On 22 November 2022, the Free Market Foundation (FMF) presented its eighth and final booklet in a series titled Laws Affecting Small Business. Darlene Menzies, founder and CEO of FinFind, the country’s only aggregator of all loan offerings to the Small and Medium Enterprise sector, outlined the problems caused by a prevalence of legislation governing the administration and access to finance by small businesses, and recommended solutions.
Both new and established businesses that want to expand may have to borrow money to do so. The borrowing of money attracts interest. Instead of the market and the time preferences of individuals determining the interest rate, it is capped by the National Credit Act for loans given to small businesses. This statutory interest rate ceiling, rather than assisting the poor or small businesses, has the effect of drying up loan funds.
Another finance related problem is that money lenders often need to borrow money to lend to their borrowers. The Banks Act, despite exceptions for stokvels and credit unions, makes this cumbersome, declaring that only public companies registered as banks may accept public deposits as a regular feature of business.
Laws Affecting Small Business – FINANCE proposes solutions to the problems identified in the accessing or provision of credit. Credit is integral to both establish and grow businesses. Accessing credit must be made to be as easy and seamless as possible for the long term prosperity of South Africa’s small business environment.
The FMF recommends the following:
Repeal the National Credit Act’s limits on interest rates.
If the National Credit Act’s credit ceilings are not repealed, the Act should be amended to allow for an exemption for loans up to R175,000.
If the proposed amendment of the Act and exemption are introduced, the exemption should be adjusted annually for inflation.
Financial intermediaries that borrow money from the public to lend to small businesses should be exempted from having to register as banks under the Banks Act.
If the National Credit Act’s credit restrictions are not repealed, the Act should be amended so that grantors of credit to purchase movables can recover the costs of repairing the movables plus interest from the credit-receiver.
Darlene Menzies echoed the sentiments of the booklet wherein she stated: “My recommendation that really backs up what the FMF is saying is we should look at tiered banking like they are doing in some of the other countries. Where if you look at Zambia for example, you only need R2 million to about R3 million to start to register as a deposit making institution. The requirements are far less onerous than those of the Reserve Bank and as such, there is much more lending that happens in this particular arena.”
This was the eighth and final in a series of eight mini launches to introduce recommendations to reduce the laws negatively affecting small business across a range of issues: tax, land, licensing, justice, labour, finance, health, schooling. Small businesses are the engine of the South African economy, and therefore the legislative instruments governing them are integral to creating an environment of growth and job-creation.
Laws Affecting Small Business – FINANCE can be accessed HERE
DONE
- 04.10 – Dawie Roodt – TAX
The TAX booklet and presentation can be accessed HERE - 11.10 – Terence Corrigan – LAND
The LAND booklet and presentation can be accessed HERE - 18.10 – Neil Emerick – LICENSING
The LICENSING booklet and presentation can be accessed HERE - 25.10 – Michael Bagraim – LABOUR
The LABOUR booklet and presentation can be accessed HERE - 02.11 – Gary Moore – HEALTH
The HEALTH booklet and presentation can be accessed HERE - 08.11 – Bouwe van der Eems – SCHOOLING
The SCHOOLING booklet and presentation can be accessed HERE - 15.11 – Langa Bodlani – JUSTICE
The JUSTICE booklet and presentation can be accessed HERE - 22.11 – Darlene Menzies – FINANCE
The FINANCE booklet and presentation can be accessed HERE
Ends