 4 71

Credit at bank Credit at other formal (non-bank) Credit at informal mechanism Do not borrow

79 Making financial markets work for the poor

 Savings by business size, sector and formal
Micro enterprise 70 1 5 24
Small enterprise 97 12
Medium enterprise 97 12

Service 71 1 28
Trade 74 5 21
Industry 93 1 6
Agriculture 77 3 20

Formal businesses 88 11 10
Township informal 66 1 6 27
Other areas informal 68 1 6 25
Rural informal 66 0 7 28

Banked Other formal (non-bank) Informally only Excluded

80 Making financial markets work for the poor

 Insurance uptake by business size, sector and formal
Micro enterprise 5 35 46
Small enterprise 35 47 19
Medium enterprise 46 44 10

Service 78 1 21
Trade 79 1 20
Industry 94 1 5
Agriculture 78 22

Formal businesses 91 1 8
Township informal 73 1 26
Other areas informal 74 2 24
Rural informal 74 2 24

Banked Other formal (non-bank) Excluded

81 Making financial markets work for the poor

 Financial inclusion by Product
Credit Strand
33 3 64

Credit at bank Credit at other formal (non-bank) Credit at informal mechanism Do not borrow

Savings Strand

75 1 4 21

Savings at bank Savings at other formal (non-bank) Saving through informal mechanisms Do not save
Insurance Strand

9 24 67

Insured through bank Insured through other formal (non-bank) Not insured
82 Making financial markets work for the poor
Bank product penetration
Bank products

19

46
56 53 55 54
67 68 63
73 73
82 83 82 84 85 89 88
59

25 30 30 41
32
20 18 28
19 18
22 10 13 11 12 10
19 17 13 14 13 16 13 8 8
8 5 7 9 7 9 5 6 3 3

For business Personal but use for business Do not have

Making financial markets work for the poor

Insurance product penetration

Personal risk insurance (%) Types of personal risk insurance (%)

16
15
37
50
61 64
79
72
48
39 19
27
20 14
15 13 11 8 7
84 Personal Life Disability Workmen's Dreaded disease Taxi commuter
accident insurance/cover insurance compensation insurance insurance
insurance

Business Personal but use for business Do not have

Yes No

Making financial markets work for the poor

Do MSMEs have insurance?
Product penetration Barriers to lack of uptake of business insurance

Have business insurance? Lack information about business insurance 47

Business makes little profit 25

22
Do not want it 10

No reason 8

78 Do not know 7

Do not know enough 5

Yes No Do not see benefits 3

Do not trust it will pay out when I claim 2

Very few businesses have cover

85 Making financial markets work for the poor Note 47% = 1,227 million businesses
Have MSMEs made use of insurance?
Biggest risks affecting income / operations How many were able to successfully
identified by MSMEs claim from insurance?

Fire, floods or natural disaster 24

Nothing in place 24
Theft of business equipment 23
Use savings 21
Loss of income 17
Rain damage 17 Claim insurance 17
Government restrictions 14 Cut down on household expenses 12
Business interruption (eg Covid-19) 14 Apply for government grant 11
Damage to place of business 11
Borrow money from FORMAL institutions 9
Business equipment failure 10
Donations 9
Bankruptcy 8
Death of owner 8 Borrow money from INFORMAL institutions 9
Illness of owner 6 Postpone payments 6
Drought 6 Sell assets / dispose of agri products/stock 5
Theft of livestock 5
Cash in financial investments (eg shares) 3
Loss of vehicle 4
86 Making financial markets work for the poor
Financial inclusion

Borrowing & Insurance & risk

Banking Savings credit management

Product 80% are banked 75% save, 33% borrow, 33% are insured (% for
30% use an mainly through mainly from a business), majority
uptake exposed to insurable risks
account in the the bank. 4% bank
name of the save informally
business

44% Business / • 53% money is • 21% insurance too

•30% fear
Barriers income is too invested back in expensive
borrowing
small • 45% business is •21% Not aware of their
•22% do not
25% income is not making needs can be insured
need it
too irregular enough to save • 15% not insurable

