Developmental microfinance is not widely offered or present in South Africa, and almost non-existent in the Western Cape. Indeed, South Africa is an anomaly relative to many other emerging markets when it comes to developmental microfinance [1], especially on the African continent.

As a product, developmental microfinance evolves at the very fringes of the South African credit market, accounting for barely 6.45 billion rands out of a total credit issue of 574 billion rands in 2023, or 1.12% of the total formal credit issued in 2023, according to data collected by the National Credit Regulator[2]. In the first quarter of 2024, developmental credit accounted for a slightly higher 1.4% of the total issued.

One of the key reasons that developmental microfinance is so marginal may be that alternative forms of credit in the formal sector, including microcredit for consumption purposes, are highly profitable, commanding high interest rates and requiring little monitoring other than automated risk management tools. Indeed, retailers alone have granted 23.8 billion rands worth of loans to consumers during the same period, and a further 94 billion rands of unsecured loans have been granted by various credit institutions.

Formal financial institutions and credit providers have therefore had little market incentive to develop suitable developmental microfinance products that cater to the needs of informal businesses and micro-businesses operating in typical South African peri-urban markets. Developmental microcredit, often with very small ticket sizes and requiring closer monitoring of individual clients, is thus crowded out when the creditor’s main goal is financial profit rather than wider social impact.

Despite these overall realities, there are encouraging examples of successful deployment of developmental microfinance in South Africa, as exemplified by the Small Enterprise Foundation (SEF) and, at a lesser scale, Phakamani Foundation. Both these institutions have a long-established presence, mainly in rural communities in Limpopo, the Eastern Cape and Mpumalanga.

In the Western Cape, Spoon Money has developed an offering supporting women-run, township based businesses. Clients can either join as individuals or as a group, and are encouraged to save through Spoon Money as their money is placed with Allan Gray, a well-established asset manager, at a competitive rate. Incentivised agents, living and working in township communities, advertise Spoon Money and recruit clients.

Spoon Money currently has about 2,500 clients on its books. According to Nicky Swartz, founder and director of the Company, Spoon Money needs to reach 10,000 clients in order to become financially viable.

[1] Defined as loans aimed at developing small businesses, improving low-cost housing or for educational purposes (National Credit Regulator, 2021).
[2] Source : National Credit Regulator, CCMR Web-Dataset 2007Q4 to 2024Q1. Downloaded on 11 August 2024 from: https://www.ncr.org.za/index.php/publications/consumer-credit-market-report-ccmr

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