Financing SMEs and Entrepreneurs 2026: South Africa
Table of contents
In 2024 and 2025, South Africa’s economy shifted from continued weakness towards gradual stabilisation, with several developments improving the outlook even as growth remained low. Real GDP growth slowed to 0.5% in 2024, weighed down by summer drought conditions, port congestion, and elevated uncertainty.1 However, as confidence improves with the easing of power cuts and the formation of the Government of National Unity (GNU), the National Treasury projects a gradual recovery, with growth of about 1.2% in 2025 and an average of 1.8% over 2025–2027.
Macroeconomic conditions also improved materially on the price and interest-rate front during this period. By March 2025, headline CPI had fallen to 2.7% and core inflation to around 3%, reflecting lower international fuel prices and weak domestic demand after inflation had been persistently high earlier in the cycle. As inflation pressures receded, the South African Reserve Bank moved from tightening to easing: after having reached a repo rate of 8.25% in May 2023, it began cutting rates from late 2024 and reduced the repo rate stepwise to 7.0% by September 2025.
South Africa’s micro, small and medium enterprises (MSMEs) continue to be dominated by micro, informal and early-stage to growth-phase businesses that started with personal or social capital.2 Many of these businesses are unregistered (56%) and therefore rely on the bankability of the entrepreneur to access financial products and services. Business start-up funding comes mainly from savings (37%) or salary (14% ), and from social capital (41%, for example friends and family)). Only 7% of MSMEs used a business loan from a formal FSP to start a business, while 5% used a personal loan, and 3% refinanced a home loan. The last two depend on the owner’s bankability. The MSME sector plays a major role in employment, with about 80% of the workforce employed in MSMEs, yet they face a significant financing gap of ZAR 350 billion. This gap does not arise from a lack of capital. The number of MSME funders increased from 148 to more than 300 between 2018 and 2025.3
Credit dynamics in 2024 and 2025 closely reflected macroeconomic shifts. From 2023 through mid-2024, tight monetary policy and intensified structural constraints and stalled lending: corporate loan growth fell to 2.6% year-on-year by January 2024.
Corporate loan increases remained modest through 2024. In early 2025, however, conditions began to turn. Lower inflation, successive repo rate cuts, supported a cautious improvement in business sentiment and helped trigger a rebound in corporate lending. Loans to companies rose by about ZAR 75 billion in the first quarter of 2025, and by July 2025, year-on-year growth in corporate loans had accelerated to around 9.9%.
The SME outstanding stock of loans grew in 2024, showing a year-on-year increase of 9.6%4. The broader stock of loans outpaced this growth, as total outstanding loans surged by 12.8% compared to 2023.
Most business owners are digitally literate and digital payment use is growing. Only 50% of MSMEs have access to the internet, 49% have a social media presence and 32% have a website. Digital payments are on the rise, with close to 80% using digital financial services (an increase from 58% in 2023); 71% from clients, 49% to pay employees and 53% to pay suppliers. However, use of cash may still dominate in value, as only 28% of MSMEs own a point-of-sale (POS) device, while 61% of consumers prefer cash as a method of payment for goods and services.
Government funding for MSMEs occurs mainly through development finance institutions (DFIs). Due to data gaps, National Treasury has only been able to collect consistent data from two DFIs over the last three years (2023–2025), the Small Enterprise Development and Finance Agency (Sedfa5), and the Industrial Development Corporation (IDC). These DFIs provide direct funding, grants and credit guarantees to expand MSME finance. Sedfa has provided close to ZAR 2 billion in direct loans between 2022 and 20246, with women-owned MSMEs receiving 22% of this amount. Over the same period, Sedfa provided ZAR 195 million in grants, 41% of which went to women-owned MSMEs. Sedfa’s Khula Credit Guarantee (KCG) has helped unlock private sector funding from FSPs. Between the 2022/23 and 2024/25 financial years, KCG grew from around ZAR 449 million in 2022/23 to about ZAR 1.39 billion in 2024/25.7 The guarantee supported finance from FSPs to more than 2 900 MSMEs. In addition, the Development Bank of Southern Africa (DBSA) provided MSME’s and sub-contractors with ZAR 2.3 billion between 2022 and 2024.8 Over 470 start-ups received part of the ZAR 102m innovation grant disbursed.
Source: See Table 4.
