5.

The Role of Business Development Services (BDS)

5.1 Introduction

T he aim of this chapter is to review a sample of BDS organisations, both public

and private, to determine the effectiveness of these services in terms of enhancing
credit access for women. The research in this area was conducted by interviewing a
range of providers of BDS, which represent both non-financial and integrated services
43

(financial and non-financial) to the SMME market, as well as by exploring secondary

material, local and international.

In the context of this study, business development reduction, sustainable development or job creation.
services are defined as those non-financial services and Finally, BDS programmes need to be integrated with
products offered to entrepreneurs at various stages of access to finance strategies for women.
their business needs. These services are primarily aimed We complete the chapter with input received from
at skills transfer or business advice. The field of business women during focus group discussions, sharing their
support has been growing alongside the SME development awareness, usage, experience and preferences of
process internationally. BDS services.
A range of business support options have been
developed and can be applied to develop small businesses. 5.2 Perspectives from Business
However, key benchmarks need to be applied in order Development Organisations on
for such support to be effective. Business development
services are important because they can assist
Women and BDS
entrepreneurs to run their business more effectively and,
if appropriately applied, can act as an enhancer of access
5.2.1 Challenges and Constraints for
to finance and as an alternative form of collateral in Women Entrepreneurs
circumstances where tangible collateral may be an In reviewing the mission and vision of the business
impediment to meeting traditional security requirements. development services interviewed for this study, none
While the state has offered strategic direction in terms had offered any gender specific aims in terms of provision
of SMME development from time to time, there is as yet of services. All, however, identified women as an important
no coherent and focused delivery of such support available target group and indicated that they don't discriminate.
throughout the country. Some programmes, such as the There is thus an assumption of gender neutrality, with
Red Door in the Western Cape, have been supported by most programmes indicating a client split of men and
provincial government and are working on offering a women at an average of 70% men and 30% women. The
range of services in terms of local needs. In general, exceptions were those that operate in the micro enterprise
however, there is a range of obstacles facing entrepreneurs sector, which reports a higher number of female clients.
needing support. Rural areas, for example, are very under When asked what they perceived as the constraints facing
resourced and serviced. men and women when seeking finance, BDS providers
Among the key findings of this section of the research, identified the following:
we have ascertained that programmes are not sufficiently Poor quality and viability of business ideas;
gender-focused, with little awareness of the constraints Inability to write a business plan;
that women face. Another critical issue is that there is People don't know how to differentiate the product
not enough attention to the needs of womens enterprises or identify markets;
at different levels. Thus, there is a need to better differentiate Business viability should be a determinant of access
programmes in terms of their aims relating to poverty to capital, not collateral;

43
The list of service providers interviewed is shown in Annex 5 and ranges from state agencies through to independent business entities, academic institutions
and NGOs.

52 THE ROLE OF BUSINESS DEVELOPMENT SERVICES

 Unwillingness to commit resources or own assets; Women should learn from each other by forming
Banks lack of understanding about entrepreneurship; small groups to support each other;
Banks are under no pressure to extend funding; More business training and development facilities are
Credit managers making loan decisions with poor needed in rural areas.
client knowledge.
The challenges faced by women in particular
GOOD PRACTICE FROM THE WESTERN CAPE
were cited as:
A state-sponsored service provider in the Western Cape
Women are not taken seriously by the business
underscored that some of their best clients were women.
environment and by business finance institutions
They added that women are less likely to be demotivated
we live in a male dominated society;
than men; they are more creative and look for new and
Women tend to be more empathetic than men and
this is perceived as being less business-like, whereas alternative ways to do business. There is growing
men think that one should be confrontational to recognition of the importance of businesswomen in the
succeed in a man's world; Western Cape and this is being spurred on by programmes
Women tend to be conservative men still do the such as targeted procurement, where women in business
radical stuff (this from a technology-based incubator are really valued. In addition, womens networks are very
programme) women are not adventurous enough; strong in the area, which has benefited women
Women lack confidence because of their life experiences; entrepreneurs. The organisation also indicated that
Men's perceptions of women women have to prove while they did not want to treat men and women
themselves all the time; differently, they were embarking on an active campaign
Women are, however, perceived as very passionate to increase their female clients (currently at 35% of
about their business, which is a key factor of success. their client base), in consultation with stakeholders in
the area.
5.2.2 Suggestions for Improving Womens
Respondents from the Thuso Mentorship Scheme44
Enterprise Development indicated that the perception is that women still tend to
Suggestions made by business development providers
be operating at the lower levels of the pyramid. Women
to enhance womens MSME development included
are often looking for less money than the programme
the following:
supports through the banks. They admitted that they do
A dedicated fund could be set up to address lack of
try harder to support women in recognition of the
collateral constraints, performance guarantees and to
obstacles women face, partly because they have fewer
offer subordinated debt to enhance access to credit
from financial institutions; women approaching them, and because while women
The environment needs to make it easier for start up are often less ambitious in their targets than men, they
businesses to obtain resources; are more realistic.
There is a need to reduce the burden in the regulatory A recommendation was made for schemes such as
environment; Khula to go to where the needs are; for example, to be
Provision of appropriate business support, which represented at the offices of business womens
means ensuring that providers have the right skills organisations to facilitate better access to and for women.
and experience; While some of the BDS agencies had a very good
Better monitoring and assessment of the value and policy of consulting clients about their needs and being
outcomes of business support practitioners and able to adapt, none appeared to have considered a
organisations; gender-informed strategy. There is, as previously stated
Women need role models they need to see the a tendency to be gender neutral or to ensure that an
success of other women in the media where they equal number of men and women participate in
can be inspired by other women who have beaten programmes without looking at specific gender issues
the odds; within service provision.

