New Research Shows Why More Funding Alone Won’t Close SA’s MSME ‘Bankability Gap’
Fetola research finds that while 86.6% of growth-stage MSMEs demonstrate sustainable sales and 76.8% are profitable, only 34.7% have credible management reports and just 13.3% can produce a 12-month budget.
South Africa keeps talking about the MSME funding gap, but capital alone does not solve it. Businesses also need to become bankable.
That is the central argument of new research from MSME development specialist Fetola: many established small businesses are trading and profitable, but still lack the financial systems and planning needed to give funders, investors and commercial partners confidence to back their next stage of growth.
Fetola’s new MSME Bankability Gap Report, based on financial verification data from 177 established, growth-oriented businesses, found that 86.6% demonstrated sustainable sales and 76.8% were profitable. Yet only 53.3% had up-to-date financial records, 34.7% had credible management reports and just 13.3% could produce a 12-month budget.
Fetola describes this disconnect as the MSME ‘Bankability Gap’, the divide between demonstrating commercial traction and demonstrating the financial readiness required to access funding, procurement opportunities and growth capital.
“The Missing Middle is not simply a capital gap. It is a bankability gap,” says Grant Prince, Head of Impact Investing at Fetola. “Many of these businesses have customers, generate revenue and make a profit. What they often lack are the systems, financial information and management disciplines that allow an investor, lender or commercial partner to assess the business with confidence.”
“For too long the ecosystem has viewed MSME growth primarily as a funding challenge. Yet our experience over more than 20 years suggests that capital is rarely the only constraint,” says Catherine Wijnberg, CEO of Fetola.
“The businesses that go on to grow sustainably are those that develop the systems, disciplines and resilience needed to build confidence long before they seek funding. If we want to improve successful outcomes for entrepreneurs, funders and development programmes alike, we need to pay as much attention to readiness as we do for access to finance.”
Commercial activity does not always equal financial readiness
The report suggests that financial weakness can remain hidden in commercially healthy businesses. Although more than three-quarters of the businesses assessed were profitable, 50% were experiencing cash-flow pressure, while only 66.2% were assessed as financially stable over the following six months. Median annual sales were approximately R995,000 and the median net profit margin was 5.77%, leaving little room for error.
One of the strongest findings was the relationship between basic financial planning and resilience. Only 13.3% of the MSMEs could produce a 12-month budget, yet 90.9% of those that could were assessed as financially stable over the following six months, compared with 65.3% among businesses without one.
“Budgeting sounds basic, but it is a powerful signal of management discipline,” says Prince. “It forces a business to look forward, understand its cash requirements and make decisions before problems become crises.”
The study found similar patterns in the use of financial systems. Where accounting systems were integrated with business bank accounts, 77.6% of MSMEs had up-to-date records, compared with 24% where there was no bank integration. Where management accounts had been audited or externally reviewed, 63.5% were assessed as credible, compared with 20.6% where they had not been audited or reviewed.
A different way of looking at the funding gap
Fetola argues that the findings matter across the MSME ecosystem. For funders and investors, weak deal flow may partly reflect a readiness problem before due diligence. For corporates and procurement programmes, commercially active suppliers can still present risk if their financial systems cannot support larger contracts. And for enterprise-development organisations, preparing businesses for investment requires more than compiling documents and applications.
“If the problem is defined only as a shortage of capital, the obvious response is to mobilise more capital,” says Prince. “But if part of the problem is a shortage of businesses that are genuinely ready to absorb and manage that capital, then we also need to invest in building stronger businesses upstream.”
Fetola’s report proposes a seven-step pathway to strengthening bankability, including separating personal and business finances, bringing records up to date, using accounting systems properly, strengthening internal controls, producing regular management accounts, setting a 12-month budget and forecasting cash flow.
Prince says these are operating disciplines that make a business more transparent, resilient and easier for a funder, investor or commercial partner to assess.
“The Missing Middle is already economically active,” he says. “The opportunity is to convert more of that commercial activity into investment confidence, so that funders can deploy capital with greater confidence and businesses can use it successfully to grow.”
About the research
The research draws on financial verification data from 177 growth-oriented MSMEs in three Fetola accelerator programmes. The businesses operated across all nine provinces and multiple sectors, and were assessed between April and July 2025 through Fetola’s Financial Verification process, including diagnostic reviews by qualified accounting professionals.
The full Fetola MSME Bankability Gap Report and Executive Summary can be downloaded here:
https://fetola.co.za/