ARTICLES

 

Debt financing the capital requirements of South African informal market traders

 

 

Derek Schraader; Louise Whittaker; Ian McKay

Wits Business School, University of the Witwatersrand

 

 

---

ABSTRACT

This paper describes a case study that was undertaken to determine whether formal sector personal debt financing might contribute to the funding of South African informal market traders. The case study was conducted at the Natalspruit informal market in Ekhurhuleni, Gauteng. Quantitative questionnaire surveys and a financial diaries project established that market traders in the market have capital requirements large enough to justify the use of formal sector debt financing, can generate sufficient operating profits to pay for formal sector debt financing and would be willing to utilise formal sector debt financing if given the opportunity. However, formal sector debt financing is most relevant to those informal market traders with the skills and motivation to utilise financing effectively and who are willing to inject more formality into their businesses.

Keywords: informal markets, informal trading, micro enterprise finance

JEL: O17

---

 

 

“Full text available only in PDF format”

 

 

References

AFRICAN RESPONSE. 2006. FinScope small business survey report Gauteng 2006, for Gauteng Enterprise Propeller and FinMark Trust, Johannesburg.         [ Links ]

BAY RESEARCH AND CONSULTANCY SERVICES. 2005. The pro-poor microfinance sector in South Africa, for FinMark Trust, Cape Town.         [ Links ]

CICHELLO, P. 2005. Hindrances to self-employment activity: evidence from the 2000 Khayelitsha/Mitchell's Plain survey, Cape Town: Centre for Social Science Research University of Cape Town.         [ Links ]

DEPARTMENT OF HOME AFFAIRS. 2006. Directorate: ID documents, last accessed 5 June, 2007, from http://www.home-affairs.gov.za.         [ Links ]

DEPARTMENT OF TRADE AND INDUSTRY. 2004. Annual review of small business in South Africa -2004, Department of Trade and Industry, Pretoria.         [ Links ]

GITMAN, L. 2000. Principles of managerial finance (9^th ed.) Reading: Addison Wesley Publishing Company.         [ Links ]

GLACKIN, C. 2002. What does it take to borrow? a framework for analysis, Journal of Microfinance, 4(1): 115-135.         [ Links ]

HUNTER, N. AND SKINNER, C. 2003. Foreign street traders working in inner city Durban: local government policy challenges, Urban Forum, 14(4): 301-319.         [ Links ]

INTERNATIONAL LABOUR ORGANISATION. 2003. International Labour Organisation booklet on street traders, International Labour Organisation, Geneva.         [ Links ]

KAUFFMANN, C. 2006. Financing small and medium enterprises in Africa, African Technology Development Forum Journal, 3(2): 3-6.         [ Links ]

KINGDON, G. & KNIGHT, J. 2005. Unemployment in South Africa, 1995-2003: causes, problems and policies, Johannesburg: National Institute for Economic Policy in South Africa.         [ Links ]

LALTHAPERSAD-PILLAY, P. 2004. A socioeconomic analysis of African female street traders in the Johannesburg Cbd, South African Journal of Economic and Management Sciences, 7(1): 22-44.         [ Links ]

LIGTHELM, A. 2005. Informal markets in Tshwane: entrepreneurial incubators or survivalist reservoirs, Pretoria: Bureau of Market Research University of South Africa.         [ Links ]

LIGTHELM, A. 2006. An evaluation of the role and potential of the informal economy for employment creation in South Africa, South African Journal of Labour Relations, 30(1): 30-50.         [ Links ]

LIGTHELM, A. & VAN WYK, A. 2004. Informal trading in Tshwane: regulatory, spatial and economic framework, Bureau of Market Research University of South Africa, Pretoria.         [ Links ]

MICRO FINANCE REGULATORY COUNCIL. 2006. Different types of lenders, last accessed 21 November, 2006, from www.mfrc.co.za.         [ Links ]

REPUBLIC OF SOUTH AFRICA. 2005. National Credit Act No.34 of 2005, Government Gazette number 28619, Pretoria: Government Printer.         [ Links ]

SA TREASURY. 2003. Financial sector charter, 17 October, last accessed 10 November 2009. http://www.treasury.gov.za/comm_media/press/2003/2003101701.pdf.         [ Links ]

SCHOOMBEE, A. 1998. Commercial banking services for micro-entrepreneurs in South Africa, South African Journal of Economics, 66(3): 338-362.         [ Links ]

SCHOOMBEE, A. 1999. Linkage banking for micro-enterprises in South Africa, South African Journal of Economics, 67(3): 419-455.         [ Links ]

SCHOOMBEE, A. 2004. South African banks and the underbanked: progress and prospects, South African Journal of Economics, 72(3): 581-603.         [ Links ]

SCHREINER, M. 2001. Seven aspects of loan size, Journal of Microfinance, 3(2): 27-47.         [ Links ]

SKINNER, C. 2005. Constraints to growth and employment in Durban: evidence from the informal economy, Durban: School of Development Studies University of KwaZulu-Natal.         [ Links ]

STASCHEN, S. 1999. Regulation and supervision of microfinance institutions in South Africa, Eschborn: Deutsche Gesellschaft für Technische Zusammenarbeit.         [ Links ]

STATISTICS SOUTH AFRICA. 2008. Labour force survey, last accessed 04 November 2009, from http://www.statssa.gov.za/publications/P02111/P021112008.pdf.         [ Links ]

STATISTICS SOUTH AFRICA. 2009. Key indicators, last accessed 04 November 2009, from http://www.statssa.gov.za/keyindicators/keyindicators.asp.         [ Links ]

UKUKHULA BUSINESS SOLUTIONS. 2002. Draft informal beach trading policy and management framework, City of Cape Town.         [ Links ]

WITS BUSINESS SCHOOL AND PROGRESSUS SOCIAL RESEARCH. 2006. Survey of Natalspruit informal market traders, 27 June-1 July, Johannesburg.         [ Links ]

 

 

Accepted November 2009

 

Endnotes

1 According to the official definition of unemployment
2 The authors gratefully acknowledge the support of the Ekhuruleni Metropolitan Council for this research.
3 The term 'hawker' closely corresponded with the definition of the informal market
4 According to this survey informal/street/market/ stall traders generated an average annual turnover of R18 620 (which equates to an average monthly turnover of R1 552). Using a net profit margin of 25 per cent, this category of small business was generating an average monthly net profit of R388.
5 The MFRC was the forerunner to the NCR (and is still the custodian for much of the data.
6 A South African ID document can also be issued to a person to whom permanent residence has been granted, a person who has been exempt in terms of the Aliens Control Act, 1991, or to a refugee.