44
Which is an arm of Khula, and offers three months of post-loan mentoring services to borrows who have benefited from Khulas guarantee scheme.

THE ROLE OF BUSINESS DEVELOPMENT SERVICES 53

5.2.3 Demand and Supply Issues How much time does the service take out of the
While there are pockets of business support to SMEs business day or out of the home management time?
and women, there is clearly a gap between demand and Are confidence building/coaching services for
supply. This is primarily related to issues of accessibility, women available?
appropriateness and efficiencies in the system. In addition, Clear understanding of business finance and financial
there is clearly a major issue around the skill levels and services women want to know what products and
experience of people employed to offer these services. services are available, how to access the funds, how
There are also gaps in the understanding between clients to prepare themselves for approaching funding
and providers. organisations and what the pricing structure is.
As yet there is no evidence that the available framework Business development needs to be recognised as
of non-financial support is having a benefit with regard a source of risk management by banks, particularly
to the unlocking of capital. for market segments that lack traditional security
The failure of banks and business support organisations or business track records.
to present engendered offerings will result in their having One of the most critical omissions of the
a limited impact on women. The assumptions of gender small business enabling environment in South
neutrality and the quota approach to services, such as Africa has been the very limited integration
minimum targets, will not address the gender-based between the availability of financial and
problems faced by women. These include considerations non-financial support within a coherent
in terms of: framework. The historic trend in SA has
Who provides the service men as well as women? been to separate these functions and
Where are such services available? Is the venue safe to run a parallel process. An example
and accessible? of this was the establishment of

54 THE ROLE OF BUSINESS DEVELOPMENT SERVICES

Ntsika and Khula. The lack of an integrated response entrepreneurs. Mentors are viewed as wise and trusted
from these agencies has resulted in: counsellors, willing to share their business knowledge,
A less than coherent strategy to create an enabling skills, experience, and most importantly, serve as respected
environment for small business; role models.as seasoned entrepreneurs, and mentors
Appropriate non-financial support not being available are recognised within their communities and industries
to offer alternative sources of risk management for excellence and leadership. They are select women
to financial institutions seeking to rely on skills of any age or background, who are succeeding in spite
transfer or mentorship as a pre-approval condition of past and present obstacles. A mentor is the one person
to approving loans; in front of whom every question is a good question, and
Non-financial support being developed in isolation it is acceptable to be uninformed as long as the protge
of the skills transfer needs of funding providers; is attempting to learn.
Women in particular being confined to sourcing (In How Woman Entrepreneurs Benefit from Using a
funding from agencies such as MFIs, where high Mentor Joanna L. Krotz, Microsoft Small Business Centre
levels of business skills and management are not website.)
required as a pre-determinant of access to loans;
Business support organisations and funding sources 5.2.5. Skills Development in South Africa
not being set up in any convenient proximity to The Global Entrepreneurship Monitor report of 2005
one another. points out that the legacy of apartheid has left the vast
majority of South Africans with a lack of basic skills. In
INTEGRATING BDS AND CREDIT ACCESS: THE WEP addition, there is a lack of entrepreneurial training for
An innovative model, which integrates BDS, access young people, which has impacted on confidence,
to finance and gender-sensitive training, is to be found initiative and creative thinking, all of which are traits
in the Women Entrepreneurship Programme (WEP). The required by successful entrepreneurs.
WEP was piloted between 2004-5 by the IFCs Technical South African entrepreneurs are thus ill equipped to
Assistance unit working with a number of BDS providers45 communicate effectively with financial institutions. They
and the dtis Gender and Womens Empowerment Unit. tend to be intimidated by financial institutions and are
The WEP provided extensive BDS training46 for 240 not very confident about their presentation and business
growth-orientated women entrepreneurs across the country. skills. This hinders the entrepreneurs ability to sell a
Their training culminated in a business plan adjudication, business plan successfully to the institutions. Entrepreneurs
supported by Absa Bank. The winners were able to apply also cite language and cultural barriers in their
for business loans from Absa Bank on the strength of communication with financial institutions.
their BDS training and clear, focused, business plans. This assessment echoes the voices of women
entrepreneurs who frequently experience such situations
5.2.4 Mentorship even more acutely than men, due to cultural and gender-
Gender-focused BDS and mentorship need to be related stereotypes imposed upon them.
established as part of the mainstreaming of business-
women in the economy. This is especially important for
less mature businesses owned by women. In the USA, WOMENS BUSINESS CENTRES IN THE USA
the Small Business Administration has the following to The experience of women-specific BDS centres in
say about the benefits of mentorship to women in business. other parts of the world has demonstrated the success
IMPORTANCE OF MENTORSHIP FOR WOMEN IN BUSINESS of focused training services for women. In the USA, for
Mentors are women business owners willing to give example, Womens Business Centres number some 150
back to their communities by assisting other women across the country, and are set up by and for women in
ready to grow their businesses. Mentors can also come order to provide gender-focused training that takes into
from legal, financial or other professions, providing account womens specific strengths and weaknesses and
guidance, advice, and training to new women how these impact on their success in the business world.

