Data vital to access finance

Isaac Moledi

Isaac Moledi

The National Credit Regulator says it has built a solid foundation to improve information sharing to enhance access to finance by small, medium and micro enterprises in South Africa.

The regulator (NCR), was responding to the report of a research it commissioned which found that effective information sharing was crucial in ensuring access to finance for SMMEs.

The study, titled Information Sharing and SMME Financing in South Africa, found that acceptance rates for granting loans significantly improve when financiers have access to suitable information about the payment behaviour of small businesses.

Though one of the biggest obstacles faced by SMMEs is access to finance, the report found that financiers have little knowledge about their payment behaviour and are thus reluctant to provide finance. According to the report, the assumption by many financiers is that insufficient information equals high credit risk.

It added: "Financiers feel more comfortable if they can see that an SMME has a good payment record with other providers of goods and services."

Gabriel Davel, chief executive of the NCR, said the report confirmed the regulator's long-standing position that improvement on information sharing will enhance access to finance.

"The National Credit Act has built a solid foundation for this to happen," said Davel, adding that "the establishment of a National Register of Credit Agreements will further improve the quantity and quality of information."

The report, put together by the Centre for Competitive Credit at the Political & Economic Research Council, found that the National Credit Register will be an ideal tool to promote information sharing of SMME data if it incorporates key functionalities that have shown to improve access to credit.

In countries where a register of collaterals was introduced in credit application reviews, higher acceptance rates resulted.

The report also found that by World Bank standards, South Africa has a remarkable level of SMME activity compared with similar economies.

A survey conducted in 1997 showed 22 small businesses per 1000 people. In a decade that figure now stands at 58.

According to the report, information solutions can help bridge the divide between the formal and informal economies by putting much needed data in the hands of credit providers.

In South Africa, a way to overcome this information barrier is by sharing key data via the proposed National Credit Register, said Davel.