Could small businesses in South Africa be aided by measures that encourage bank lending? There’s a possibility, according to an article published by Reuteurs on April 7.
According to the text, South Africa’s National Treasury might create a plan that encourages banks to lend some money to small businesses and consumers. This is a direct response to the coronavirus outbreak, that has put the country on lockdown and threatens South Africa with a financial crisis.
Bank lending: will banks lend money to small businesses and consumers?
Kuden Naidoo, the Central Bank Deputy Governor, mentioned that it’s possible to create a “funding for lending” scheme, which would encourage banks to lend money to business owners and consumers as well.
According to Naidoo, the National Treasury is considering the possibilities of encouraging bank lending along with the Central Bank. Therefore, bank lending to small businesses could happen soon. The Treasury chose not to go through many details, but mentioned that the funding venues would not be limited locally and would seek help from global partners.
It’s not hard to imagine that the issues caused by the coronavirus outbreak will have a deep impact on economy. South Africa saw its economy slip into recession in 2019. The expectations of any improvement went downhill as soon as the nationwide lockdown started. Now, only essential services such as grocery stores are allowed to be open and operate normally.
Economy will survive
Although things don’t look good for the South African economy, the Central Bank has announced and implemented a few other measures to help business owners and mitigate the impact of this outbreak over economy. One of this measures include the recommendation for banks not to pay dividends nor bonuses for 2020.
Kuden Naidoo said that companies that had already announced dividends were obligated to pay them along with the SARB expected where this was the case dividends would be distributed.
Bank lending worked in the past
It’s impossible to predict how things will go exactly. But schemes such as the ones being sought by Naidoo aren’t new. A few programmes that incentivise bank lending were introduced in 2012 in the UK following the 2008 financial crisis, which put the country on the brink of despair.
According to Naidoo, there are examples from around the world, where banks accepted to lend money to small businesses and consumers. In exchange, the government agreed to to cover part of the losses that incurred.
If this will be the case in South Africa and bank lending will become a reality, only time will tell. Anyway, it’s good to know that there are people trying to manage things and put economy back on track. The lockdown may prevent the virus from spreading, but its financial impact could be devastating if there is not enough planning to help businesses and consumers overcome this challenge.
No country was ready to deal with this outbreak. Even the U.S.A., China, European countries and Brazil have been struggling to prevent the virus from spreading and to mitigate its negative effect over economy. This is possibly the biggest challenge the world has faced since the turn of the century, and to overcome it, governments from all over the world will need to consider a range of opportunities and seek as much help as possible, be it local or international.
What do you think about all this? Will your business depend on bank lending? How are you facing the lockdown in South Africa and what do you expect from the government next?