45
The South African International Business Linkages (SAIBL), CIPRO of the dti and the University of Pretoria.
46
The training was composed of three elements: Personality and entrepreneurial profiling; Business planning, training and coaching, and Mentorship.

THE ROLE OF BUSINESS DEVELOPMENT SERVICES 55

The Womens Business Centres in the USA target, in the women were able to articulate a response in terms
particular, vulnerable groups 47 who may be more of their own needs in this regard or of what such services
challenged by the environment and cost of mainstream could offer to them.
BDS services. Their emphasis on aspects such as A rural group indicated that it was much more difficult
confidence, mastery of business strategy and pricing, for them to gain skills and that they really had no option
as well as on community development, reflects their but to earn income from what they already knew, i.e.
sensitivity to their target audience, and is a key reason sewing, beadwork, etc. Women also spoke to the
for their success and that of their clients. While the opportunity costs of finding markets and referred, for
centres are run on largely private lines, they also benefit example, to the high costs of transport. This in effect
from financial and in-kind support from local and federal means that women in rural communities are locked into
governments, and private philanthropists. limited markets, with limited skills and few options to
The experience of the Womens Business Centres change their circumstances.
could benefit South Africa and deserves to be studied Women indicated that they had heard of co-operatives,
and considered for local conditions. but did not know what they are or how to access this
opportunity. They did articulate that access to micro
finance had improved their businesses in general. Very
5.3 Perceptions and Experiences of Women
few women however had grown their businesses, or
Entrepreneurs of BDS Services knew how to.
The information presented in this part of the chapter The lack of input and understanding of business
was gathered through the focus groups conducted in support could be a product of the fact that MFIs in South
four provinces and described in Chapter 2. The Africa do not provide training or structured business
questionnaire requested information in four categories development support to their clients. It could also be
including womens knowledge of business support, attributed to the lack of information generally about what
usage, experience and priorities, and covers women in is available. The high costs of support, transport and
micro enterprises (MSEs) as well as women in small and time away from home may also be impediments. This
medium enterprises (SMEs). situation is, however, not unusual among micro enterprises
On the whole, women were not very positive about and illustrates the possible limitations of micro finance
the business support arrangements that they had available as a tool for empowering women economically, when
to them. Some programmes were cited as having been credit is the primary source of support.
very good, but these tended to be training options at While the study was unable to interrogate the
institutions such as technical colleges. Women said that circumstances of the individual businesses, it would seem
they learned a great deal, but that there was never any that there are some assumptions which can be made:
follow up and that this diluted the benefit. None of the Micro finance is not being integrated with business
women interviewed felt that this training had had any skills transfer in any serious way either as a factor
direct bearing on their ability to raise capital, with which within MFIs or as an integrated approach between
they were still having great difficulty. the various organs of government tasked with creating
an enabling environment.
5.3.1 Skills Development and Many women utilising this funding are not progressing
Womens Enterprise their businesses beyond their traditional skills base
The women interviewed who were clients of micro sufficiently to graduate beyond the current group
finance institutions, demonstrated limited knowledge or lending micro finance model. Even if they did, there
understanding of business support options. They were would be few options for them to access financial or
often silent and had no input to make when asked about other support.
the availability of business development in their areas. In a study on business support services in South
They primarily relied on their own proficiency in terms Africa,48 which interviewed both men and women, it was
of gender-biased skills such as sewing or cooking to established that the skills base of women is narrowed
earn an income. They were generally not aware of by gender roles imposed on women who are socialised
business skills information or availability. Very few of to be the caregivers in both family and community. This

47
Such as ethnic minorities, immigrants and poor women.
48
Hilton, 1999.

56 THE ROLE OF BUSINESS DEVELOPMENT SERVICES

limits their business options considerably. While men on and sustainable enterprise development, even at the
the other hand are able to have a greater degree of micro level. Both are legitimate responses, but require
freedom, and have access to skills with a greater technical different strategies. The latter would aim to promote
input, even their skills base has been narrowed by the micro-entrepreneurship through sustainable business
social construction of apartheid society. options which have the potential to grow. When reviewing
Neither of these situations is ideal in terms of creating the impact of these different approaches with regard to
a diverse MSE sector in South Africa, but both need to women, these options need to be assessed in relation
be resolved through an understanding of the role gender to their ability to:
plays in choosing business options. The current situation Impact significantly on womens ability to earn
leaves entrepreneurs men and women vulnerable to an income;
poor business choices and lack of implementation capacity. The total workload created by this activity;
There is also a very urgent need to address the issues The changes and improvements in womens
of MSEs differently from those of SMEs and for there to socio-economic conditions, both in the family and
be coherent and separate strategies for both, with clearly the community;
articulated aims and objectives. The need for financial and non-financial support to
Similarly, it is imperative that a clear distinction be facilitate appropriate business choices and business
understood in terms of strategies for poverty alleviation performance.