Between 2022 and 2025, the macroeconomic environment weakened and later stabilised at low growth. Real GDP growth slowed from 4.7% in 2021 to 1.9% in 2022 as floods in KwaZulu-Natal, rail bottlenecks and severe electricity load-shedding disrupted output. Growth fell further to 0.8% in 2023 and then to 0.5% in 2024. Summer drought conditions, port congestion and high uncertainty10 weighed on activity, even as power cuts eased from March 2024 and the formation of the Government of National Unity (GNU) lifted confidence. National Treasury projects only a gradual recovery, with growth of about 1.2% in 2025 and an average of 1.8% over 2025–2027.
Inflation and interest rates moved through a full tightening and easing cycle. Headline CPI averaged 6.7% in 2022 and remained above the 3–6% target range for most of 2023, driven by high fuel and food prices and strong producer price inflation, which peaked at 18% in July 2022. Inflation pressures then receded. By March 2025 headline CPI had fallen to 2.7% and core inflation to about 3%, reflecting lower international fuel prices and weak domestic demand. As inflation moderated, the SARB started to ease policy from late 2024, cutting the repo rate stepwise to 7.0%by September 2025 and aligning its framework to a lower 3% inflation target within a 2–4%band.
South Africa’s micro, small and medium enterprises (MSMEs) continue to be dominated by micro, informal and early-stage to growth-phase businesses that started with personal or social capital.11 Many of these businesses are unregistered (56%) and therefore rely on the bankability of the entrepreneur to access financial products and services. Over 60% are in the start-up or growth phase. About three-quarters offer services or trade goods in the domestic market, while only 11% export products or services. Business start-up funding comes mainly from savings (37%) or salary (14%), and from social capital (41%, for example friends and family, inheritance, stokvel or saving groups, spouse, business partner and church group). Only 7% of MSMEs used a business loan from a formal FSP to start a business, while 5% used a personal loan, and 3% refinanced a home loan. The last two depend on the owner’s bankability.
The MSME sector plays an important role in the economy of South Africa with dedicated policy interventions from the National Treasury, Department of Small Business Development and the Presidency. The National Financial Inclusion Policy prioritises MSMEs with a dedicated Pillar 2: Extending access to financial services for SMMEs, which hopes to improve the visibility of MSMEs through increased usage of transactional accounts. Work is now underway to operationalise the vision set in the policy. The South African Government established the Department of Small Business Development (DSBD) in 2014, “demonstrating Government’s commitment to place MSMEs and Co-operatives at the centre of economic growth and job creation”. The work of Sedfa, an agency of the department, has also demonstrated efforts by government in improving the sector through financial and non-financial support. Additionally, the Presidency recently collaborated with Business Unity South Africa (BUSA) and the National Treasury to address six major factors that affect MSMEs' funding: regulation, financial literacy, data sharing and credit information, information sharing through CIPC, consistency in MSME definitions, and market access. There are already certain measures in place, such the South African Credit and Risk Reporting Association's (SACRRA) efforts to bring MSMEs' credit information up to par with that of individual consumers who have credit information from credit bureaus.12
The MSME sector plays a major role in employment, with about 80% of the workforce employed in MSMEs.
MSMEs receive 8-20% of financing due to their insufficient credit information, a lack of finance-ready entrepreneurs, and the restrictive nature of the National Credit Act (NCA). As such, the sharp expansion of corporate credit in 2022 mainly benefited larger firms with strong balance sheets and collateral13, while smaller businesses faced tighter access conditions. The contraction of real credit in 2023–2024 further constrained access to credit for MSMEs.
MSME’s in South Africa face a financing gap of ZAR 350 billion; however, this gap does not arise from a lack of capital. The key barriers include, but not limited to: limited credit information due to informality and low adoption of digital tools. South Africa lacks MSME data from credit bureaus, especially for MSMEs with annual turnover below ZAR 1 million14. As such, FSPs often rely on the owner’s personal credit profile. As a result, most MSMEs receive finance based on the capacity of the owner rather than the business. Many owners borrow from non-bank financial institutions (NBFIs), which often charge the maximum prescribed interest rate for short-term credit15.Few finance- and investment-ready entrepreneurs, and low uptake of enterprise development programmes. FSPs often view MSMEs as not ready for finance or investment and therefore do not prioritise them16. At the same time, most MSMEs (about 80%) do not use non-financial enterprise development support, even though more than half know about these programmes. These programmes help create a pipeline of finance- and investment-ready MSMEs for FSPs.
