No Shortage of Money: Why is Accessing Funding Such a Struggle in South Africa?
No one knows the answers, but information, collaboration and basic business savvy has to be the starting point
A recent report by a coalition of nonprofit and civil society organisations (CSOs), including SANGONeT, on the ‘Sustainability of the South African Civil Society Sector’, highlights a number of challenges faced by nonprofit organisations (NPOs) and CSOs in terms of accessing funding. The general impression seems to be that although there are sufficient funding bodies and available funds, problems with distribution, internal processes, accountability and access are hampering progress and causing significant sustainability challenges.
“It seems that in South Africa, a primary challenge is the difficulty associated with accessing funds, as opposed to the actual availability of funds, whether one is a for-profit or nonprofit organisation,” says Catherine Wijnberg, director of the Fetola Foundation, a nonprofit that strives to assist NGOs, NPOs and small, medium and micro enterprises (SMMEs) to attain new levels of success and sustainability.
Lending at record lows
The access to finance and funding challenge is not limited to the nonprofit sector. In spite of numerous financing options available, from commercial banks to government funding agencies, equity investors and venture capitalists, for-profit businesses are also currently struggling to gain finance, for a range of reasons. Naturally, the global credit crunch has had a huge impact on lending, but other reasons may be that some businesses are deemed too risky, others are early stage start-ups or perhaps do not fit the Black Economic Empowerment (BEE) criteria laid down by government to access support.
In fact, Minister of Economic Development, Ebrahim Patel, recently noted at the launch of the new SME funding body, Small Enterprise Funding Agency (SEFA), that, “In a very short space of time, lending has dropped from near all-time highs to record lows. For example, growth in credit extension last year was the lowest in over 50 years.”
For a country that desperately needs to accelerate growth and bolster civil society interventions, this is not good news. What use are the dozens of funding agencies and options, if getting money out of them is so challenging for the average entrepreneur or non-profit leader?
Nonprofit sector under strain
Nonprofits and CSOs seem to be taking particular strain. “Funding seems to be more and more difficult to access these days,” says Louise Batty of Keep the Dream 196, a child-focussed NPO based in Limpopo. “Most of our funding now comes from overseas donors, and I find that we need to be increasingly proactive and creative with our fundraising if we want to maintain our programmes at their current levels.”
The CSO Study found that, “…there is no doubt that the South African civil society sector is facing a funding crisis. This needs to be addressed on many fronts.” However, it is not just CSOs that are feeling the pinch. Social enterprises and nonprofits that focus on education, training and job creation are also facing increased pressure and competition as a new funding landscape emerges in the aftermath of the recent global economic crisis. With corporate social investment (CSI) budgets curtailed and an ever-increasing number of nonprofits essentially competing for their slice of a shrinking pie, organisations need to reassess their activities and make sure they align closely to funder needs and focus areas.
“From a corporate social investment perspective, funders increasingly look at return on investment just like a banker or investor would - not from a monetary gain perspective, but from a social and economic impact perspective. If we give a certain organisation R250 000 in funding or financing, will that translate into a positive return in terms of job creation, sustainability or building a better community?” asks Clarence Tshitereke, head of the Old Mutual Foundation.
Failure of the Big Two
The Report looks in depth at the performance (or lack thereof) of two of the biggest funding agencies in South Africa (SA), namely the National Lotteries Distribution Trust Fund (NLDTF) and the National Development Agency (NDA).
As far as the latter is concerned, the findings were quite scathing. “CSOs, including this research Coalition, have spoken out against the way that the NLB [National Lotteries Board] governs the lottery, the management of grants and the often poor functioning of the NLDTF [National Lottery Distribution Trust Fund]. (pg 56)” The Report goes on to say that, “Findings from this research process indicate ongoing and serious management problems at all levels of the NLDTF.”
The NDA [National Development Agency] does not fare much better. “Despite the tremendous potential for the NDA to ‘change the course of developmental history in South Africa’, research has shown that it has ‘been unable to disburse funds adequately, and its funding practices cannot be described as developmental’ (Swilling and Van Breda 2006:98).”
The Report concludes that ‘the NDA has similar operational problems to those identified in the NLB. These include application processing delays, payment delays, site visit delays, poor communication with applicants and grantees, and a need for the IT [information technology] / grant management system to be upgraded.’
Knowledge is power
According to Wijnberg, the starting point to financial success in business is a solid understanding of the fundamentals of money, where to find it and how to use it in the organisation. “Simple tools, practical training and basic access to information are sorely needed, especially for nonprofits,” she explains.
Recent regulations seem to embed the need for financial nous, sustainability and capacity in terms of qualifying for funding support. The CSO Report states that “Organisations have to establish that projects are financially viable and that they have the capacity to implement them. Organisations are required to keep proper accounting records and financial reports.”
This seems to be a challenge for many CSOs and nonprofits in general. Simpiwe Somdyala, head of the Masisizane Fund, which supplies soft loans to high potential black-owned and community-based businesses and cooperatives, is forthright in terms of the challenges faced by the funding sector. “In our experience, it is proving more and more difficult to find suitable emerging organisations for our loans. The problem is that many organisations just don’t understand how to manage their own finances or indeed the needs of the funding sector – more education is needed,” he explains.
Victor Mzimela, Head of Enablis business incubator concurs. “A lot of our work is about educating business owners and nonprofit leaders how best to manage their finances, how to retain records and how to build a solid offering so that they become attractive to sources of finance and funding,” he says.
As indicated in the CSO Report and elsewhere, it seems that the funding is out there but additional information and knowledge is needed to access it. In addition, over-reliance on one large funder (such as the NDA) is a recipe for disaster. In business, one would never have just one client, and the same thinking should be applied when assessing funding needs and options.
For individuals and organisations wishing to learn more, an upcoming ‘Access to Finance’ interactive conference for SMMEs and nonprofits will be held in Johannesburg in September 2012. The event will feature a number of business leaders, funding agencies and other experts who will cover how, when and where to get the necessary finance or funding to sustain and grow an organisation. The conference will also address issues around sales and sustainable leadership. For more information, visit: /www.fetola.co.za/ or call 021 701 7466.
- Anton Ressel is an Associate at Fetola Mmoho and has over 15 years experience as an entrepreneur, trainer, business developer and mentor in the emerging business sector.