THE ROLE OF BUSINESS DEVELOPMENT SERVICES 57

5.3.2 Perceptions of BDS Services COST OF SUPPORT SERVICES
On the whole, usage of business development services Most women felt that business support is too expensive
was low among the women surveyed. Fewer than 20% and can impact negatively on the margins of businesses
had actively sought support from a business development trying to get established.
organisation. Those that had did so through a wide range While it is a general principle that business support
of organisations including workshops by womens business services should be fully or partially paid for by SME
networks, tertiary institutions and government-sponsored clients, there is still far too big a gap between affordability
organisations, with various levels of success. and access for women who are starting out. This
There were no major differences between regions; contradicts the commitment to transformation and
the feeling overall was that the business support available needs to be reviewed, especially in government
was not sufficiently helpful enough or well disseminated. programmes.
It can be said, however, that women in the Western Cape
appeared to be the most well-informed and, as a group,
BUREAUCRACY AND HUMAN RESOURCES IN BDS
There was a complaint that BDS providers expect
appeared to have been most assertive about taking
advantages of resources and networks. clients to fill in too many forms and demand too
The business development sector for SMEs is better much information, which takes up their time. The
articulated and defined than that of micro enterprise and necessity for detailed information needs to be better
has for some years been a growing industry in itself. explained to clients.
Various types of small business assistance are recognised Another consistent observation is that the people
and have been developed. These have been defined, offering services have no business experience
benchmarks established, standards set and in many themselves, that this is frustrating and dilutes the
instances, professional bodies set up to maintain quality potential value of the services. Government sponsored
and standards of service. Such benchmarking has, for business support organisations were often singled
example, been achieved through the establishment of out in this regard and women expressed a lot of
institutes of business advisors such as the Institute of frustration with these programmes. One person
Business Advisors in the UK. In South Africa, the Institute interviewed indicated that in one of the state sponsored
of Business Advisors has worked very closely with the mentorship programmes, for example, most of the
Services SETA to establish standards for business support mentors had never run a business themselves. The
professionals in the country. Business support practitioners employment of under-experienced and under-skilled
are graded on the basis of their experience and can staff is clearly a major obstacle to effective small
graduate to higher levels through professional development business support in SA. There needs to be far greater
and further experience. The types of services generally effort made to attract experienced people as mentors.
in use include business advisers, consultants, mentors, Women expressed the need to be able to be advised
training programmes and incubator models. and mentored wherever possible by other women,
The women interviewed raised many issues relating and generally, by people that may have greater
to the quality of business support available to them. Each empathy with their situation and sector.
key point is articulated below.
AUTHORITIES AND LEGAL ISSUES
TIME MANAGEMENT AND BUSINESS Complaints were made of high levels of corruption
SUPPORT ORGANISATIONS when dealing with government inspectors who are
Women consistently stated that the people who run supposed to advise them in their areas of accountability,
BDS services are not in touch with the needs of small e.g. health and safety inspectors, municipal offices
businesses and don't respect their time. Women want and the police were examples given. Women felt
to be able to minimise the amount of time it takes strongly that they needed advice and support on how
to get advice from business support originations and to handle these kinds of issues and that this is never
expressed a desire for the service to come to them part of a business support programme. Women feel
if possible. victimised and feel that if they report officials, their

58 THE ROLE OF BUSINESS DEVELOPMENT SERVICES

 businesses and personal safety will be compromised. by these organisations, which provided an opportunity
They said that, if officials are not paid bribes, they for gaining knowledge, business and networking
keep harassing the owner over petty issues, which opportunities, and experience from peers. For some
disrupts the business. women this was the most important aspect of non-
Women in focus groups indicated that when seeking financial support options available to them.
premises, they have to utilise the services of property Several networking options are available to women
brokers, because the process is so incredibly in business. These include SAWEN and BWASA.49
complicated and difficult to understand. Consequently, These organisations provide women with an
they have to pay brokers at very high rates to access opportunity to get together, exchange cards, support
property. Women also said that banks were not one another, promote their businesses and to attend
offering support in this regard in terms of advising workshops. Like all organisations, there were some
them. Whilst not raised by all of the women, it was complaints, but on the whole women who were part
raised as a serious support area for women who had of such networks felt that they were adding value.
been through this experience. Issues of dealing with Women said that they were communicating with each
retail and commercial property arrangements are other, sharing business ideas and opportunities. The
being raised as serious issues by SMEs. Rents are very most vibrant networks were in Pietermaritzburg and
high and landlords difficult to deal with. Women Durban, where women seemed to know each other
also feel that, as women, they are not respected by and have strong connections in many cases.
landlords, who can be aggressive and very intimidating.
Another issue raised was the dependence on business PRINCIPAL NEEDS AS ARTICULATED BY WOMEN IN BUSINESS
support services for compliance matters, which reduces An array of business support options were presented
as women gain experience and their business matures. to the women in the focus groups. These included 12
options as indicated in the table below. The 4 most
NETWORKING OPPORTUNITIES AND ONGOING SUPPORT desired options for non-financial skills development or
A number of women indicated the value of being support were:
able to network and to be part of organisations, such Financial management;
as women's business associations, as part of their Marketing;
business education and skills development processes. Cash flow management;
They praised the usefulness of the workshops arranged Support for feasibility studies.