The National Credit Act (NCA) treats most MSMEs as consumers rather than commercial enterprises because their turnover is below ZAR 1 million. The FinFind 2025 report shows that more than 80% of MSMEs that apply for finance have turnover below this threshold17. The NCA therefore treats these MSMEs as individual consumers. Where regular income is unavailable or not verifiable because of cash use and weak record keeping, credit scoring becomes difficult and FSPs are reluctant to lend.
Limited supply-side data to guide policy. National Treasury relies on consolidated SARB BA200 data to assess commercial bank lending to MSMEs. This data is not granular and includes lending to entities with turnover up to ZAR 600 million18. FinScope shows a maximum MSME turnover of about ZAR 64 million (accounting for less than 2% of MSMEs), while FinFind estimates around 93 000 MSMEs with turnover between ZAR 5 million and ZAR 100 million. This suggests that only a small share of MSMEs in the FinScope and FinFind samples are able to access business finance from commercial banks.
As a result, only 8–20% of MSMEs are served by FSPs in their business capacity, while the rest are underserved or excluded. FinFind estimates that only 8% of MSMEs had an existing business loan in its 2025 MSME finance report. FinScope consumer data, using adults whose main income comes from business operations as a proxy for MSME owners, shows that only 6.7% accessed credit to start or invest in a business19. This credit came mainly from NBFIs and informal channels, and reflects MSME access to credit because owners with turnover below ZAR 1 million are treated as individual consumers under the NCA.
When MSMEs with turnover up to ZAR 600 million are included, 19% have been served by commercial banks, based on the SARB definition (see Table 3 below). This figure is likely an overestimate, as most MSMEs are treated as consumers when they access credit because their turnover is below ZAR 1 million.
Growth in credit extension to the private sector accelerated to an annual average of 7.8% in 2022, with total loans and advances recording the strongest increase since 2015. Corporate borrowers drove this outcome. Loans to companies rose by about ZAR 199 billion in 2022, supported by strong demand for general loans and overdrafts from non-financial firms, including funding for renewable energy investments under the fifth bid window of the Renewable Energy Independent Power Producer Procurement Programme.
The year 2023 to mid-2024 saw tightening monetary policy. The cost of borrowing rose in line with the higher repo rate and sovereign risk premium.
Early 2025 marked the start of a broad-based rebound in corporate lending. Lower inflation and successive repo rate cuts reduced interest burdens and, together with a more reliable electricity supply, supported a cautious improvement in business sentiment. In the first quarter of 2025, loans to companies rose by about ZAR 75 billion, exceeding the increase in the same period of 2024. By July 2025, year-on-year growth in corporate loans had accelerated to about 9.9%, with general loans growing by 12.7%.
Venture capital (VC) funding nearly tripled between 2022 and 2023 before slowing down in 2024, benefitting early-stage businesses in the ICT and health sector20. VC increased from ZAR 1 117m in 2022 to ZAR 3 279m in 2023, representing a 193% growth. Despite recording the highest number of deals in 2024 (222 vs 181 in 2023), the value of deals declined to ZAR 2 618; still higher than the previous peak in 2020. On average, over 75% is allocated to the ICT (60.4%) and health (17%) sector. The top 3 sub-sectors within ICT include investments in software, fintech and online markets; EdTech featured in the top 3 in 2021, which may have been driven by COVID-19 lockdowns where classrooms moved online.
Renewed focus in health is driven by post-pandemic needs, with investments directed towards biotechnology, life sciences, and medical devices. The rest of VC funds are invested in business products and services (5.5% - 2022 to 2024 average), consumer products and services (6.9%), energy (3.5%), financial services (0.2% - excludes fintech), and materials and resources (6.4%)
Total business bankruptcies fell to 1 657 in 2023, a 13.1% year-on-year decline and well below the 2009 series peak of 4 133, continuing a broadly downward trend over the past decade. SME-specific bankruptcy data are not disaggregated in the available source, and 2024 figures are not yet reported in the Scoreboard.
The MSME sector plays an important role in the economy of South Africa with dedicated policy interventions from the National Treasury, Department of Small Business Development and the Presidency. The National Financial Inclusion Policy prioritises MSMEs with a dedicated Pillar 2: Extending access to financial services for SMMEs, which hopes to improve the visibility of MSMEs through increased usage of transactional accounts. Work is now underway to operationalise the vision set in the policy.
