One of the township economy’s most crippling challenges is the lack of access to easily obtainable finance that is available at short notice.
It is generally accepted that financial institutions will do proper due diligence investigations before giving their clients funds for their business venture. After all, banks are businesses. Most of the businesses in the township economy cannot access these funds because of their informal nature. Yes, businesses that can formalise their operations to the level and standards of a business in the formal, mainstream economy must be encouraged – and helped – to do so, but it must also be acknowledged that a spaza shop owner will not have the cash flow to afford an auditor or an bookkeeper.
There is a gap in the township economy market for financiers that are willing to make finance available to businesses that fall into the cracks of the formal economy. This is finance that is easily available and of short-term duration, ensuring that small-business owners are not burdened with monthly repayments over many years.
Enter Quattro Trading, whose owner, Riaan Malan, has decided to offer such to liquor traders in the townships. But why only liquor traders? “Liquor is a very fast product and is very suitable for finance such as this,” explains Malan.
Quattro Trading offers finance to township liquor traders over a four-day period. Traders can use the finance to buy stock on a Thursday and pay back the money the following Monday, after selling all or most of the stock. The product is designed in such a way that, even though no onerous financial background checks are conducted to confirm the ability of those borrowing the funds to pay them back, other checks are done. For instance, the provider of the finance checks the footfall of the place physically, how much own stock the trader has on the premises and how busy the trader is over weekends, as indicated by the turnover.
The trader is then started off on a basic amount of about R3 000, which has to be paid back after four days. Based on the trader’s ability to pay back this money over four days, the finance amount is increased over the months, and can increase to as much as R20 000 in a period of six months. Quattro Trading lends this money to entrepreneurs at very reasonable interest. It charges interest because, after all, it is a business, not a charity.
The benefits of the finance made available to liquor traders are immense. Traders who were tied down by the logistics of having to restock their fridges every single day can now make one huge purchase on a Thursday and then sit back to run their business over the busy weekend period. They can now afford to increase the variety of their offering or even do promotions, whereas in the past they could not afford to do so. Malan also periodically visits the outlets to offer advice on improvements that each trader can make, all geared towards growing the trader’s business.
The Department of Small Development should be considering efforts like these to spread coverage of such offers to small businesses in order to boost entrepreneurship. These kinds of loans are not very risky and it is in the interests of the trader to repay the loan in order to continue to grow the business. It is a model that was tried by Standard Bank a few years ago, when it launched its Access mobile offering, but has now been abandoned (I suspect because the loan repayment period was 12 months, as opposed to a month or less).
The Grameen bank, in Afghanistan, revolutionised small-scale farming through a similar product. South Africa’s township economy is a ripe market for a similar initiative, which should not be limited to one segment of trade, but should encompass as wide a range of township businesses as possible. There are plenty of entrepreneurs in the township economy who, if given a week’s loan, could start their own business and employ a lot of other people, lessening the burden on government.