WATCH: Standard Bank, Merchant Capital launch product to address SME funding gap
CAPE TOWN – Standard Bank and Merchant Capital have teamed up to launch a Shari’ah funding solution that aims to both address the significant small business funding gap in South Africa while offering a new source of working capital for entrepreneurs.
Shari’ah is an Islamic religious law that governs not only religious rituals but also aspects of day-to-day life in Islam, and this funding solution is meant for entrepreneurs in the retail sector who want to consume Shari’ah compliant products and services.
A first of its kind in Southern Africa, the Merchant Capital Advance certified as Shari’ah compliant by Standard Bank Shari’ah Banking, allows small and medium-sized enterprises (SMEs) with a point-of-sale device and R30 000 in monthly card sales, to access funding in less than 48 hours of application, with a flexible repayment mechanism based on monthly turnover, according to a joint statement released by the lenders on Tuesday.
The product went live on February 1.
Ryan Cohen, the co-founder and chief relationship officer at Merchant Capital, said Muslim-owned businesses were a material contributor to the South African economy, contributing about 10 percent of South Africa’s gross domestic product (GDP).
“If you look at the marketplace today, there’s an extremely limited universe of Shari’ah-compliant products, particularly in the field of working capital solutions. This new product directly addresses the challenges and lack of options facing business owners when it comes to traditional funding channels,” said Cohen.
Mohammed Ameen Hassen, the head of Shari’ah banking at Standard Bank, said Shari’ah-compliant working capital solutions were traditionally filled with administrative friction for the customer, and could only accommodate certain components of a business’s working capital requirement.
“This product has the potential to transform the lives of entrepreneurs seeking Shari’ah compliant funding solutions in South Africa. Until now, Shari’ah working capital solutions were either non-existent or an administrative nightmare, which meant many businesses would simply go without funding, limiting their growth in the process. This new product is all about simplicity and ease, and will make a real difference to SMEs,” Hassen said.
He added that the new product will act as a catalyst for growth in businesses based in South Africa that have been demanding innovative Shari’ah compliant solutions. “It is our aim at Standard Bank to provide entrepreneurs with the tools to grow their businesses with the hope that they will become drivers of the economy and continent as a whole.”
SMEs have been put forward as an important contributor towards economic growth, job creation and redress but face many headwinds in South Africa that have hampered their development. Access to finance has been a key barrier.
The majority of South African small businesses generate revenue of less than R200 000 annually and nearly half of SMEs employ between two to five employees, according to the SME Landscape Report An Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks & Next Steps’ 2018/2019.
The report, launched by SME South Africa, found that 47 percent of SMEs employ between two to five people, while 39 percent of SME owners are the only employee. Only 1 percent of SMEs owners have 21-50 employees.
SMEs are a critical part of the national economy with the government’s National Development Plan 2030 looking to small businesses to be major sources of employment and drivers of economic growth.