The funding gap for women-owned and informal enterprises in South Africa is a problem of fit before supply

Introduction

Small enterprises in South Africa are routinely described as starved of finance, and the usual answer is to put more money in front of them. Cheaper loans, guarantee schemes, a dedicated fund for women. The evidence points somewhere messier. In one survey of informal traders in three provinces, only 9.5 per cent of those who named a source of start-up capital had used a loan, while half had started with their own savings (Simatele and Kabange, 2022). That kind of pattern looks less like a shortage of credit and more like a mismatch between what lenders ask for and how these businesses actually operate, which is at least consistent with what reviews of African small business finance describe (Mpofu and Sibindi, 2022; Fatoki, 2021).

This paper argues that the funding gap facing women-owned and informal enterprises is a problem of fit before it is a problem of supply. Supply matters, and the banking sector is more concentrated than it should be. But concentration sits alongside stacked disadvantages that fall hardest on women, a regulatory stance that pushes borrowers toward expensive informal lenders, and owners whose financial habits and ambitions are not always what policy assumes. The paper looks at bank supply first, then at women and the stacking of disadvantage, then at informal finance and how it is regulated, and then at co-operatives as a collective alternative. It ends with the demand side and what a better fit might look like. Much of the evidence comes from small qualitative studies, which is worth keeping in mind (Tshaka et al., 2025), and some of it rests on secondary documents (Vorster and Thaba, 2025).

Who supplies credit, and on what terms

The formal supply of credit in South Africa runs through very few hands. Five large banks held roughly 90 per cent of industry assets in each of 2019, 2020 and 2021, and the number of registered banks fell from 41 in 2001 to 18 in 2021 (Ngonisa et al., 2023). Using World Bank Enterprise Survey data together with the Boone index of competition, the authors find that higher concentration makes it harder for small, micro and medium enterprises to obtain finance, and that the relationship is non-linear. That supports the market power view, where weak competition rather than poor information is what holds small firms back. It is a useful finding, but it treats SMMEs as one block. The authors themselves flag owner gender as something for later work, so we cannot tell from this study whether women or informal traders fare worse (Ngonisa et al., 2023).

What banks say about their own reluctance is fairly consistent. A review of African evidence lists information asymmetry, missing collateral, high lending costs and perceived default risk as the usual reasons small firms are turned away, with weak financial literacy and the lack of credit bureaus making things worse (Mpofu and Sibindi, 2022). Notice that this describes lenders who cannot see their borrowers, which is a different complaint from lenders who face too little competition. Both can be true at once. Fatoki (2021) adds a third element from the borrower side. In a survey of South African small firms, financial literacy moderated the link between access to finance and business performance, suggesting that money helps firms more when owners know what to do with it. So the first layer of the problem is not simply a lack of loans. It is a market where few lenders compete, where those lenders struggle to read informal businesses, and where some owners are not yet in a position to use credit well (Ngonisa et al., 2023; Fatoki, 2021).

Women and the stacking of disadvantage

Gender rarely works alone. Simatele and Kabange (2022) surveyed informal traders in 2019, and 63 per cent of their respondents were women and about 93 per cent were Black African. Their multinomial model shows that gender, race, age and education interact in the choice of start-up capital. A woman with fewer than six years of schooling had roughly a 26 per cent chance of relying on family and friends, against 11 per cent for a woman with a degree. For a Black entrepreneur with six years of schooling the chance of using a bank loan was about 18 per cent, rising to nearly 37 per cent with a degree. Education, in other words, seemed to soften the other disadvantages. The caveats are real, though. Of 600 traders, 241 did not report a capital source, the model explains a modest share of variation, and the authors had no data on how much capital people actually needed (Simatele and Kabange, 2022).

Rural women show the same pattern with more institutional detail. Vorster and Thaba (2025) reviewed 36 documents, selected from 613 identified, on funding for female entrepreneurs in rural South Africa. Discrimination and systemic financial exclusion came up in about 65 per cent of them, and collateral demands, low financial literacy and thin infrastructure kept recurring. The most positive material concerned NGO interventions, where non-collateral lending was bundled with capacity building. That is a hint, not a proof, since the review rests on secondary documents that may favour institutional voices over those of rural women themselves. Even so, it lines up with Simatele and Kabange (2022), who conclude that direct finance programmes for women have had limited success alone and that confidence-building and education probably have to travel with the money.

