Fast Growing SME Funding Industry Acts to Self-Regulate RMI

Ensuring that small businesses have access to funding and working capital is a top priority in South Africa. The micro-lending space, where much of this funding occurs, has faced numerous challenges.

However, a new and rapidly growing industry comprised of merchant cash advance companies and SME finance firms is determined to approach things differently.

The South African SME Finance Association (SASFA) has published a code of conduct outlining its roles and responsibilities to protect customers and prevent the industry from encountering the same issues as micro-lenders.

“One of the challenges in this industry is that there are low barriers to entry and it can be a high-margin business,” says Karl Westvig, CEO of Retail Capital. “It is also a fairly unregulated industry since deals fall outside the National Credit Regulations.”

“It is crucial that we establish best practice guidelines on pricing, disclosure, risk assessment, and collections, among other things,” says Dov Girnun, the CEO of Merchant Capital, who is also a member of SASFA.

The local association is similar to The Association of Alternative Business Finance (AABF) in the UK, which was launched in February to promote best standards across the small business lending space.

Founding members of AABF include Capify UK, Catalyst Finance, Credit4, Fleximize, Liberis, the Just Loans Group, and YesGrowth. Members are required to adhere to four key operating principles: transparency, responsibility, fairness, and security, along with a code of conduct based heavily on the British Bankers Association Lending Code.

Founding members of the SME Finance Providers in South Africa include Retail Capital, Merchant Capital, and Lulalend. They provide essential financial products to SMEs to support growth, expansion opportunities, and emergency or seasonal cash flow needs.

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