1. Why develop small business?

Unemployment is one of the most important challenges facing the poor people in our country. 
This has been made worse by the fact that over the last two decades, the formal economy
(especially mining) has been shedding jobs and many workers were retrenched.  Furthermore,
every year hundreds of thousands of new job seekers (the vast majority of them youth) join the
army of unemployed. 

It is accepted worldwide that the development and growth of small, micro and medium
enterprises (SMMEs) can play an important role in turning this situation around.  Policies and
programmes to support the development of SMMEs are therefore an important part of the
democratic government’s programmes to create a better life.

A strategy was outlined in a White paper by the Department of Trade and Industry (the lead
department for SMME development) entitled: “A National Strategy for the Development of
Small Business in South Africa (May 1995)”.  A year later, the National Small Business Act was
passed by Parliament, which provided for the institutions to implement this strategy. 

2. Description of Small, Micro and Medium Enterprises (SMME’s)

The National Small Business Act divides SMMEs into the following categories:

Category of Description
SMME
Survivalist Operates in the informal sector of the economy.
enterprises Mainly undertaken by unemployed persons.
Income generated below the poverty line, providing
minimum means to keep the unemployed and their
families alive.
Little capital invested, not much assets.
Not much training.
Opportunities for growing the business very small.
Micro Between one to five employees, usually the owner and
enterprises family.
Informal  - no license, formal business premises, labour
legislation
Turnover below the VAT registration level of R300 000
per year.
Basic business skills and training
Potential to make the transition to a viable formal small
business.
Very small Part of the formal economy, use technology
enterprise Less than 10 paid employees
Include self-employed artisans (electricians, plumbers)
and professionals.
Small enterprise Less than 100 employees
More established than very small enterprises, formal and
registered, fixed business premises.
Owner managed, but more complex management structure
Medium Up to 200 employees
enterprise Still mainly owner managed, but decentralised
management structure with division of labour
Operates from fixed premises with all formal
requirements.
Note: Women represent approximately 56 percent of the survivalist
company category, 38 percent of micro-enterprises with no employees, and
15 percent of micro-enterprises with 1-4 employees.

Small business can also be divided between established formal SMMEs (mainly white and some
Indian ownership) in predominantly urban settings and emerging SMME economy (mainly
African and Coloured) situated in townships, informal settlements and rural areas. According to
the White paper, by far the largest sector is the survivalist enterprise sector. This means that most
people are active in the informal sector where they have little institutional support.

The government’s national small business strategy seeks to address the following common
problems faced by SMMEs:

 An unfavorable legal environment

 Lack of access to markets and procurement
 Lack of access to finance and credit
 Low skills levels
 Lack of access to information
 Shortage of effective supportive institutions

4. Intended outcomes of the small business strategy

The White paper and Act sets out the objectives of our SMME development policy as:

 Alleviating poverty, by making it possible for poor people to generate income to

meet basic needs;
 Reducing poverty through employment creation;
 Redistribution of wealth, income and opportunities; and
 Contributing to economic growth, by improving innovation and thus
competitiveness.

The national small business development strategy also seeks to strengthen cohesion amongst
small enterprises and to level the playing field between big and small business.

5. Support for the development and growth of SMME’S

The Act provided the foundation for the establishment of the institutions listed in the table
below, and the transformation of others, to support small businesses.

In addition to the listed institutions, there are also NGOs, donors and private sector organisations
(e.g. the programme by the Banking Council of SA) who support SMMEs.  The Black Economic
Empowerment Commission, an initiative of black business, also highlighted the importance of
SMME development for broad based black empowerment.

Institution Services Target

Centre for This is a Chief directorate in the  
Small Business DTI, responsible for policy and
Promotion coordination of support
programmes for SMMEs. It
also mobilises funds and
supervises the establishment of
new institutions.
Ntsika Provides non-financial support Targets survivalist, micro
Enterprise such as mentoring programmes, and very small enterprises.
Promotion business advice, help with Majority of the LBSCs
Agency government tenders and focus on start-up business,
technology support to small targeting unemployed,
enterprises, through: women and youth.

 Local business service

centres (LBSC)
 Tender Advice Centres
(TACs)

Khula Provides access to finance Mainly targets very small,

through: small and medium
enterprises, with two small
 Khula Credit Guarantee programmes for the
Scheme – provide survivalist and micro
guarantee products to sector.
banks.
 Other institutions and
NGOs, referred to as
Retail Finance
Intermediaries (RFIs)
which borrow from
Khula to make loans to
SMMEs
 Khula-Start: access to
micro credit in rural
 areas

NAMAC Two key programmes  

 Manufacturing advisory The MACs are mainly for

centres (MACs), small and medium, more
providing support for formal businesses.
small scale
manufacturing BRAIN for the entire
businesses. spectrum of SMMEs.
 Business Referral and
Information Network
(BRAIN) – information
and a help line.

