Evaluating the effectiveness of the business funding model in developing small, micro and medium sized enterprises (SMMEs) with particular reference to OR Tambo District Municipality

A great deal of taxpayers’ money has gone to a lot of SMME development initiatives. Despite this effort over the past 17 years, South Africa (SA) lags behind other developing countries, in promoting the growth and sustainability of SMMEs. The impact and achievements of government initiatives have fallen disappointingly short of aspiration (Business Development in South Africa. 2009. Occasional paper). Aims and Objectives: •To evaluate and reflect on the OR Tambo District Municipality SMME funding model and establish whether it has made the desired impact. •Determine if funds that have been channelled by the SA government to SMMEs for business expansion, start-ups, grants, and special industry development have yielded quantifiable results and •Assess the private funding institutions in assisting destitute entrepreneurs in the OR Tambo District municipality. Research methodology: The study was conducted using qualitative research and a questionnaire was used as a data collection tool. The researcher was able to get valuable information on stakeholders in the SMME sector. The stakeholders (SMMEs and funders), formed the core research sample. Results: findings suggest that the OR Tambo Municipality has a funding gap and the current funding model both from public and private funders is not effective in developing SMMEs in the municipality. The overwhelming majority of SMMEs agreed that there is a funding gap between funders and enterprises that seek funding in the ORTDM. “Financing gap” terminology, Underhill Corporate Solutions (UCS) (2011:52) defines it as, ‘a sizeable share of economically significant SMEs cannot obtain financing from banks, capital markets or other finance suppliers.’ About 90 percent of the interviewed SMMEs agreed that there is huge funding gap and 10 percent disputed this and said that there is no funding gap; rather, it’s a funding mismatch between the funders and SMMEs which needs to be tackled by all SMMEs stakeholders. The funding model needs to be revamped so it can also be accessible to start-ups, the unemployed, people with less business management experience and limited skills, and to all sectors of the economy. Various recommendations and suggestions for further research are made based on the research findings. Conclusion: The study has shown that the current SMME funding model is not effective and does not assist in developing SMMEs in ORTDM. The research findings depict the funding plight of SMMEs in South Africa; the SMME plight in ORTDM is more real than imaginary. 70 percent of SMMEs expressed less confidence in government SMMEs agencies in terms of assistance. The bigger portion of SMMEs felt that the funds channelled to government agencies were not providing significant assistance in developing SMMEs in ORTDM. Recommendations: The conclusive response from the sample, reflect structural challenges in the current funding model. About 70 percent of funding institution`s officials said “yes”, the low yield on SMME growth is a matter of funding. The funds which were meant to fund SMMEs for one reason or the other do not reach SMMEs which are looking for funding. Hence the funds channelled in the sector in the last 17 years have not yielded the desired results. 40 percent interviewed government officials conceded that there is serious political meddling in funding SMMEs in the whole province and ORTDM could not be an exception to this rule. 80 percent of interviewed SMMEs in ORTDM said funding was their main problem, and the other 20 percent indicated that their problem was not a matter of funding. The public and the private sector must revise the current funding model or devise another funding model that will: •bridge the existing current funding gap, •distribute the SMME allocated budget and achieve maximum efficiency in budget allocation