The impact of formal credit extension and education as enablers of small business growth in South Africa

M.Com. (Finance)Abstract: This study investigates the impact of access to finance and education as formal institutional enablers of small business growth in South Africa. Through regression analysis using variables representing small business, financial capital, education capital and years of schooling, this study shows that entrepreneurs in South Africa have higher growth prospects through these institutional enablers. However, the study highlights potential incongruence in the South African regulatory, normative and cultural-cognitive institutional environments. Lending extended by banks to registered household enterprises seems to grow self-employment with lower growth ambition. Education capital seems to grow early entrepreneurial activity, but reduce self-employment and the number of EMEs in proportion to total registered businesses. This confirms that South Africa is still a developing economy where survivalist entrepreneurship is more prevalent. Years of schooling at secondary and tertiary levels seem to grow entrepreneurship as well as turnover growth in small business. However, the enrolment and attainment of tertiary education seem to discourage self-employment in South Africa, confirming that the preference for wage employment outweighs the preference for self-employment. When considering the formal reporting on lending by banks to the wider SMME sector, there seems to be misalignment between the banks and the government’s ambitions in growing small business. Furthermore, the population’s preference for wage employment over opportunity entrepreneurship highlights the incongruence in the institutional environment surrounding small business in South Africa. The recommendations of this study include (i) channelling resource allocation towards improving survivalist entrepreneurship as an alternative to unemployment while supporting opportunity entrepreneurship to encourage growth; (ii) designing incentives to banks, learners and educators that will improve education towards the growth of small business and (iii) designing and implementing measures that align the regulatory, cultural-cognitive and normative institutional pillars in a congruent manner, in order to best enable small business resilience and growth in South Africa