SME growth through ‘patient capital’ and blended finance solutions is key to SA’s economic recovery

Funding for small and medium enterprises (SMEs) should be regarded as ‘patient capital’ — a long-term investment that will help to unlock these businesses’ well-documented potential and boost SA’s growth and recovery.

SMEs are the backbone of many developing economies. In many emerging markets, according to the World Bank, they contribute over 35% of GDP. According to SA’s National Development Plan, their potential for growth is enormous: by 2030, SMEs are expected to generate 60% to 80% of GDP growth and create 90% of 11 million new jobs.

But smaller businesses face many funding challenges.

Support for the ‘missing middle’ — including those SMEs that have depleted their own capital and struggle to raise capital from traditional financiers — is crucial. This support, according to Vukile Themba-Mketo, portfolio manager at Sanlam Investments, should come from a combination of finance solutions spanning direct lending and blended finance. Institutions which take a long-term view, like Sanlam Investments, are well-placed to provide the necessary ‘patient capital’ needed by this sector.

Themba-Mketo, a speaker at Batseta’s Winter Conference in June, said Sanlam Investments was dedicated to empowering SMEs, fuelling economic growth, and creating opportunities for sustainable job creation.

“Direct lending, where lenders other than banks make loans directly to companies, is a growing opportunity for funding SMEs. An overarching theme for all investors, however, is ‘patient capital’. We need to offer SMEs longer-term funding that allows them the time and flexibility for sustainable growth and meaningful expansion.”

She said a wider range of funding instruments, with different levels of risk tolerance and combining debt, equity and grant funding, were among the blended funding solutions needed to support the sector.

Themba-Mketo said: “By leveraging blended finance, which often combines public and private sector capital to help facilitate SME growth, a significant contribution can be made towards achieving the United Nations’ Sustainable Development Goals (SDGs).”

Partnerships and collaborations with various stakeholders committed to the SME market is a critical component of success. Sanlam Investments has recently committed a R100-million debt facility for micro and small fibre contractors, in collaboration with Mettle. The facility will be channelled through Enable Capital, a provider of working capital to contractors in the fibre industry. This investment, which was led by Sedick Abrahams of the Sanlam Investments team, represents an example of such a collaboration.

Access to fibre internet connectivity delivers numerous positive benefits to society and economies, from job creation and small business growth to enhanced education and skills development. This collaboration with Mettle helps Enable Capital to ensure fibre companies have the working capital to continue installations.

“We are hoping to help address some of the challenges faced by subcontractors by ensuring timely payments that enable them to pay their workers promptly. By providing upfront capital, Enable Capital bridges the gap for subcontractors who receive payment from fibre network operators on a monthly or project completion basis.”

Themba-Mketo said the primary impact of this collaboration would be job creation and preservation. “Access to good-quality fibre infrastructure not only generates wealth within communities. It also offers superior quality and lower costs than traditional data services, enhancing accessibility. This transaction will help a number of subcontractors to create employment opportunities and foster economic growth.

“Our commitment at Sanlam Investments to driving sustainable economic growth is demonstrated by our support for Enable Capital, which will help to grow a vital element of small business success: access to affordable internet connectivity,” she said.

“By offering finance solutions and support that actually match the needs of small businesses, we can make a meaningful difference in the SME market and ultimately create the jobs that our economy so desperately needs.”