49
South African Women Entrepreneurs Network (SAWEN) and Business Womens Association of South Africa (BWASA).

THE ROLE OF BUSINESS DEVELOPMENT SERVICES 59

 CHART 7: BDS NEEDS OF WOMEN

100

90

80

70
Number of Responses

60

50

86
40
70 71
30
56
51 50
46
20
33 35 36
24
10 20

0
t t
na nce s plan dvice w mg liance ibility l mg keting orship a bus aining dvice
g fi Bu s a h flo omp as c ia a r nt rt tr er a
sin sin
e s
as C F e
ina
n M Me Sta Tech end
es u C F T
Acc B
Types of Support Options

The sample underscored the importance of feasibility presented and rejected, or of entrepreneurs venturing
assessments before entering business. Women generally into unsustainable businesses.
understood the importance of feasibility studies, but were Regulation and compliance are experienced as costly
not aware of resources that could assist with such a task. and time consuming. The costs to businesses also tend
This was an indication that many women are viewing to be highest in small firms, which are less able to absorb
going into business seriously and that they understand the costs as a percentage of their margins, compared to
that there is a valuable process to be engaged in before larger companies.
writing up a business plan. There were, however, still a Whilst it is absolutely legitimate to ensure the protection
number of women who were selecting business options of rights for all communities, there is an urgent need to
based on a presumption of market need, without doing review the burden of regulation, where possible,
any pre-selection or feasibility study. A feasibility study particularly for smaller businesses, which often lack the
enhances the entrepreneurs chances of success by ensuring skills, knowledge, time, and money to accommodate this
that their business idea has been interrogated in terms burden.
suitability, management potential, market and profitability,
financial viability, potential pitfall and competition. 5.4 Conclusions on BDS for
The lack of feasibility studies appeared to be related
to lack of access rather than a lack of awareness of what
Women Entrepreneurs
a feasibility study is or what the value of this is to a new
business. This is largely because feasibility studies are
5.4.1 Women in Micro and Very
often neglected in the SME environment, where the Small Enterprises
emphasis tends to be on business plan development. The inputs received from BDS providers and from
The problems likely to occur from this are that unviable women entrepreneurs demonstrate that there is a
business plans are drawn up at considerable expense. need to fully understand the impact of micro finance
This increases the probability of business plans being programmes on women in SA from a gender

60 THE ROLE OF BUSINESS DEVELOPMENT SERVICES

 perspective. BDS aimed at the micro-enterprise sector technical diversity, as well as business and financial
needs to promote non-traditional roles and proficiency.
opportunities for women, as well as business and - Supporting financiers to develop financial products
financial management expertise. The training must and programmes that are market-driven and that
focus on building women's confidence and their ability enhance growth oriented women entrepreneurs
to challenge the traditional norms in families and access to funding beyond group lending. This will
communities which impede on the businesss success. expose MFIs to greater levels of risk, which could
in turn be reduced through the availability of
Training and post-loan support if combined, could
training and post loan support in areas such as
address the needs of these very small businesses
cash flow, keeping books and records, etc.
both at the planning and implementation stages of
- Creating a non-financial support infrastructure that
business this would hopefully have the effect of supports the work of the existing micro finance
promoting more viable businesses options and of organisations, and which has separate funding
assisting these women to implement new options resources so as not to cannibalise the income from
more successfully. lending.
A concerted effort should be made by state and - Clearly articulating and designing programmes for
private BDS providers towards: poverty alleviation and for MSE development, with
- Adjusting resource allocation to improve micro a clear distinction being made between the two,
entrepreneurs access to skills that can enhance so as to achieve intended objectives.

