A group of seamstresses from Johannesburg’s townships have landed a ‘life changing’ order of maternity bags from private hospital operator, Life Healthcare, thanks to an innovative collaborative funding approach that could ignite the South African small business sector.
The SME businesses, working from the Textile Manufacturing Facilities within the Gauteng region, are currently finalising the order of 32,000 bags, thanks to a zero-cost facility of R600,000 from alternative SME funder, ProfitShare Partners.
This access to finance allowed the group to procure the materials needed to fulfil the order and is fully repayable on completion of the contract. The partnership with YES and Life Healthcare ‘de-risked’ the ProfitShare Partners investment while giving the SMEs access to the market in the form of a guaranteed order.
YES is a joint national initiative between business, government and labour that aims to address the youth unemployment crisis in South Africa by providing 12-month work experiences to unemployed youth. Since being founded 113 weeks ago, YES has worked with 1,358 South African companies to create more than 50,000 work experiences. This has seen R2.8 billion being ploughed into communities and the economy through youth wallets.
Dr Tashmia Ismail, the CE of YES, said innovative financing models are critical to the ability of many SMEs to build their businesses and thrive. A strong SME sector is key to building the local supply chains that will help reset the country’s economy.
“Unfortunately, success stories like the maternity bag order are currently the exception to the rule. Current financing models are not developmental: they’re inaccessible to most potential entrepreneurs, come with high interest rates which trap SMEs in debt, or demand guarantees they don’t have. Innovative finance models not only derisk lenders’ investments, but provide access to markets for SMEs,” said Dr Ismail.
ProfitShare Partners helps small businesses that cannot access traditional funding options by providing financing to SMEs that have a contract with a reputable company or government department. The funding allows them to deliver on that contract, and repay the facility, thereby creating a credit record in the process.
“We were built to help clients exactly such as this. Our model doesn’t need financials, security or even a track record: it just needs an SME which has a contract with a credible company. We help clients build up their own track records, profitability and sustainability to ultimately be attractive enough to attract funding from a traditional bank,” said Andrew Maren of ProfitShare Partners.“We’re building up the pool of SMEs that were previously excluded for capital by the banking sector and turning them into clients the banks want to lend to. This we believe is one of the true pillars of inclusive growth.”
YES’ Dr Ismail believes the key to creating jobs and reviving township economies in a post-Covid world lies in creating direct links between community businesses and large enterprises. This will provide skills training and job opportunities to unemployed youth and build the capability of local SMEs to join bigger supply chains.
“If we’re going to drive entrepreneurship and job creation in local communities as part of a reset of South Africa’s economy, we need a couple of things to happen. One, we need big businesses like Life Healthcare to shift elements of their supply chains into local communities; and two, we need affordable, accessible financing options that can reignite South Africa’s small business sector,” said Dr Ismail.
“We cannot overstate the importance of building a local supply chain. It not only lowers risk for companies that previously relied on global supply chains, but builds local jobs and incomes, and ultimately creates future customers for South African companies. At the same time, none of this will be possible without access to funding: the SME Textile businesses would simply not have been able to service the order without working capital.”