The South African Government established the Department of Small Business Development (DSBD) in 2014, “demonstrating Government’s commitment to place MSMEs and Co-operatives at the centre of economic growth and job creation”. The work of Sedfa, an agency of the department, has also demonstrated efforts by government in improving the sector through financial and non-financial support. Additionally, the Presidency recently collaborated with Business Unity South Africa (BUSA) and the National Treasury to address six major factors that affect MSMEs' funding: regulation, financial literacy, data sharing and credit information, information sharing through CIPC, consistency in MSME definitions, and market access. There are already certain measures in place, such the South African Credit and Risk Reporting Association's (SACRRA) efforts to bring MSMEs' credit information up to par with that of people who have credit bureaus21.
The Department of Small Business Development (DSBD) released its “MSMEs and Co-operatives Funding Policy” in February 2025. The overarching purpose of the policy is to provide a “holistic, co-ordinated, and pragmatic framework for strengthening the provision of development finance to improve access to finance for Micro, Small, and Medium Enterprises (MSMEs) and Co-operatives” in South Africa.
Following the publication of the National Financial Inclusion Policy (NFIP) in 2023, the National Treasury has commenced work to transform the policy into an actionable strategy. The strategy has identified five distinct segments of MSMEs to help develop targeted support and tailored product design from FSPs. The NFIS is expected to be released in 2026 and socialised with FSPs and other stakeholders.
DSBD is currently working with the IFC and other government stakeholders to explore the possibility of developing enabling legislation to recognise movable assets as collateral for credit. A steering committee has been constituted, consisting of the Department of Small Business Development (DSBD), Department of Trade, Industry, and Competition (DTIC), National Treasury, Department of Justice (DoJ), National Credit Regulator (NCR) and the Small Enterprise Development and Finance Agency (Sedfa).
The NCR completed a Feasibility Study for establishing the National Register of Credit Agreements (NRCA) as envisaged under S69 of the NCA. The Feasibility Study process included an industry wide consultation inclusive of regulators, credit bureaus, industry associations, credit providers, and government agencies. The initiative succeeded in identifying critical requirements, operational challenges, and opportunities for collaboration that will shape the NRCA’s development and implementation.
Implementation of this work may benefit MSMEs who lack credit information.
Source: See Table 4
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← 1. National Treasury, Medium Term Budget Policy Statements 2022-2025; SARB, Quarterly Bulletins 2022-2025
← 2. FinMark Trust, FinScope MSME Survey South Africa 2024, 2024
← 3. Ibid.; FinFind, Inaugural South African SMME Access to Finance Report, 2018
← 4. This growth is however based on SMEs with a turnover of up to ZAR 600 million as defined by the SARB, while survey from FinFind shows that over 80% of MSMEs applying for credit have a turnover of less than ZAR 1 million.
← 5. “On 1 October 2024, agencies – Small Enterprise Finance Agency (sefa) and Small Enterprise Development Agency (Seda) under the Department of Small Business Development, and the Cooperative Banking Development Agency (CBDA) from National Treasury – officially came together to form the Small Enterprise Development and Finance Agency, better known as Sedfa.”
← 6. Excluding 2024/25 financial year
← 7. Sedfa, Data submission, 2025;
← 8. DBSA, 2024 Integrated Annual Report, 2024
← 9. National Treasury, Medium Term Budget Policy Statements 2022-2025; SARB, Quarterly Bulletins 2022-2025
← 10. Including consistent energy supply, political transition, fiscal outlook and risk of higher taxes or spending cuts
← 11. FinMark Trust, FinScope MSME Survey South Africa 2024, 2024
← 13. 57-60% of MSMEs report having no collateral
← 14. The National Credit Act treat them as an individual customer instead of a commercial business
← 15. National Treasury, Stakeholder consultation during NFIS development, 2025; maximum prescribed interest rate for unsecured credit is repo rate (central bank rate) + 21% per year – the current repo rate is 7%, which means an MSME owner can be charged 28% interest per year to access finance
← 16. Ibid. (National Treasury)
← 18. SARB, OECD Scorecard submissions, 2025
← 19. Ibid. (FinScope Consumer survey); National Treasury analysis, 2025
← 20. SAVCA, SAVCA Publications: Venture Capital Industry Surveys between 2022 and 2025, accessed November 2025
← 21. PMG, Question NW5229 to the Minister of Finance, 2025