South Africa is a challenging environment in which to do developmental lending to the poor on a large scale. Yet the need is huge.
The Centre for Inclusive Banking in Africa estimates (for example) that three to five million microenterprises operating in South Africa today do not have access to dependable credit for working capital and other needs. Each microenterprise represents at least one breadwinner—and yet many of these tiny businesses are probably not meeting their potential. Meanwhile, new microenterprises have a hard time getting started for a lack of capital and basic guidance.
Why is South Africa not meeting this need, like in other African countries?
Microlending—whether for microenterprises, housing or other development needs—implies high administration costs for many small loans, including a certain level of training and on-going support of poor clients. This is true in South Africa, just like anywhere.
It takes longer in South Africa, however, for development microfinance institutions (DMFIs) to achieve operational sustainability, where revenues cover operational costs. Cost structures are unavoidably higher compared to other African countries—particularly when it comes to hiring qualified staff. New DMFIs require a longer period of grant support, therefore, in order to reach sustainability. Meanwhile, DMFI revenue alone is not enough to allow growth on a large scale, such has been seen elsewhere.
DMA members have the experience to know that these challenges can be overcome with the help of the right long-term partners. Thousands of people in South Africa are already accessing development microfinance, with an ultimate impact on hundreds of thousands. We would like to see this turn into millions.