Abstract
Orientation: Small and medium enterprises (SMEs) owned by immigrants in developing economies, such as South Africa, tend to trust formal financial institutions (FFIs) for financial support.Research purpose: Even though immigrant SMEs create opportunities that have important implications for the South African economy; less than 5% of them can access credit from FFIs. This study, therefore, explores the accessibility of credit from FFIs to immigrant SMEs from a supply-side perspective.Motivation for the study: Research studies on improving financing from FFIs to immigrant SMEs will help to boost the survival of immigrant SMEs and promote economic development in South Africa.Research design, approach and method: This qualitative research design used an interpretivistic research paradigm to achieve the research objectives. Data were collected from 16 purposively selected participants and analysed using the five-step process of content analysis outlined by Terre Blanche, Durrheim and Kelly.Main findings: The findings revealed that FFIs are uninterested and biased against considering financing immigrant SMEs and tend to charge them higher interest rates. Collateral, equity contribution and the possession of a South African permanent resident permit with a South African ID are the most important requirements that impact the willingness of FFIs to finance immigrant SMEs.Practical/managerial implications: Implications for the financial institutions in policy development were provided.Contribution/value-add: This research study highlights the requirements and the challenges faced by immigrant SMEs in accessing credit from FFIs. The use of qualitative research design further contributed to the literature on FFIs financing of immigrant SMEs.
Highlights
Research studies on immigrant small and medium enterprises (SMEs) have gained much momentum in recent times
It is clear that formal financial institutions (FFIs) always want to mitigate the risk of financing immigrant SMEs
The findings further revealed that certain requirements impact the willingness of FFIs to finance immigrants SMEs
Summary
Research studies on immigrant small and medium enterprises (SMEs) have gained much momentum in recent times. How formal financial institutions perceive financing immigrant small and medium enterprises Of the eight FFIs this study focused on, five do not provide any form of business credit to immigrant SME owners without a South African permanent resident permit (SAPRP) with a South African ID. I can say we are happy to finance those that agree to our credit terms and do qualify for business credit.’ (Participant C2, Female, Age range 30–34, duration of current position: 3 years) This finding is consistent with that of Radipere and Dhliwayo (2014) and Tengeh and Nkem (2017) that FFIs are uninterested in financing immigrant SMEs and that this is at the root of the discrimination hypothesis.
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