ABSTRACT
Most small and medium enterprise (SME) owners and poor people, especially those living in the rural areas of South Africa, struggle to secure formal credit due to a lack of collateral security, income seasonality and a lack of borrower credit history. As a result, most SME owners and the poor in South Africa resort to unregulated and informal means of accessing credit, which include private money lenders – also known as loan sharks because of their predatory interest rates. Other informal sources of micro-credit are stokvels, family members and friends. However, these informal financial services are unsustainable and inadequate to address the needs of SMEs and the poor in South Africa because of the concomitant high interest rates and limited funds available. The possibility of complete financial exclusion of those who live in rural areas is very high considering that they are usually unemployed, very poor and unbanked. Most studies on financial inclusion in South Africa have been restricted to “cash” forms of micro-credit and unconsciously neglected the role of asset-based funding in promoting financial inclusion. In South Africa, the provision of trade finance has been largely left to the private sector. Banks and other private institutions remain key players in the financial inclusion of SMEs in South Africa through the provision of micro-credit. The authors of this chapter argue that trade finance could be an alternative means of micro-credit to promote the financial inclusion of the poor and SME owners in South Africa.
