Abstract

It is the belief of many governments that the development of micro, small and medium enterprises (MSMEs) will stimulate economic growth, create jobs and assist in the obliteration of poverty. However, the achievement of these envisaged benefits is dependent on healthy and growing MSMEs as well as the provision of funds to facilitate and stimulate growth. Despite various interventions by the SA government, many MSMEs have failed due to a lack of support from the financial institutions tasked with providing capital and funding to these enterprises. This article focuses on the obstacles that restrain business growth and identifies the challenges that owners of township MSMEs face and need to overcome to acquire funds from financial institutions and government support programmes. Exploratory research, conducted among 498 MSMEs located in South African townships, revealed that the obstacles, which are restraining growth relate to the economic climate, business environment, personnel and finances. The challenges to access funds can be grouped into three possible constructs: institutional requirements, administrative aspects and perceptions of financial institutions. Despite the many obstacles in the path to acquiring funds for their survival and growth, MSMEs have continued to operate on a small scale. However, the reality is that, without much needed funds and financial support, it will be difficult for MSMEs to grow and reach their full potential, which will hinder their ability to bear the envisaged fruits of economic growth and the obliteration of poverty.

Highlights

  • The role and importance of micro, small and medium enterprises (MSMEs) is widely valued and acknowledged

  • The study followed an exploratory approach using a self-administered questionnaire to gather data during the fourth quarter of 2019 from the owners of township MSMEs located in Gauteng, which is regarded as the economic hub of South Africa

  • The article focused on obstacles that restrain the growth of township MSMEs and the challenges faced by MSME owners when applying for funds from financial institutions and government support programmes

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Summary

Introduction

The role and importance of micro, small and medium enterprises (MSMEs) is widely valued and acknowledged. Institutions such as Ntsika, Khula and SEFA were created to offer financial support to SMMEs (Mago & Toro, 2013), as well as a number of other government support programmes, including the following: Small Enterprise Development Agency; Centre for Small Business Development (CSBD); National Empowerment Fund; Industrial Development Corporation (IDC); National Development Agency (NDA); Umsobomvu Youth Fund (UYF); Community and Development Association (CEDA); and South African Microfinance Apex Fund (Agwa-Ejon & Mbohwa, 2015; Rogerson, 2004; Botha, Smulders, Combrink & Meiring, 2020) Even though these programmes are available, there seems to be a reluctance or a wariness to participate on the part of the MSMEs (NCR, 2011; Mago & Toro, 2013). This can, to some extent, be attributed to a lack of awareness on the part of the MSMEs with regard to the services provided by these programmes and support organisations (FinScope, 2010)

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