South Africa’s $21.5 billion SME funding gap is really a data problem

South Africa's SME sector is grappling with a significant financing gap estimated at R350 billion ($21.5 billion). However, the number of small business funders has doubled, from 148 in 2018 to over 300 in 2025. The Organisation for Economic Co-operation and Development (OECD) suggests that this contradiction points to a deeper issue that cannot be solved merely by increasing the amount of money available in the market.

Edna Sathekga-Montse, Group Chief Transformation and Sustainability Officer at African Bank, a South African lender focusing on financial inclusion, believes that the problem lies in the lack of detailed data about the businesses seeking assistance. She explains, "When we understand them better, it allows us to assess their affordability and assess their credit status a lot better and a lot differently." The issue is that many small businesses are difficult to read through existing data systems banks use to assess risk.

Only 7% of MSMEs use formal financial-services providers to start their business, and 56% remain unregistered. This gap is particularly concerning given that the sector employs about 80% of the country's workforce. Many of these businesses use digital financial services, yet only 50% have internet access, 49% have a social-media presence, and 32% have a website. Consequently, lenders struggle to verify and analyze these signals to determine a stronger credit profile.

African Bank is responding to this challenge by moving beyond traditional loan assessment methods. Sathekga-Montse notes, "Without the data that we require, we are unable to, as organisations, understand whether or not any type of risk falls within our risk appetite." The bank is working to understand entrepreneurs and their businesses more deeply while providing services that help them become more structured. These services include payroll, tax, and human-resources assistance.

The bank also aims to link enterprise and supply development efforts more closely with commercial deals, helping entrepreneurs strengthen their businesses. The SA MSME Access to Finance Report 2025 reveals that 85.6% of finance applicants have annual turnover below R1 million ($61,538), forming more than 80% of jobs created by MSMEs and over 85% of funding demand. However, these micro-enterprises remain among the least served by lenders.

To address this, African Bank is exploring alternative sources of business data, such as invoices, purchase orders, and digital payments. These signals can provide lenders with a broader view of a business than a traditional credit score alone. While technology and banking products can help, Sathekga-Montse emphasizes that development finance institutions are also crucial. She believes that large companies must pay smaller suppliers on time to prevent putting undue pressure on SMEs' cash flow and working capital.

In summary, South Africa's SME financing gap is not solely a matter of providing more money. It is a data problem that requires a more comprehensive understanding of the businesses and their potential. By leveraging technology and partnering with development finance institutions, African Bank and other stakeholders aim to unlock the true potential of the SME sector.