The Impact of social capital and human capital on access to finance and growth of SMMEs in the informal sector

A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Management specialising in Entrepreneurship and New Venture Creation, 2016Despite the significant role that SMMEs play in the growth of developed and developing economies, they are often plagued by various constraints. Access to finance is considered as one of the major constraints that exist within businesses and is also a consequence of other issues which create an impediment towards the success of SMMEs which compromises the growth of any given economy. The pervasive issue on the lack of access to finance tends to be greater for informal businesses as opposed to formal businesses due to various aspects, such as the entrepreneurial attributes that informal business owner-managers have, which are indeed found to be lacking, consequently leading to circumstances where banks reject loan applications made by these businesses, suppliers reject any request of trade credits made by the owner-managers operating these businesses and potential investors find these businesses to be less attractive when investing for future returns. This study has examined certain determinant factors that are embedded within the theory of entrepreneurship which are perceived to be some of the factors which in essence are considered as success drivers for the growth of all forms of businesses. More importantly, these factors have been closely analysed in the context of informal businesses with regard to whether they prove to be important factors to soliciting finance which is considered a crucial resource for the growth of informal SMMEs. In examining the perceived importance of each of these factors in relation with access to finance, as well as the perceived importance of finance in leading to growth of informal SMMEs, a self-administered questionnaire was distributed across 385 informal business owner-managers in the Gauteng province. Given that the nature of the study was quantitative, descriptive and inferential statistics were performed on the data. Various statistical methods, such as correlation analyses and multiple regressions, were employed to test the proposed hypotheses associated with the relationship of social capital, and human capital to the access to finance, and access to finance on growth. The findings reflected that social capital and human capital are important factors to accessing finance. Furthermore, access to finance is an important factor in the growth of SMMEs in the informal sector. The study contributes towards addressing the existing gap in the knowledge base regarding the determinants of financial access for SMMEs. It also contributes towards providing direction to policy makers involved in enterprise development to reach out to informal business ownermanagers by providing training to these entrepreneurs so as to improve their social and human capital and grow their businesses to graduate into the formal sector as their contribution is needed to grow the South African economyGR201