Policy, Regulation and Supervision
There is currently no specific microfinance policy in South Africa. We are engaging with Government to develop an appropriate policy that will address the real needs of the informal and micro enterprises. We believe that such a policy should recognize that informal and microenterprises have unique operational circumstances, and consequently challenges. These are separate and different from those of the small and medium business sector. We believe our Government can learn from other African countries that have specialized microfinance laws. It can then use these learnings to develop South Africa specific microfinance regulations that would create an enabling environment for the informal and micro enterprises.
The DMA is funded by the fees of our members. Our DMFI members, on the other hand, are funded by grants from donors and on-lending capital loans from DFIs and Social Impact Investors. The primary local providers of on-lending capital are:
We are engaging with Government to develop an appropriate policy that will address the real needs of the informal and micro enterprises.
We promote and advocate for development microfinance in South Africa. Our goal is to influence government to create an enabling developmental microfinance environment as well as stronger financial inclusion in South Africa. We invest in developing influential relationships with various stakeholders to keep them informed of the contribution made by DMFIs in addressing poverty through microfinance and promoting the financial inclusion of marginalized rural and township women and youth.
We lobby government at various levels to influence it to recognize the informal and microenterprise sector as having separate and unique characteristics from those of the small and medium enterprise sector. We maintain that the informal and microenterprise sector requires a specialized set of solutions not necessarily similar to those of the Medium and Small Business sectors.
Some of the recent advocacy work we have done includes:
- Writing a position paper on financial inclusion, “Development Microfinance Association Financial Inclusion Policy Position Paper 2019”; [June 2019]
- Making a presentation to the Parliamentary Portfolio Committee on Small Business; Developing a position paper on Cost of Credit, in response to a question by the Parliamentary Portfolio Committee on Small Business on how much we charge our clients for our loans. [April 2021]
- Commenting on, and responding to, the National Treasury Policy Paper on Financial Inclusion 2020. [February 2021]
- Working closely with the Ecosystem Development for Small Enterprise (EDSE) and providing comments on “The role of development microfinance sector in addressing challenges of access to finance in the Republic of South Africa” research. [February 2021]
If you would like a copy of any of the documents referred to above, please let us know via our email.
Capacity Building and Technical Assistance
We build productive partnerships with individuals and institutions that add value to the capacity of our member DMFIs to efficiently and effectively serve the poor in South Africa. Among such institutions are the Banking Sector Education and Training Authority (BANKSETA), Finmark Trust, and the Eco-system Development for Small Enterprise (EDSE). We believe capacity building should include:
Human Resource Development, (equipping individuals with the understanding, skills and access to information, knowledge and training that enables them to perform effectively); Organizational Development; (the elaboration of management structures, processes and procedures, not only within the organization but also between different organizations and sectors (public, private and community); Institutional development at all levels
We encourage networking among our members so they can learn from each other and share experiences that lead to growth and sustainability. We also encourage networking because we recognize that most of the microfinance environmental challenges can only be addressed through collective effort and research.
Key Project Initiatives
We are currently pursuing three projects that we believe will propel the development microfinance sector business forward. We are engaging National Treasury to consider these project initiatives as key to effective financial inclusion of the rural poor. We also believe that National Treasury can participate in the funding of some of these projects as well as provide the leverage we need to get our projects funded by international donors, especially those that work closely with the South African government to build an enabling microfinance environment.
Mobile Banking Project
We are working on participating in a mobile banking pilot project that is intended to address the challenge of the high cost of utilizing the current banking infrastructure in moving money into and out of the clients’ hands. The pilot project will digitize our DMFIs’ cash-based operations and consequently ease the current cost burden on both the DMFIs and their clients, make the movement of money between the DMFIs and clients more efficient and minimize, if not eliminate, the need for widespread use of cash. We believe the pilot will also improve operational efficiencies, enable the introduction of currently unattainable essential services by the poor, and support the collection of essential customer behaviour data that will lead to the introduction of customer-centric products.
De-risking DMFIs’ loans
DMFIs in South Africa have not successfully managed an individual liability lending model despite the existence of a huge market of Tier 2 microenterprises. Research by reputable Institutions like The Finmark Trust attributed this failure, in part, to the lack of a supportive environment for the taking of non-traditional collateral. We are, therefore, cooperating with some of our partners to lobby government to introduce new regulations to support appropriate collateral options for microenterprise lending using the individual liability model.
We note that under the current B-BBEE environment, only a small proportion of the B-BBEE spend of corporates is going towards developing the microenterprise sector, despite microenterprises making up more than 70% of the total MSME sector. As the DMA, we are working on lobbying government to amend the B-BBEE legislation to incentivise a higher level of support for microenterprises, channelled through development microfinance institutions.
Research and Resources
We bring to the attention of our members research and publications that are pertinent to the sector;
We also share our operational experiences in microfinance with researchers locally and internationally as a contribution to learnings and development of the sector.
The Centre for Financial Regulation and Inclusion (Cenfri), a non-profit think tank based in Cape Town and operating in collaboration with universities in the region;
Finmark Trust, an independent trust whose purpose is “Making financial markets work for the poor, by promoting financial inclusion and regional financial integration”;
Small Enterprise Development Agency (SEFA), owned by South Africa’s Industrial Development Corporation (IDC), with a vision to be the leading catalyst for the development of sustainable Survivalist, Micro, Small and Medium enterprises;
Microcredit Summit Campaign, a global organisation bringing together microcredit practitioners, advocates, educational institutions, donor agencies, international financial institutions, NGOs and others to promote best practices and share knowledge;
What is Microcredit?, a statement by Grameen Bank, a founder of microcredit to assist the poor;
The Grameen Foundation, a US-based foundation inspired by the Grameen credit movement;
Poverty Probability Index, an initiative and emerging global standard of the Grameen Foundation, designed to assist MFIs and their funders;
CGAP – The Consultative Group to Assist the Poor, a World Bank-managed office focused on microfinance;
Microfinance Gateway, a comprehensive resource for practitioners, funded by CGAP;
The Mix, an organisation providing data, analysis, research and business information about microfinance institutions worldwide