87 Making financial markets work for the poor

Overview

• Introduction and background

• Methodology of the survey
• Size and scope of the MSME sector
• Financial inclusion
• Challenges
• Conclusions and recommendations

88 Making financial markets work for the poor

Business challenges
52% consider their businesses to be struggling (8% at risk of failing, 2oo
thousand MSMEs)
Top 3 business growth obstacles
Space to operate – 49%
Electricity / loadshedding – 19 %
Access to finance – 19%
Crime and theft – 15%
Access to land – 15%
Competition – 12%
Skills and education – 12%
Cost of finance – 11%
Making financial markets work for the poor
89
Key take-outs
• Total MSME sector of 3,22 million businesses employing 12,97 million people
• Accounts for 87% of the total labour force
• Informal businesses contribute R147 billion to GDP
• Business Accounts versus Personal accounts – 70% of MSMEs still use personal
accounts for business transactions – creating problems in differentiating the two
entities
• Opportunities to get them financially served
• Covid-19 could sink as much as 60% of MSMEs if restrictions continue –
• only 32% are classified as “essential service”
• Township and rural MSMEs are key – contributing R1.5 trillion and employing 1.8
million people.
• Surviving post Covid-19 – barriers to convert to technology, majority (84%) still
rely on walk-in customers thus limiting conversion to non-contact business
90 Making financial markets work for the poor
Summary of the FS MSME 2020 data
Modules Description Total no of questions

Section A: Nature of the business Sector, location, hours spent, facilities, assets 9

Section B: Getting involved in business Motivation to start, problems faced, business formation 4

Section C: Shareholders, Employees in business Employees, employee categories, payment channel, 10

shareholders

Section D: Customers and tendering Customers, payment channels, marketing, tendering 7

Section E: Registration / Compliance Registration, compliance 5

Section F: Formal product penetration Personal vs business accounts, insurance 15

Section G: Banking penetration Business vs personal accounts, product type, institution 6

Section H: Credit and loans Credit / loans, amount, barriers, motives, institutions 10

Section I: Savings Savings, institutions, motives, barriers, 5

Section J: Insurance and risk mitigation Product type, institution, 6

91 Making financial markets work for the poor

Summary of the FS MSME 2020 data
Modules Description Total no of questions

Section Ja: Impact of Covid-19 pandemic Impact of Covid-19, difficulties, mitigation/coping strategies, 13
solutions/adaptation strategies, threats, future outlook, lived
experiences

Section K: Money management Payment channels, awareness of types of financing, 6

Section L: Record keeping Record keeping, type of records, accounting packages 6

Section M: Imports and Exports Imports, exports, suppliers, location 5

Section N: Small business support Awareness, support provided, institution, informal support 5

Section O: Skills of business owner Skills, experience, functions 5

Section P: Psychographics and business Adapting to 4th Industrial Revolution, cryptocurrency, 7

performance performance, obstacles

Section Q: Demographics Gender, age, education, income, turnover, disability 20

Total 18 sections 154 questions

92 Making financial markets work for the poor

 MSME Hierarchy of priorities (and control)

Adaptability and • Adaptability and agility is important to help

MSMEs become resilient and adaptive to external
agility from external forces factors (e.g. during Covid-19 era where change in
mode of operations may be required)

• Scalability and growth is to tap into new markets

Scalability and growth
and/or increasing market share in existing markets

• Maximising rate of return ensures existing capital

Maximising the rate of return (ROI / and resources are used efficiently to generate
ROA) economic benefits

• Defining and understanding the target market is

Defining and understanding the target market about understanding entry, pricing, market share,
viability of a product / service the MSME offers

*The higher the priority the lesser control (denoted by shrinking size of pyramids)

93 Making financial markets work for the poor

 Thank You
Dr Kingstone Mutsonziwa
Abel Motsomi
Jabulani Khumalo