The Industrial Development Corporation (IDC) has expressed an interest in creating a microfinance institution (MFI) designed to fill the void that exists of clients not covered by existing development finance institutions and that are considered too risky by commercial banks. IDC, the South African state run national development finance institution, is anticipating investing between R100 million (USD 9.7 million) and R200 million (USD 19.4 million) to set it up, if the plan for the MFI is to go ahead.
The target clients would be “spaza shops” and informal traders. Spaza shops are small retail enterprises operating from a residential stand or home. There are an estimated 100,000 spaza shops in South Africa with a collective turnover of above R7 billion (USD 680 million) per annum. It is reported that each spaza shop employs two to three people, who in turn support an average of four family members.
While the minimum funding threshold has not been stated, Business Day has reported that it will likely be between R5000 (USD 486) and R100000 (USD 9721). The minimum lending threshold of the IDC is R 1million (USD 97 thousand), as a part of its Transformation and Entrepreneurship Scheme (TES), a programme designed to serve the financing and entrepreneurial needs of South Africa’s marginalized groups. IDC will partner with an unnamed financial services partner, which will also contribute funds to the venture. The percentage of ownership by IDC and partner has not been stated.
The motivation for this new MFI is the gap left by other large South African funding bodies and MFIs by the high minimum lending thresholds that they require, and the IDC sees as an opportunity to access an excluded market. The Inter Press Service News Agency reported in December 2005 that South Africa’s MFIs have been accused of lending money only to the working class and small-scale business people, excluding a large amount of poor people who need loans.
The Industrial Development Corporation (IDC) is a self-financing, South African state-owned national development finance institution that provides finance to promote industrial and entrepreneurial development. Its primary objectives are to contribute to balanced sustainable economic growth in Africa and to the economic empowerment of the South African population. The IDC promotes entrepreneurship through the building of competitive industries and enterprises based on sound business principles. Its assets as of March 2008 totalled R 97 billion (USD 9.4 billion).
By Lori Curtis, Research Assistant
Similar Posts:
- MICROCAPITAL BRIEF: Verdant Capital Facilitates $2.5m in Lending for Enable Capital to Support SMEs Building Internet Infrastructure in South Africa
- MICROFINANCE EVENT: 2nd Annual Environmental Social Governance (ESG) Africa Conference; October 4-5, 2023; Sandton, South Africa
- MICROCAPITAL BRIEF: Invest International Places $11m in Equity Fund uMunthu II to Support Rapidly Expanding SMEs in Africa
- MICROCAPITAL BRIEF: AFI Invests $5m in Microfinance Institution AFK of Kosovo from Invest in Visions (IIV)
- MICROFINANCE EVENT: Enlit Africa Forum on Energy, Power and Water; May 16-18, 2023; Cape Town, South Africa
