South Africa
Financial services 6 Sep 2022

4 reasons for informal businesses to open a bank account

Bank accounts present small businesses a lifeline in tough times

Naledzani Mosomane, Head of Enterprise Development at Standard Bank shares 4 reasons for informal businesses to open a bank account

Entrepreneurs are the lifeblood of South Africa’s economy and central to the country reaching its growth and development potential.

While small and medium enterprises (SMEs) across South Africa represent 98% of businesses and employ more than half of the country’s workforce, they’re also the most at risk financially.

The COVID-19 pandemic and recent economic downturn has placed SMEs across South Africa under pressure, especially informal businesses that rely almost exclusively on cash.

In tough times “moving away from cash by getting banked can help informal businesses become more secure, more profitable, and more efficient,” says Naledzani Mosomane, Head of Enterprise Development at Standard Bank South Africa.

Mosomane shares four reasons for small businesses to open a bank account.

1) When banked you’ll earn more, work better and save more

Stats don’t lie. The World Bank reports that formalising a business improves productivity, makes it more profitable and provides access to finance. Salaries in formal businesses are also, on average, 19% better salaries for workers compared with salaries in the informal economy.

“Using a bank account is one of the most important steps in formalising your business, and as we’ve said in the past, will keep your money safe, let you earn interest on earnings, make money more accessible, and help you achieve your financial goals more quickly,” says Mosomane.

2) A bank account provides the financing and access to advice key to building bigger, better businesses

In sub-Saharan Africa, 51% of businesses lack access to funding. Having a bank account, however, means that SMEs can access blended finance solutions such as concessional debt and technical assistance grants in addition to equity, giving SMEs the opportunity to access third party capital without bankrupting themselves.

At Standard Bank “we’ve been deliberate in building a range of non-banking solutions that strengthen enterprises. Our Enterprise Direct virtual environment, for example, provides entrepreneurs a team of business bankers and specialists who understand SME needs and are able to match businesses with the right set of solutions,” says Mosomane.

3) A bank account means having an institution that cares on call

During the COVID-19 pandemic, SMEs and other smaller enterprises struggled to survive lockdowns, shutdowns and hybrid working models. Most banks around the world, on the other hand, provided their clients financial support and relief measures. In short, SME’s with bank accounts were assisted by their banks to survive disruption, or pivot to new products or services.

“At Standard Bank, our top Covid priority was to support our business clients to continue to manage their financial commitments and honour payments to their employees. We offered a 3 month moratorium on loan payments, loan extensions, restructurings, and payment holidays. It wasn’t easy, but we knew we had to work as fast as our clients to make sure they survived,” says Mosomane.

4) Bank accounts provide access to digital solutions that streamline your work

McKinsey’s report on how banks can better serve SMEs, shows that banks generally assist SMEs with product innovation while strengthening their digital channels. Mobile credit options, and other sector specific digital solutions available through banks are critical in helping SMEs and even smaller enterprises succeed.

Standard Bank’s digital enterprise model has virtual capabilities, so that “regardless of the size, turnover, and location of a client business, they are always able to access a team of business bankers able to help and guide them,” says Mosomane.

In short, a bank account provides small informal business with the access to capital, advice and technology key to survival by including them in the formal economy. A bank account also “levels the playing field between small and larger businesses by increasing the ability of small businesses to punch about their weight and compete effectively with the big guys,” concludes Mosomane.