Debt financing the capital requirements of informal market traders

Abstract

This paper describes a case study that was undertaken to determine whether formal sector personal debt financing might contribute to the funding of South African informal market traders. The case study was conducted at the Natalspruit informal market in Ekhurhuleni, Gauteng. Quantitative questionnaire surveys and a financial diaries project established that market traders in the market have capital requirements large enough to justify the use of formal sector debt financing, can generate sufficient operating profits to pay for formal sector debt financing and would be willing to utilise formal sector debt financing if given the opportunity. However, formal sector debt financing is most relevant to those informal market traders with the skills and motivation to utilise financing effectively and who are willing to inject more formality into their businesses.

The impacts on informal financing strategy of small and micro enterprises by interest rate risks and public health emergencies

“…Therefore, policymakers should carefully consider the potential impact of monetary policies on both types of financing. Additionally, Schraader et al ( 2010 ) suggest that official financing can provide support for informal financing dealers, which may help to stabilize the informal finance market. Several policy recommendations for SME financing can be derived from the main results of this study.…”

“…SMEs employ a range of financial strategies, including no external financing, formal financing, informal financing, and both formal and informal financing. Micro-finance or microcredit, with a global size exceeding USD 34 billion, can be considered as a form of formal financing for SMEs (Bruton et al, 2021 ; Chen et al, 2017 ; Corrado & Corrado, 2017 ; Nguyen, 2019 ; Schraader et al, 2010 ). Trust-related and economic factors are key drivers for SMEs, as argued by Jackowicz et al ( 2021 ).…”