Jan de Kock | Head | Corporate Funds Management Origination | Absa CIB | mail me |
South Africa places considerable weight on Micro, Small, and Medium Enterprises (MSMEs) as engines of employment and growth. However, their access to capital still falls short of the role we expect them to play. Consequently, development finance has become an important part of efforts to close this gap.
Every Rand channelled into development finance carries an expectation of tangible economic outcomes. Much depends on the quality of the institution entrusted with administering the fund. Developmental capital can only go as far as the judgement behind each lending decision allows. Therefore, a strong case exists for entrusting more administration to experienced private financial institutions.
These institutions already understand lending decisions and possess the regulatory discipline and portfolio experience required to manage capital at scale.
Why private-sector administration matters
Private-sector administration can also shorten the distance between an approved mandate and the money reaching its intended beneficiaries. This is possible because the necessary lending infrastructure already exists to govern and manage fund disbursements. Moreover, many MSMEs need help strengthening their businesses alongside financial support.
An administrator with established relationships can bring in specialist assistance without building that capability afresh for every fund. If the administrator clearly demonstrates portfolio performance and funding outcomes, other investors gain a firmer basis for committing capital. This gives the fund room to grow beyond its original allocation.
To drive genuine, inclusive economic growth, South Africa should make greater use of experienced private-sector institutions to administer development funds. The public sector should set the mandate and retain oversight. This approach arguably gives each fund a better chance of reaching its intended beneficiaries. At the same time, it preserves the discipline needed to manage the fund responsibly over time. The government’s role in this model is to define precisely what each fund should achieve.
Transformation goals must be clear. Development funding should target MSMEs capable of supporting economic growth and job creation. Furthermore, priority sectors and measurable criteria should give both parties concrete benchmarks for evaluating outcomes.
Without that clarity, the exercise can too easily become a compliance exercise rather than a meaningful development intervention.
Governance, accountability and measurable outcomes
A clear governance structure is equally important. A joint public-private oversight committee should share accountability. Reporting should track both the fund’s financial performance and its intended social outcomes. Fund managers should also hold the appropriate licences where required. They must operate in accordance with applicable conduct requirements, including Treating Customers Fairly principles.
In addition, external audits should support the transparent and ethical allocation of funds. Government can also coordinate with relevant state agencies when businesses need training or market access alongside financial support. Together, these measures can strengthen accountability and help ensure that MSME development funds deliver measurable economic and social benefits.
These requirements undoubtedly set a fairly high bar for institutions seeking to administer development funds.
Experience matters because administrators must understand the MSME segment well enough to assess how businesses are likely to perform after receiving funding. They must also maintain sufficient portfolio discipline to demonstrate where the money went and what outcomes it achieved.
The objective should be a portfolio that demonstrates its developmental purpose. At the same time, administrators must prevent impairments and non-performing loans from eroding the fund’s capacity to continue lending.
Leveraging banking relationships and investment networks
When a bank administers a fund, its existing relationships across the economy can add considerable value. For example, a bank working with large corporates may connect smaller businesses to genuine procurement opportunities. Its relationships with investors and Development Finance Institutions (DFIs) can also unlock additional capital as those businesses grow.
Where appropriate, private-sector fund administrators may co-lend with public-sector DFIs. Furthermore, when multiple buyers or offtakers participate, the bank can understand how money moves through the supply chain. This insight can help identify where an MSME has a genuine route into the market. Such connections can strengthen the impact of MSME development funds by linking financial support to practical business opportunities.
Moving from development finance to economic impact
South Africa does not lack ambition regarding the contribution MSMEs should make to the economy. Instead, it needs a better way to help developmental capital survive the distance between intention and outcome.
Entrusting the private sector with the management of development funds can help ensure that the country’s limited resources support innovation and competitiveness. Under this model, the government would shift its focus from direct administration to strategic oversight, regulation, and facilitation. This approach aims to leverage private-sector efficiency while maintaining firm alignment with national socioeconomic transformation mandates.
Ultimately, combining public purpose with institutions that already know how to deploy and manage money responsibly offers one way to close this gap. It could also help South Africa extract greater value from its existing development capital before asking where the next rand will come from. By strengthening administration, accountability and investment partnerships, the country can improve the prospects of MSME development funds and the businesses they aim to support.