There is also a question about whether finance is the binding constraint for everyone. Shava and Chinyamurindi (2022) interviewed 45 women subsistence entrepreneurs in the informal sector and found three narratives that held back growth: a sense of personal contentment, the absence of any expansion strategy given the women’s circumstances, and pressures from the home front. None of these is about the interest rate. That does not mean credit is irrelevant, and the sample was purposive, so we should not stretch it too far. What it implies is that a programme treating every woman-owned stall as an under-financed growth firm may be misreading some of its clients. Care duties and household circumstances shape what a loan could even be used for, and the same circumstances help explain the self-exclusion that Simatele and Kabange (2022) report. Vorster and Thaba (2025) similarly point to socio-cultural barriers alongside the financial ones.

Informal finance as the default and the regulation problem

If formal credit fits badly, people use something else. In the traders’ survey, own savings supplied 50.4 per cent of start-up capital, family and friends 28.4 per cent and welfare or pension income 11.7 per cent (Simatele and Kabange, 2022). That welfare figure is worth pausing on, because it suggests that a part of South Africa’s informal enterprise is, basically, being seeded by grants and pensions. The wider literature says informal finance is used either when formal credit is unavailable or because borrowers prefer it. It is quicker, asks for fewer documents and rests on trust, which the review calls social collateral. The price is high interest, weak bargaining power and limited capital, so it cannot fund larger or longer-term growth (Mpofu and Sibindi, 2022). Whether formalising a business actually improves its access to credit is left open by the review, which calls for more research on the question (Mpofu and Sibindi, 2022).

How the state treats these lenders matters more than it first appears. Tshaka et al. (2025) ran 89 interviews in the Eastern Cape and in Lusaka, comparing South Africa’s restrictive regime with Zambia’s enabling one. South African stokvels often hold bank accounts and sometimes fix deposits for six or twelve months, so savings groups are already tied to banks. Private moneylending, which the authors describe as criminalised, looks very different. The four moneylenders interviewed in the Eastern Cape were all unregistered and charged roughly 30 to 50 per cent a month, and some held borrowers’ ID or bank cards as security. In Lusaka the moneylenders advertised openly, used written contracts and reported lower rates of about 18 to 40 per cent. The authors suggest that suppressing moneylenders may have encouraged credit-focused stokvels that also charge high interest (Tshaka et al., 2025).

There is a second reason to care about the link between stokvels and banks. A bank that cannot see an informal borrower is, in the terms of the review, facing an information problem (Mpofu and Sibindi, 2022). Yet a stokvel that holds an account and sometimes fixes deposits for six or twelve months is leaving a paper trail of the very sort a lender could in principle read. Whether banks actually use that trail is not something these sources test, so it stays a possibility and nothing firmer. What the interviews do show is that the groups are already tied to the formal system in a way that the mashonisas are not (Tshaka et al., 2025). If the first group can be built on, the people most likely to gain are the women and informal traders who already depend on savings rather than loans, which is the pattern in the traders’ survey (Simatele and Kabange, 2022).

The sample is tiny, so the exact rates make a poor basis for policy. Four moneylenders in one country and three in another, found through snowball sampling, is thin ground (Tshaka et al., 2025). Still, the direction fits the older argument that regulation should be light and tailored to the type of lender, with formal and informal providers linked up rather than set against each other. Mpofu and Sibindi (2022) propose, for example, letting informal groups use deposits in formal institutions as collateral, and letting informal lenders act as conduits for formal funds. For women and informal traders, who rely on this tier more than anyone, a tolerant but consumer-protective regime would probably do more than another dedicated loan fund (Mpofu and Sibindi, 2022; Simatele and Kabange, 2022).

Co-operatives as a collective answer with weak financial plumbing

Co-operatives are meant to solve exactly this fit problem by pooling members’ savings and lending to each other. In South Africa the financial end of the movement has done poorly. Selialia (2025) compares savings and credit co-operatives in Kenya, widely seen as a success, with South Africa’s co-operative financial institutions and co-operative banks. The South African problems are listed as neoliberal policy direction, the way Black Economic Empowerment was implemented, limited access to finance, inconsistent policy, gaps in the law and a strict regulatory environment, plus internal weaknesses such as manual processes, limited products and capital, and no effective lobby group. The method is autoethnography drawing on several data sources, so the account partly reflects the author’s own experience, and it is better read as an informed argument than as a tested explanation (Selialia, 2025).