THE ROLE OF BUSINESS DEVELOPMENT SERVICES 61

62 THE ROLE OF BUSINESS DEVELOPMENT SERVICES
5.5.2 Women in Small and paid back once the business was up and running
was also recommended, and it is felt that the
Medium Enterprise government could play a role in supporting such a
It is clear that the issue of one size fits all for SMME
fund. Subsidised services based on a means test, and
development in South Africa needs to change. We
on the feasibility of the proposed business could also
need to develop specific responses for specific needs
be explored. Alternatively, business loans to cover
and the SME market needs to be clearly defined in
BDS could be secured from financiers, provided that
terms of size, sector, business cycle and gender-
the affordability was ensured.
specific requirements, if applicable.
Whatever the case, it was felt that appropriate and
Business support organisations need to be more
integrated risk mitigation arrangements must be set
visible and need to market themselves more broadly,
up between service providers, funders and clients in
especially to women.
order to help achieve transformation goals and creative
More needs to be done to recruit women into business
means to achieve this need to be found.
advice centres and mentorship projects. Some of the
Reference was made to corruption within government
work done on the mentorship needs of women in
departments. It was recommended that BDS agencies
business indicate that women may benefit from the
should be able to monitor corruption without
combined mentorship styles of men and women. It
individuals/whistle-blowers being put at risk, and
will also be helpful for both sexes to be sensitised
that if necessary, government should employ more
to gender-informed issues when managing BDS
women to deal with other women in this regard.
interactions.
Finally, the value of women's business associations
There needs to be a much more concerted effort to
in providing business development support to their
identify and harness business experience when offering
members is regarded as central, by all stakeholders.
business support and mentorship, i.e. the
This has been well articulated as follows:
advisor/mentor should have business experience
superior to that of the person that they are trying to
help. It is unfortunately perceived that people THE VALUE OF WOMENS BUSINESS ORGANISATIONS50
employed in these organisations often do not have Originally, many businesswomen's organisations were
the insights about running a small business, are under- started as casual networking and support groups.
skilled and know less than the client seeking assistance Often women just wanted an opportunity to meet
or support. Corporate support and greater use of like-minded women, make new business contacts,
retired business people and executives would be one and exchange business experiences.
way to harness experience for the greater good, while But as women have become more experienced in
keeping costs down at the same time. owning businesses and the number of women business
Feasibility studies, wherever possible, should precede owners has increased at a significant rate worldwide,
the development of business plans and should offer the role that women's business organisations are able
the prospective business owner an insight into whether to play is changing and becoming more sophisticated.
or not to take up the business they have decided on. By creating public awareness, establishing pressure
Training programmes need to be offered that help groups, educating the public, financial institutions,
SMEs do their own feasibility studies. policymakers, companies, and other organisations
Business support organisations need to streamline with a vested interest in assisting women entrepreneurs,
their processes to promote far more efficient turn- women's business organisations can become powerful
around times at all levels within these organisations. lobbying tools, while providing a higher level of service
While business development support does require to their members and increasing membership.
substantive information from clients in order to assist The effectiveness of a women's business organisation
them, consideration should be taken of the time is only as strong as its membership and those
factor. members' commitment to the organisation.
A loan fund for business support, which could be

50
Source: Lever A.: The Hidden Strengths and Potential, Womens Business Associations Organising for Success, Economic Reform Today, Number 2, 1997.

THE ROLE OF BUSINESS DEVELOPMENT SERVICES 63

6. Credit Referencing Issues

Introduction

T his aspect of the research was undertaken to determine the role of positive and
negative credit scoring and adverse credit bureau information, on womens ability
to access finance for businesses. We have tried to determine what impact the reliance
on credit bureau information has on funding for small and medium businesses and on
the limiting of credit to women. For this section, we used both primary and secondary
data, and interviewed businesswomen as well as relevant institutions.
51

6.1 The Role of Credit Bureaus in people and women, on such high interest alternatives.
People with poor listings are considered to be in danger
South Africa of becoming dependent on "predatory credit providers.
The function of a credit bureau is to collect, store,
Such lenders exploit people's desperation through the
and report information about an individuals borrowing
provision of loans at high interest rates, with little or no
and repayment patterns and history. The bureaus receive
concern for their ability to repay.
information from a wide range of credit granters and this
Whilst several attempts have been made to minimise
is used to advise credit granting institutions on the
reckless lending in South Africa, it will always be
repayment patterns of people applying for credit. In
impossible to monitor all of the credit providers in our
South Africa the practice has been criticised for further
society. The more complex the legislation, the more
penalising the previously disadvantaged sectors of our
likely the process will drive loan sharks underground.
community, in other words the majority of the countrys
What we are not seeing in the banking industry is any
population. This has major implications for the ability of
flexibility or attempts to apply less commercial assessments
people to therefore access credit for productive or other
of risk in an environment where many people have not
purposes, and therefore to stimulate the economy.
had the advantages of building up credit histories,
The issue of credit histories and credit bureaus is
understanding the financial environment or acquiring
often represented as a negative facility, which offers no assets as collateral. The banks are still falling back on the
positive spin-offs for the consumer. As we show in our credit bureau as the sole source of assessing credit
recommendations below, there are actually opportunities worthiness. This occurs despite the fact that the micro
to constructively use positive credit histories in the finance environment globally has maintained high
business and personal context. repayment rates through the application of relationship
In addition, financial institutions have been criticised banking, trust and alternative sources of security, where
for overly commercial approaches to credit assessments collateral is not available. The solution may lie in the need
without taking into account the exclusionary nature and to apply technologies from both sectors in a way which
long-term effects of Apartheid and poverty on access to enhances access to credit for women and for the poor.
financial services. There has been a call to create an
environment of credit access, which relies less on the 6.2 Findings on Women with
information of credit bureaus as the sole source of credit
risk assessments.
Credit Listings
Key issues raised by women in small and medium
The practice of relying on credit bureau information
businesses whom we surveyed included:
as a primary source of information has also been implicated
in the rise of high interest rate options outside of the Personal and business histories are conflated when
banking environment, and the dependence of poor applying for business finance and applications are

