Recent allegations that a black-owned business struggled to secure funding while a competitor received substantial financial backing have reignited questions about South Africa’s funding decisions.
While the case is developing, the specifics thereof point to a devastating reality that development finance institutions (DFIs) may not be reaching the very businesses they were designed to support.
On paper, South Africa’s DFI ecosystem is robust, with institutions like the Industrial Development Corporation (IDC), the National Empowerment Fund (NEF), the Land Bank and the Small Enterprise Development and Finance Agency (Sedfa) collectively deploying billions into the economy each year.
Their aim is to stimulate industrial growth, support enterprise development and broaden participation in the economy, and in many respects they do just that. Numerous businesses have survived and continue to prosper because of DFI support. But away from headlines, the lived reality of some entrepreneurs is far less certain.
In my work with growing businesses, I regularly encounter entrepreneurs who have invested their own capital, built viable products, secured customers and demonstrated real market demand. They have done the hard work to create operating businesses ready to scale, but most remain stuck because of a lack of access to, not absence of, capital.
There is also growing evidence that a significant share of development finance is flowing towards larger, more established businesses that are already structured, compliant and able to meet the stringent requirements of institutional funding.
Funding applications are highly bureaucratic, with initial screening alone often taking months. Even after approval, disbursement can stretch a further two to three months, and for a scaling business that lag can mean missed opportunities, lost contracts and, in some cases, collapse.
There is also growing evidence that a significant share of development finance is flowing towards larger, more established businesses that are already structured, compliant and able to meet the stringent requirements of institutional funding.
Recent figures from the 2025 financial year show that the IDC approved R13.4bn in funding, yet only R4.2bn was directed towards SMMEs, falling short of its R5.2bn target. Similarly, the NEF funded just 197 SMMEs, disbursing a meagre R1bn.
From a risk perspective it makes sense to fund well-established enterprises, but from a development perspective it raises concern. Development finance institutions are not meant to operate as commercial banks that fund the bankable. They should instead be helping make businesses bankable, and this is where the gap becomes most visible.
South Africa’s SME landscape is increasingly defined by businesses that are too advanced for informal funding, yet not sufficiently structured to meet the demands of institutional capital. This missing middle is often required to demonstrate robust governance frameworks, detailed financial records, co-funding commitments and the resilience to endure long approval cycles.
While a standard process for large corporations, it can be prohibitive for smaller, growing enterprises, stalling viable businesses at precisely the point where they should be scaling.
Compounding this challenge is the nature of how risk is assessed. Private sector lenders are adopting more dynamic models that use real-time operational data like transaction flows and revenue patterns to evaluate businesses. This reflects how modern SMEs actually operate and allows for faster, more contextual funding decisions, and begs the question why DFIs are not evolving in the same direction.
If DFIs continue to apply frameworks that closely mirror those of commercial banks, then their ability to fulfil a distinct developmental mandate becomes questionable. It is not simply a matter of race, although the outcomes inevitably intersect with South Africa’s historical inequalities.
Effectiveness
At its core, it is a question of effectiveness. If DFIs are functioning as intended, we should be seeing a steady pipeline of small businesses scaling into competitive, job-creating enterprises. We should see broader participation across industries and a more inclusive growth trajectory.
Where this is not happening, we must interrogate why. Application processes must be streamlined, digitised and significantly faster. For smaller funding thresholds, decisions should be made within days, not months, and greater collaboration with the private sector could unlock shared resources, improved risk models and more efficient deployment of capital.
Equally important is recognising that development finance cannot end at the point of disbursement. It must extend into the preparation and support of businesses, ensuring that entrepreneurs are equipped with the financial management, governance structures and advisory backing required to become investment-ready.
We know that capital exists in South Africa’s economic system, but whether it is reaching the businesses that need it most is entirely a different story. Until that gap is addressed, the country’s missing middle will remain exactly that — present, full of potential, but persistently missing out on the funding they need to survive and grow.
• Mtwentwe is MD of Vantage Advisory and host of the SAICABIZ Impact Podcast
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