Information exchange market and the performance of small businesses in Soweto

Abstract : Entrepreneurs and small enterprises are at the heart of growth and development in advanced and emerging global economies. However, a common issue is that they often have difficulty in communicating their enterprises’ value despite best efforts and practice to “signal” for mainstream finance. Subsequently, alternative financing mechanisms have been becoming more popular and successful globally. This is mainly because technological gains, have been prompting increased regulatory measures, such as contained in the US JOBS Act 2012 and the UK FCA 2014/13 Crowdfunding and Promotion of Non-Readily Realisable Securities and the establishment of the South African Reserve Bank’s Fintech Unit. Recently, following a call for proposals, the Gauteng Provincial Government has sought to spearhead the establishment of an alternative financing platform, the Township Stock Exchange (TSE), for entrepreneurs, small businesses and emerging township enterprises in the Gauteng province of South Africa. To demystify the existing challenge this research study set out to develop an information exchange market for potential investment professionals to access township enterprise information and local economy business owners to signal for research on their companies by operating or simulating a Township Venture Research (TVR) online platform using small business information. Information Economics theory delves into the importance of information in the effective and efficient functioning of markets with key topics, such as adverse selection pioneered by Akerlof (1970), signalling by Spence (1973) and screening by Stiglitz (1975). Entrepreneurs and small enterprises often have to compete for a limited pool of finance and lack of a track record disenfranchises their opportunity to development finance. Better signalling and screening of local economy businesses would facilitate effective and fluid alternative markets that would have increased impact on meaningful growth and development in South Africa.M.Com. (Local Economic Development