51
During the focus group discussions.

64 CREDIT REFERENCING ISSUES

 not assessed on the potential of the business. their independent contractual rights are not observed.
Business deals are declined even if only one member This can have the effect of undermining women's business
of a business consortium has been listed. Women aspirations if their marriage partners do not support them
considered that, for business loans, the banks should in their endeavour.
view the risk of deals on the strength of the business
proposition, the team and not on one individual.
Married women are not treated as individuals when 6.3 Data from Credit Bureaus
they are married in Community of Property (COP) There are two main credit bureaus in South Africa,
and often suffer the consequence of a married partners Experian and Transunion ITC. Transunion ITC reported
adverse credit history. The consequence for women in 2005 that of the total eight and a half million credit
is that they are denied credit and often have to repay active women on their database, 95% manage their
the husbands debt. credit obligations responsibly. The bureau also noted
All of the banks were implicated in denying credit that there had been a massive 24% decrease in civil
even though debts listed at bureaus had been settled. court judgements issued to women within the last year.
This was not an isolated incident and appeared to be a The following current and up to date statistics were
common occurrence. It is also known that there are obtained from one of the bureaus, illustrating the gender
banks that keep adverse information on their system breakdown of their records:
beyond the required 5-year period that such information
should be cleared. TABLE 7: CREDIT BUREAU STATISTICS BY GENDER
One women interviewed had paid off R78,000 of her Bureau Activity % Men % Women
husbands debts and, despite showing this extraordinary Judgments 64% 36%
level of commitment to her obligations; she has not been Defaults 55% 45%
able to raise funds for her business. In fact, when women Notices 61% 39%
are married, get divorced or widowed, they may find Notarial bonds 85% 15%
themselves ineligible for credit, even though they have The bureaus were unable to respond to questions
contributed to the repayment of assets such as property. relating to the impact of marital status on listings, on
They may not have had separate credit histories, because the correlation between business failures and listings,
credit facilities have been listed only in the husbands names. or on the gender breakdown of the latter. Further research
In the micro enterprise environment, women were in this regard would be useful to gain a better
less likely to try to repay the debts for which they had understanding of circumstances under which listings
been listed and did not demonstrate the same level of take place, and would enable credit bureaus to better
understanding of the implications. This illustrates the serve their customers and stakeholders.
need for wider public information around credit
management and credit reputation building.
A number of women raised issues around the 6.4 Managing Credit Histories
vulnerabilities of women married in Community of While suggestions have been made that credit bureaus
Property (COP). It affects women negatively when their are solely responsible for people, especially previously
partners run up debts and or get adverse listings at credit marginalised communities, not gaining access to financial
bureaus. This affects their ability to access credit in their services, this argument does need to be viewed within
own right. The experiences of women married in COP the context of a continuum of credit repayment behaviours
in the study, reflected that they were required to have and the need for some kind of assessment of the ability
their husbands signatures and approval for all banking and or willingness of credit seekers to repay the money
transactions. They felt that this needed to change. In owed. There is no doubt that in all circumstances where
COP women are reduced to the status of minors and loans are made, even between family members, there is

CREDIT REFERENCING ISSUES 65

66 CREDIT REFERENCING ISSUES
an expectation of repayment. The bigger issue is how for reasons other than credit histories this can include
to implement assessments of credit histories in ways that: income, employment stability, etc.52
Do not unfairly exclude people; It is clear that consumers, and women in particular,
Do not rely solely on credit bureau information; to whom the environment appears biased and
Allow for some flexibility in terms of how adverse discriminatory, must develop a better understanding of
information is viewed in a credit-granting environment; the factors that influence their ability to raise credit, and
and seek to positively influence these factors.
Do not discriminate against women in terms of
marriage and divorce. 6.5 Co-ordinated Credit Vetting
There are a number of issues which consumers do In an environment like South Africa, there is a need
not understand about the role of credit bureaus or the for synergies to be developed between the micro finance,
use of credit as reputation building exercise for access development finance and the formal sector credit providers.
to credit. People should be able to utilise their repayment patterns
Credit scoring and credit bureaus are usually only in the non-banking environment, which will allow them
seen in a negative light. Consumers can, however, also to graduate into the banking environment and to be
benefit from a credit scoring process, but in order to do scored accordingly. Such a transition would include many
this, people need to have a better understanding of credit women and micro borrowers who are currently locked
and credit bureaus. Some ways in which people can into micro lending as their only source of credit.
better understand the work of credit bureaus and Such a system of building reputation equity could
proactively manage their own credit reports include allow for a continuum of credit granting experiences to
checking one's own credit report, ensuring that these be linked. This would provide a history of creditworthiness
are error-free and being aware of one's credit standing as an alternative to the credit bureaus for borrowers that:
on a regular basis. The more one interrogates ones own Have never borrowed in a bureau-dependent
process, the more informed one will become. Often, the environment such as a bank;
problem is that people are afraid to do this. May have been listed by a credit bureau, but can
The highest earners and the most educated are most now rebuild their history through a prescribed set of
likely to understand the system. The least educated and lending experiences in non-banking institutions such
lowest earners are least likely to check their credit status as MFIs;
or to understand what a credit score is. Scores are a As a member of a group lending arrangement where
reflection of one's own past credit history, and over time there has been no default in the group or, if there
consumers have the ability to control these scores by has, if it can be proven that the individual was not
changing credit and repayment habits. Consumers with the defaulting member.
less than satisfactory scores are likely to be charged This history could then follow the client into individual
higher rates of interest. Credit granters will then be able lending by MFIs or other next tier lenders offering loans
to price for risk. Consumers need to be informed that beyond the capacity of the MFI. Individuals can then
it is not credit bureaus that decide who gets credit, the continue to be scored in their individual capacity or
credit granter decides this. Credit can be turned down straight into banks for small personal loans or small

