Johannesburg, 16 September 2024 – The FinScope MSME South Africa 2024 Survey, launched recently in a virtual event hosted by FinMark Trust, provides critical insights into the evolving Micro, Small, and Medium Enterprise (MSME) sector. Supported by key stakeholders from the financial sector, policymakers and regulators, the survey results highlight the urgent need to support the informal economy and tackle challenges related to financial exclusion. With an estimated turnover of over R5 trillion, the MSME sector accounts for 80% of the workforce, yet 15% of MSME owners remain financially excluded, underscoring the necessity for targeted interventions.

Despite a marked increase in the use of digital financial services (DFS), the MSME ecosystem remains largely cash-driven. There are approximately 3 million medium, small and micro-entrepreneurs in South Africa, employing around 13.4 million people. More than 2.5 million micro-enterprises make up the sector, with 72% operating informally. About 1 in 4 small (23%) business owners are foreign national citizens.

In the South African context of high unemployment rates, particularly among the youth, the FinScope MSME data indicates that 30% of MSME owners are 35 years old or younger.

"This is considered too low, given that 50% of the adult population are youth, aged 16-35 years, and they constitute 60% of the unemployed population,” warned Mr Abel Motsomi, Senior Data and Analytics Specialist at FinMark Trust.

The findings emphasise the pressing need for micro-enterprises to grow into small, medium, and in some cases, large businesses to drive sustainable growth.

In her keynote address, Ms Mosa Makhele, Deputy Director-General of Sector Policy and Research at the Department of Small Business Development, stressed that the cost and complexity of formalising businesses are major barriers for MSMEs, particularly those operating in the informal economy. She noted that while digitisation has advanced, it is not a panacea for the fundamental challenges facing micro-enterprises. Ms Makhele pointed out that around 1.6 million MSMEs are currently operating informally and that digitising these businesses without addressing their core issues will not yield the desired results.

“As part of the Department’s efforts to reduce regulatory burdens, we have begun identifying legislation that may require review. While we are not suggesting regulatory reform, it is vital to assess whether current legislation sufficiently supports small businesses. We must also streamline the licensing processes at the municipal level to make it easier for MSMEs to operate," she explained.

Ms Makhele also highlighted that the high levels of informality are closely tied to skills shortages and the legacy of past inequalities. She added that legislation is under review to better support sectors such as micro-lending, where a significant number of small businesses operate.

The event included a panel discussion moderated by Mr Obert Maposa, Senior Data and Analytics Specialist at FinMark Trust. The panel featured Mr Alroy Dirk, Head of Strategy at the Small Enterprise Finance Agency (sefa), Ms Nontobeko Lubisi, Director of Financial Inclusion at the National Treasury, and Dr Pali Lehohla, former Statistician-General of South Africa who is a member of the MPPN steering committee and Director of the Economic Modelling Academy. The discussion explored key trends in MSME development, challenges related to financial inclusion, and the critical role of data in informing strategic interventions for the sector.

Panellists discussed the importance of collaboration between the government and the private sector in fostering MSME growth. A recurring theme was the need to create an enabling environment to achieve growth and sustainability. Addressing income and economic inequalities is at the core of this effort, as well as systemic issues in government and ensuring accountability. The role of clear policy direction in tackling poverty and unemployment cannot be understated.

Creating an enabling policy environment involves more than drafting policies; it requires the development of specific strategies and clear implementation plans. Beyond formulating policies, there must be clarity on long-term objectives and how these align with MSME development. In line with this, FinMark Trust is working in collaboration with the National Treasury and other stakeholders to ensure the effective implementation of financial inclusion policies.

Since the policy’s finalisation, the focus has shifted towards actionable steps, including formalising financial inclusion working groups and fostering greater collaboration between government and private sector regulators.

This launch marks a significant milestone in understanding the evolving needs of MSMEs in South Africa, driving towards a future of sustainable economic growth and development for all.

FinMark Trust remains committed to using the FinScope MSME 2024 data to advocate for more inclusive financial ecosystems. Credible data on the MSME sector is scarce, particularly with the level of detail that the FinScope provides. The granularity and frequency of its data set it apart, establishing it as the ‘gold standard’ in South Africa.