Provincial To provide a one-stop  

SMME desks information centre to SMMEs
and developing enabling
government policy to support
SMMEs in each province. 
Activities of the SMME desks
include (though not in all
provinces):

 Keeping data bases of

SMMEs in the province
 Developing SMME
orientated procurement
and sub-contracting
policies for provincial
government
 Targeted support
programmes for HDIs,
women, contractors,
tourism entrepreneurs,
small/micro
manufacturers, etc

Land Bank Finance agricultural businesses From small to large scale

farmers.
Industrial Supports and funds various Predominantly large scale
Development industrial development projects, but some small to
Corporation programmes. medium enterprises.  Has a
specific BEE mandate.
National Funded by government, it Large, but also small and
Empowerment provides funding for black medium enterprises.
Corporation economic empowerment
ventures

6. Promotion of SMME’s by government

The second National Small Business Conference organised by the DTI in 1998 focused on the
role of local government in SMME support.  Local councils do procurement and sometimes form
partnerships with business to deliver services.  The Local Economic Development approach
encourages local government to also play their role in promoting small businesses.  The
Department of Provincial and Local Government administers a fund of about R42 million, to
which municipalities can apply for their LED projects.  Many of the approved projects relate to
small business activities.

The promotion of SMMEs has become an objective across government.  Many departments have
specific strategies in place, for example developing SMMEs in the tourism sector, or developing
small and emerging contractors by Housing and Public Works, Land and Agriculture, Arts and
Culture and so forth.  The promotion of SMMEs is also an important part of the different spatial
development initiatives and the Urban Renewal and Rural Development strategies.

As part of the National Skills Development Strategy, the Sector Education and Training
Authorities (SETAs) are also supposed to develop programmes that help develop small
businesses in their respective sectors.

There are a number of other parastatals which also support small businesses, though mainly at
the upper end of the spectrum.  These include:

 Independent Development Corporation (IDC):  tourism development, venture

capital, low interest empowerment and emerging entrepreneur schemes.
 South African Bureau of Standards (SABS): through its missing links programme
provide quality assistance and awareness to SMMEs.
 Centre for Science and Industrial Research (CSIR):  product improvement and
manufacturing assistance to SMMEs through their National Manufacturing
Centre.

The Manufacturing Strategy (2001) of the DTI identified a range of sectors with potential for
growth of SMMEs.  These included tourism, agro-processing, business services, cultural
industries, etc, with sectoral strategies to achieve this objective for each of these sectors. 

7. Business management support services

The institutions and organisations mentioned above also provide a wide range of business
management support services to entrepreneurs and small enterprises, such as:

 Developing business plans

 Doing market research
  Managing a small business
 Legal requirements of small businesses
 Marketing
 Business development
 Advice on government tender processes, etc.

BRAIN, the business referral and information network, established by the DTI provides a
national helpline and has a data base of services and organisations in each province which
provide these services. (CONTACT DETAILS: www.brain.org.za. Tel:  (012)349 0100 Fax:
(012) 349 2850. PO Box 397, Pretoria, 0001). Provincial SMME desks also keep data bases of
SMME service providers.

8. Access to loans for starting or expanding SMME’S

Lack of access to finances continues to be the major problem faced by people who want to start
their own businesses, or to expand their businesses to become more profitable.  Commercial
banks generally do not regard the majority of people as bankable or creditworthy.  An important
part of the national small business strategy is therefore to create an enabling environment for
entrepreneurs and small businesses to access finances.  Although a number of institutions have
been set up, we still have a very long way to go. 

In the Medium Term Expenditure Framework, government has committed to establish an Apex
Fund which will lend directly to micro enterprises, and has voted R10 billion to recapitalise the
existing institutions like Khula and Ntsika.

Institutions providing finances to SMMEs

National  Contractors Finance Corporation
 Business Partners (formerly the SBDC)
 Commercial Banks
 Community Projects Funds - CPF-SP
 Development Bank of South Africa
 Industrial Development Corporation - (IDC)
 International Tourism Marketing Assistance Scheme -
(ITMAS)
 Khula Credit Guarantee Scheme
 Khula Micro Credit Outlets
 Khula Retail Financial Intermediaries (RFIs)
 Khula Thuso Mentorship Scheme
 Land Bank
 Sizanani Scheme
 Zimele

E Cape  Business Finance Promotion Agency (Khula RFI)

 Community Entrepreneurial and Business Initiative
  Eastern Cape Development Corporation
 FNB Momentum Umsobomvu Progress Fund
Marang Financial Services

Free State  Free State Development Corporation

 Remmogo Business Finance

Gauteng  African Contractors

 Anglo Platinum Corporation
 Artpac Lending Services
 Basani Business Development Services
 FNB Momentum UYF Progress Fund
 Khethani Business Finance
 Land Bank Marketing Department
 http://www.brain.org.za/FINANCING/financingprovgau
t.html - landbank#landbankMarang Financial Services
 Sankofa Financial Services
 The Nations Trust
 Tusk Construction Support

 
KZN  FINCA
 FNB Momentum UYF Progress Fund
 Ithala Development Finance Corporation
 Khethani Business Finance (Khula RFI)
 KwaZulu-Natal Development Foundation
 Marang Financial Services

