Deputy finance minister punts SA's informal sector in combating high unemployment

Ashor Sarupen, the deputy minister of finance, has made a compelling case for the potential of South Africa’s informal sector to address the persistently high unemployment rate and emphasised the need for collaborative efforts between the government and the private sector.

During his speech at the Global SME Finance Forum, Sarupen noted that while the informal sector contributes significantly to the economy—representing 6% of the Gross Domestic Product (GDP) and providing 17% of employment—it remains largely unsupported, struggling with growth and productivity.

Sarupen said that microfinance is a proven tool for promoting inclusive growth and alleviating poverty.

“By offering small loans and savings accounts, it empowers individuals to start businesses and improve their financial standing. The Grameen Bank in Bangladesh exemplifies this success—providing small loans to individuals, especially women, who lack access to traditional banking,” he said.

“Its group lending model, built on trust and social capital rather than collateral, has been replicated across Asia, Africa, and has even made inroads in the United States—illustrating its global potential.”

Sarupen added that South Africa’s experience mirrors global challenges as financial services are available but often underused by excluded and underserved groups.

Sarupen said that since its adoption of National Treasury’s Financial Inclusion Policy in 2023, there has been an improvement in coordination among stakeholders and highlighted the need for legislative reforms and alternative financing instruments to reduce information gaps.

He said that supporting MSMEs through platforms like the Johannesburg Stock Exchange (JSE) is key, adding that collaboration was essential.

“Governments, the private sector, development finance institutions, and multilateral partners must work together to support MSMEs. Governments, the private sector, development finance institutions, and multilateral partners must work together to support MSMEs.”

Sarupen added that emerging partnerships with non-bank finance actors—such as equity, crowdfunding, and venture capital—are promising and must be scaled to close the MSME funding gap.

He added that in line with the G20/OECD Principles on SME Financing, the government must support diverse instruments, enhance transparency, improve financial literacy, and promote timely payments.

“National Treasury’s focus is on advancing individuals from access to usage—ensuring that financial tools are used regularly and effectively to build resilience and inclusion,” he said.

Sarupen added that South Africa’s G20 Presidency Priority Paper, “Moving from Access to Usage,” provides valuable insights into innovative approaches to enhance the use of financial services across payments, savings, credit, insurance, and remittances, with a strong emphasis on underserved groups—women, youth, small businesses, and informal workers.

The Paper identifies critical areas for action, including improving financial literacy, strengthening consumer protection, and designing products that meet the needs of the communities we serve.

“This work is coordinated through the Global Partnership for Financial Inclusion (GPFI) Working Group, which falls under the G20 Finance Track,” Sarupen said.

“South Africa is also actively supporting the Implementation Framework of the G20 Global Partnership for Financial Inclusion Action Plan for MSME Financing. This has led to collaborations with both G20 and non-G20 countries to share insights, innovations, and challenges in advancing MSME finance.”

BUSINESS REPORT