The comparison with the stokvels in Tshaka et al. (2025) is uncomfortable. Informal groups already hold bank accounts and operate with a measure of recognition, yet the formal co-operative institutions that were supposed to be the registered, supported version struggle under a strict regime (Selialia, 2025). That might suggest the regulatory burden is falling hardest on the very organisations meant to serve members the banks overlook, though the two studies were not designed to be compared, so this is an inference. Co-operatives also carry their own financial habits. Zwane and Nyide (2025) studied 52 agricultural co-operatives using questionnaires and interviews and found limited use of financial bootstrapping, with what they call counter-bootstrapping behaviour driven by unsubstantiated beliefs, gaps in education and structural limits. They point to financial literacy, trust and ownership risk as the places to intervene. So collective ownership does not remove the literacy issue that Fatoki (2021) found among individual owners. It just spreads it across members.

Demand, aspiration and what a better fit would look like

Policy often assumes that owners with growth ambitions will go looking for external finance. Rathogwa and Msimango-Galawe (2023) tested that with 14 interviews and an online survey of 185 South African entrepreneurs. In the interviews, growth aspirations seemed to motivate people to seek outside money, and the survey showed that intending to apply did lead to actually applying. But the survey found no empirical support for growth aspirations raising either the intention or the action. The sample was reached through LinkedIn, Facebook and WhatsApp, so it probably leans toward connected owners and tells us little about a trader selling from a pavement. Even so, the result is a caution. If aspiration does not reliably predict applications among relatively connected entrepreneurs, then a funding window aimed at ambitious informal businesses may attract fewer of them than hoped (Rathogwa and Msimango-Galawe, 2023; Shava and Chinyamurindi, 2022).

Schooling and financial literacy run through nearly every source here, in different guises. Simatele and Kabange (2022) find that education tempers the effect of other marginalities, Fatoki (2021) finds that financial literacy moderates the link between finance and performance, Vorster and Thaba (2025) list low literacy among persistent barriers for rural women, and Zwane and Nyide (2025) trace co-operatives’ underused bootstrapping partly to education gaps. These are four different samples, methods and settings, so the overlap is worth taking seriously. At the same time, none of them shows that a literacy course actually changes borrowing or repayment. They show association, which is a weaker thing, and policy built on it needs evaluation baked in from the start.

Pulling these threads together, a better fit looks like several modest changes and not one large fund. More competition among banks would help, since the concentration evidence is probably the clearest piece of quantitative work in this set (Ngonisa et al., 2023). Lighter regulation of moneylenders, and firmer links between stokvels and formal institutions, would deal with the tier where women and informal traders already borrow (Tshaka et al., 2025). Money for women should travel with education, mentoring and some work on confidence, as the NGO examples and the traders’ survey both suggest (Vorster and Thaba, 2025; Simatele and Kabange, 2022). And co-operative finance probably needs a regulatory regime that distinguishes it from commercial banking. None of this is proven. The studies are mostly cross-sectional or qualitative, the samples are small and none follows the same enterprises over time, so what we have is a plausible pattern, not an evaluation of any programme (Selialia, 2025; Zwane and Nyide, 2025).

Conclusion

The funding gap for women-owned and informal enterprises is real, but calling it a supply shortage hides most of what is going on. Banks are few and poorly placed to read informal businesses, women face disadvantages that compound with race, age and schooling, and the informal lenders who fill the space are policed in ways that may raise their prices. Co-operatives, which should help, are held back by regulation and by the same financial literacy gaps seen elsewhere. Some owners also simply do not want, or cannot use, the kind of growth finance on offer (Shava and Chinyamurindi, 2022). Survey evidence on aspiration points the same way (Rathogwa and Msimango-Galawe, 2023), and the traders’ own funding choices tell a similar story (Simatele and Kabange, 2022).

The practical message is that policy should start by asking who is being served by which kind of finance, and then match the instrument to that person. Competition in banking, tolerant regulation of informal lenders, bundled training and a workable co-operative framework each address a different part of the fit problem. The evidence base is thin and often indirect, so claims about what would work should stay modest until better studies exist (Tshaka et al., 2025). For now, the safest reading is that more credit alone will not close the gap, a view the bank concentration work and the studies of women entrepreneurs reach from different directions (Ngonisa et al., 2023; Vorster and Thaba, 2025).

Reference list

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