52
Information provided by Transunion ITC.

CREDIT REFERENCING ISSUES 67

business loans, for example. A system of gearing of credit to make sure all relevant information is in a file under
could be introduced which allows for manageable their own name.
increases in loans on the back of this integrated form of There are a number of useful non-discriminatory
credit scoring. These clients should then be allowed to additions to the US credit law from which we could
have their positive credit scoring admitted into the bureau potentially benefit, in relation to the credit granting
statistics as positive credit histories. This would need to system in South Africa, and which deserve review.
be done on the basis of agreed criteria. Issues which
would need to be addressed would be the legal status 6.6 Conclusions
and governance of pre-formal credit granters, sound Due to constraints in obtaining data, it was not always
governance of such institutions and the electronic and possible to establish the impact of marital status on
MIS capability of the organisations to satisfy formal listings, or causal events for listings. Likewise, data
lending requirements in terms of accuracy of data and correlating listings to business failures by men or women
information management. was not available.
A system like this will begin to create an integrated These gaps demonstrate that there is an opportunity
credit market, which recognises the validity of different for credit bureaus and stakeholders to get together to
credit granting facilities across the board and which agree on provision of more detailed and targeted
builds up trust and co-operation between these, to create information, so as to build up better profiling of the
a more comprehensive credit granting system for the market. This would offer women, in particular, the
poor in SA. Such a system would not lock out low income opportunity to positively develop their own credit profiles
clients from graduating from one system of lenders to irrespective of the credit histories of partners, where this
another, such as from MFIs to development funding, or is applicable. Such histories should be able to differentiate
from MFIs to banks. This would also give low income between private and business transactions.
earners and MSEs, an opportunity to rebuild their credit Our additional recommendations would include
histories in a way which would not lock them into group the following:
credit for indefinite periods of time. The new National Credit Act needs to be urgently
The only apparent area of financial access, which is vetted in order to ensure that there is no gender bias
not affected by negative incidents related to COP marriages, or potential discrimination in the credit-granting
is micro enterprise finance provided through NGOs or environment, and in line with international benchmarks
organisations such as Marang Financial Services or Small in this domain.
Enterprise Foundation. The implications of this need, Data collection and statistics issued by credit bureaus
however, to be considered in relation to women being should be refined to allow for more meticulous
locked into such sources of funding as a result.
disaggregation, by gender and causal event. This
In the USA, the credit environment has been reviewed
should result in a more gender aware credit
to reduce any potentially discriminatory aspects of credit
environment, in line with best practice elsewhere.
vetting. In terms of the Equal Credit Opportunity Act in
Banks need to take far more cognisance of the
the USA, a special note to women underlines that: A
good credit history a record of how you paid past individuals willingness to settle debt, rather than to
bills often is necessary to get credit. Unfortunately, this ignore the practice of debt settlement, particularly in
hurts many married, separated, divorced, and widowed cases where an individual has even settled the debt
women. There are two common reasons women dont incurred by a partner or ex-partner.
have credit histories in their own names: they lost their Bureau statistics have clearly identified women as
credit histories when they married and changed their a lower risk and this should be reflected in the
names; or creditors reported accounts shared by married risk management policies of financial institutions
couples in the husbands name only. The Act further and in the pricing of credit to women seeking
encourages women to contact their local credit bureau(s) business finance.

68 CREDIT REFERENCING ISSUES

 Credit granting institutions such as MFIs need to be are effectively excluding a large part of the
able to advance credit track records to the overall population of which mostly women from building
credit statistical pool through a revised mechanism up reputational equity that they are building through
that reduces the high costs that currently characterise their involvement with institutions such as MFIs.
the process. At present, participation in the system A concerted effort needs to be made on the part of
implies a considerable cost to the MFI (particularly government, credit granters and credit bureaus to
since MFIs cannot negotiate on the same basis as increase public awareness and information on credit
large banks) through the National Loans Register. The referencing issues, with a view to enabling consumers
Register, in turn, requires a sophisticated information to resolve negative histories and positively manage
management system to participate. Such oversights their credit reputations.

CREDIT REFERENCING ISSUES 69