No thanks, say informal-sector entrepreneurs to easy loans offer

Government’s precondition is to register for tax and UIF.
The sector is regarded with hostility by lawmakers, but when the Small Enterprise Foundation granted a payment holiday to clients, about 60% still paid their dues. Image: Moneyweb

Government is showering money on informal sector businesses to tide them over the Covid-19 crisis, but many township entrepreneurs seem less than enthusiastic about the offer.

To qualify for the relief offered by the Department of Small Business Development, they will have to obtain a licence to operate from the local municipality.

They will also need to register with an alphabet soup of regulatory agencies – including the Companies and Intellectual Properties Commission (CIPC), the South African Revenue Service (Sars) and the Unemployment Insurance Fund (UIF).

And they will need a bank account – a red flag to many micro enterprises that deal only in cash.

A survey by the Small Enterprise Foundation (SEF), which has 216 000 informal sector entrepreneurs on its loan books, found only 12% had bothered applying for business permits. SEF founder John de Wit says this means even fewer will likely have applied for loans.

“In our discussions with informal sector entrepreneurs, we are finding that very few of them are willing to go through the process of moving from the informal to the formal sector, mainly because they don’t want to be hounded by the taxman going forward.

“They’re quite happy flying under the radar and not having to comply with all sorts of regulations and having to pay tax,” he says.


“We find it incredibly impractical and irresponsible to be offering assistance at this time to informal sector businesses on the condition that they formalise themselves, and it makes us wonder what is the purpose of these programmes – to genuinely assist businesses or to rope them into the formal sector,” says De Wit.

The Department of Small Business Development has launched a number of initiatives to assist small businesses, including the SMME Debt Relief Scheme, a Spazashop Support Scheme and more recently, a scheme to support township and village businesses.

The department’s website says the SMME Debt Relief Scheme closed recently, with R513 million approved for funding and nearly 13 000 applications received, of which 4 840 are currently being processed. A further 21 200 applications were incomplete, resulting in delays.

‘Underwhelming’ response to state relief

The response appears to be underwhelming says De Wit, based on a sampling of businesses in the SEF network. More than half of informal sector entrepreneurs had returned to work in the last two weeks, and the figure will likely jump to 100% in June, he says.

“The policing of the lockdown has been a mess, with some police trying a blind-eye to workers trying to eke out a living, and others preventing people from doing so,” he adds.

“These are desperate times and you cannot stop people from trying to put food on the table. Law enforcement officers and government officials need to understand this.”

Excellent informal sector data resource

SEF is a non-profit organisation that has lent more than R10 billion to some 650 000 entrepreneurs over the last two decades, and keeps excellent data on the health of the informal sector.

Its bad debt ratio is an astonishingly low 0.22% over the history of the organisation, far superior to anything achieved by the commercial banking sector.

It is able to keep bad debts to a minimum by ongoing contact and mentoring of informal sector businesses, and by arranging borrowers into cells of five or six, all of whom are expected to vouch for each other and stand good for each other’s loans if one members of the cell defaults.

SEF granted a repayment holiday in May for those unable to work and meet their repayment obligations, but still about 60% paid their dues.

Listen to Nompu Siziba’s 2019 interview with SEF co-founder and MD John de Wit:

Sector accounts for around one in six of all jobs

According to a study published by HSRC Press, ‘The South African Informal Sector: Creating Jobs, Reducing Poverty’, the informal sector provides employment and income for 2.5 million people, or about one in six of all jobs in the country, and contributes an estimated 6% of national GDP.

The figures are likely outdated, particularly since the onset of the Covid-19 crisis, but the study paints a picture of a sector that is regarded with hostility by lawmakers keen to control everything that moves.

Crucially, the informal sector is the last refuge for those unable to find entry to formal sector employment and is also a vital backstop for workers in the formal sector who have lost their jobs.

There is a hierarchy within the informal sector: lower tier firms are more survivalist in nature while upper tier firms are more growth oriented and enjoy higher earnings, according to authors Nwabisa Makaluza and Rulof Burger.

While rudimentary entry-level firms predominate, growth-oriented firms accounting for roughly a quarter of the total.



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As the owner of a formerly 100% tax compliant small business, and after the shocking treatment meted out to taxpayers of the same hue as me by the regime, I have now joined the ranks of informal traders. Cash and Bitcoin only from now on. If I am of the wrong hue to receive state aid, I am also unfortunately of the wrong hue to pay taxes.

Agree with you. It is a sad day when in this supposedly modern age we have to go to tin under the bed banking.

My tourism aid request was neither acknowledged or paid. Wrong hue.

this move of Gov is about as dirty as Lotto. The dirty digit of the ANC taxing the untaxed who can least afford to give money to a thieving regime who walks all over them.

Silly thing is they will vote them in again and again and again.

With you Incitatus, no point in being tax complicit with this government, its a one way road, give, give give ……. nothing back. Still waiting for my Feb, March and April VAT refunds !!!!

SO Ironic… but in so many ways – so valid!!

The outcome of the covid hype predicted, the economy will be in- formalized to a larger degree, and tax revenue will decline, exchange rate will slide, we will become the country known as “”Africa largest industrialized governed to spaza economy”” VIVA””..

The added side detriment is the more traders deal in cash, they can live of smaller margins ( less overheads) which in turn over time erode the bigger concerns market share, resulting in more companies going informal.

To paraphrase what Chris Griffits said a while ago, to have 1 % growth in the economy are a travesty, this country have so much potential..
But if we want BBE, EWC, Racism meted to resources, we must accept the outcome and prepare accordingly.

So here’s the thing. Just like Malema is advocating to defy the return to work he is wanting the ‘White economy to collapse’, people do not realise that there is a single economy and colorblind money.

The money does not know in whose hands it sits, and the international investors don’t see who owns the companies. They see high risk or low risk.

So collapsing the economy, like keeping informality, is just adding to the risk and complicating the futures for every South African, no matter what race.

The real evil is in:
-The ANC keeping race as a defining point;
-Keeping any sort of informality;
-Not resolving the non-payment for rates and utilities;
-Not resolving the theft of utilities;
-ANC corruption;
-The Patronage system;
-The electoral system where you do not get to vote for a person.

You left off Julius. In two months all he has done is nothing. No contribution at all except call for church boycotts.

The sum total of the EFF’s contribution is zero.

Same goes for Cyril R … Contribution to resolve corruption … Zilch. delays… delays…. and more delays. Zondo is getting rich by the day for doing squat.

What do we expect from SA government!
They can’t control SASSA, there are people across the boarders who come every month end for their SASSA payment, buy groceries then go back home. Come visit SA clinics free of charge, get medication then go back home. Was told by one nursing sister in the Eastrand that most maternity beds where she works are occupied by non South Africans.
Most spazzas are not SA owned, some have been proven to be owned by a cartel of foreigners.
People on SABC have complained even via SARS about Chinese malls and mostly only cash allowed way of payment. They asked for investigation if tax, correct tax is paid, nothing serious except for pretence was/ is done about this.

SA is going down quicker than a quick sand. We will wake up one day being out of top 5, 10 Africa economy sport !

End of comments.




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