Limpopo  African Contractors

 Anglo Platinum Corporation
 Artpac Lending Services
 Basani Business Development Services
 FNB Momentum UYF Progress Fund
 Khethani Business Finance
 Land Bank Marketing Department
 http://www.brain.org.za/FINANCING/financingprovgau
t.html - landbank#landbankMarang Financial Services

Sankofa Financial Services

The Nations Trust
Tusk Construction Support
Mpumalan Beehive Entrepreneurial Development Centre
ga Ekukhanyeni Finance Facility (Khula Micro Credit Outlet)
Emerging Entrepreneurs Finance Service Centre
 Marang Financial Services
Middleburg Micro Credit Outlet
Mpumalanga Economic Empowerment Corporation - (M.E.E.C)

Siyakhula Micro Business Finance (Khula Micro Credit Outlet)

Northern Remmogo Business Finance (Khula RFI)
Cape
W Cape FNB Momentum UYF Progress Fund
Khethani Business Finance (Khula RFI)
Landelike Ontwikkelings Maatskapy
Nations Trust (Khula RFI)

 New Business Finance

SOURCE: www.brain.org.za

9. SMME’S established by women

The national small business strategy, since its inception sought to target women.  However,
women continue to make up the bulk of the survivalist sector of SMMEs and of the poor. During
the last decade, a number of organizations and institutions were established by and for women
entrepreneurs.  These include:

South African SAWEN identifies the origin of women

Women entrepreneurs' problems as:
Entrepreneurs
Network (SAWEN) –  Gender - despite the fact that women-owned
launched July 2001 enterprises are contributing an increasing
share to national revenue, they are generally
perceived to lack the capacity of their male
equivalents.
 Size - Nearly all women-owned enterprises
belong to the lower end of the SMME
category, being either very small or micro
sized companies. Men are predominant in the
more lucrative sectors. Approximately 70
percent of informal businesses in South Africa
are owned/controlled by women.

SAWEN seeks to affiliate all women enterprise

groups, co-operatives, organisations and initiatives in
to a national umbrella body that will represent and
articulate the aspirations of all women entrepreneurs
(potential and existing) that operate within the South
 African SMME sector, as well as lobby for their
support needs. It also seeks to target rural women. 
Since its launch in 2001, it has established a number
of provincial chapters.
Women in Oil and Facilitates the participation of women in business
Energy in South ventures in the oil, gas and other energy sectors.
Africa (WOESA)-
launched March
2002
Technology for Aimed at enhancing the accessibility of science and
Women in Business technology to women in business, in particular
(TWIP) SMME's. It is a national programme under the
auspices of the Department of Trade and Industry
(DTI). The CSIR, as contracted by DTI, acts as an
agent for DTI to implement the TWIB programme.
South African Promotion and advancement of women in
Women in construction; of education and contribution to the
Construction – betterment of the construction industry and the
launched August enhancement of the entrepreneurial development of
1999 women-owned enterprises in construction.

10.The Youth entrepreneurship programme

In 2000 government announced the establishment of the Umsobomvu Youth Fund, out of the
proceeds of the demutualisation of Old Mutual and Sanlam.  The fund started operating in 2001,
with the mandate to facilitate the involvement of young people in economic activities. 
Umsobomvu implements a youth enterprise programme, providing both financial and non-
financial support to youth enterprises. 

The youth entrepreneurship programme has three major projects:

 Enterprise funding.
 Micro-finance.
 Business development services.

An estimated 700 SMMEs and 3 640 micro-enterprises will benefit from these projects over the
next three years, and approximately 17 000 jobs are expected to be created.

Enterprise Recently launched FNB-Momentum-UYF Progress Fund,

funding which complements the Franchise Fund, launched in
partnership with business partners.
Micro-finance Focus on entry-level investments, and its pilot projects with
the Nations Trust and Micro Enterprise Finance are
funding micro-enterprises and co-operatives.
Business Helps young entrepreneurs to access quality business
development support from approved service providers through vouchers,
services ranging in value from R1 500 to R23 000.
voucher
Take it to the Launched recently to create locally based economic
People project opportunities for young people. The project focuses on
income-generation and self-employment for young people
living in 21 urban and rural areas identified as significant
"poverty pockets". The project aims to develop local
solutions to unemployment by investigating options for
youth development in the form of micro and small
businesses and co-operatives. It will work in conjunction
with local municipalities and donors.
Contact, Aim to reach more than 730 000 young people over the
information & next three years, offering information and counselling
counselling support regarding career development, employment and
entrepreneurship through a youth line, advisory centres and
an Internet portal. The first 12 of 33 planned advisory
centres have already opened in the provinces of Gauteng,
KwaZulu-Natal, Limpopo, Northern Cape, North West,
and Western Cape.
School to Work Is designed to transfer high-level technical skills and to
facilitate work experience for unemployed matric and
tertiary graduates. It also aims to introduce black youth into
previously inaccessible careers, such as IT and accounting.
Youth Service Focuses on unemployed youth who have no tertiary
education, enabling them to acquire the skills,
competencies and experience they require to achieve
economic independence. This is done through a structured
learning programme and accredited through a SETA.