Global Entrepreneurship Monitor (GEM) executive director Mike Herrington says he and his team are looking into the accuracy of various data in its annual global report.
This, after the GEM team discovered that several of the 54 countries surveyed in the year's report - released in January - had seen significant changes in the rate of entrepreneurship for adults that the report tracks.
In Malaysia the total early stage entrepreneurial activity (TEA) rate rose by a massive 16.9% from 2016 to 2017 – from 4.7% to 21.6%. The rate measures the number of adults between 18 and 64 involved in starting or running a business that is less than 3.5 years old.
This is even more strange when one considers that since 2009, the country's TEA rate has never exceeded 6.6%.
Much of the increase in the latest report has come from a supposed rise in nascent entrepreneurship - which the report defines as the percentage of the adults that have started a business that is less than four months old and that has not paid salaries or wages.
The rate in Malaysia stands at 15% - now the third highest of its kind among GEM countries surveyed in 2017/18. In 2016/17 it stood at a mere 2%.
“We are not sure what is happening in some of the countries,” Herrington (pictured above) admitted in a phone call with Small Business Insight earlier this week.
'Malaysia not concerned'
“Malaysia don’t seem to be concerned about it (the significant increase),” said Herrington. He said he had written to the teams of various countries including Malaysia, Mexico and Argentina, and was waiting for their urgent response.
Those countries that saw significant rises or falls in their TEA rate between 2016 and 2017 also include (see map):
He said with changes such as the move by more people to use cellphones over landlines, sampling is becoming a problem. He questioned whether enough youth or older persons were captured by the report, as it's common practice that many don't answer calls from unknown numbers, which survey companies might choose to use.
Curiously, this year’s report fails to point out this rather strange occurrence in the data. Herrington said the global report was written so quickly that an analysis could not be done on this finding.
While the strange data occurs just two years after an election in Argentina which saw left-wing Kirchnerists replaced and months ahead of a critical poll in Malaysia, Herrington said he was “100% certain” that there was no political interference in the findings.
Research community divided
The question over the findings comes amid growing divisions over entrepreneurship research – with the emergence several years ago of the Global Entrepreneurship Development Index (GEDI).
The index, first run in 2011, uses GEM data along with other indicators and is an attempt to create a policy tool by including a range of additional measures which influence entrepreneurship in a country.
The index was conceived by George Mason University’s Zoltan J. Acs and László Szerb, both formerly members of GEM Hungary.
The publication of the index has caused confusion in the research community, over the entrepreneurial rate and measure of support for entrepreneurs in each country.
For example, while GEM ranks Ecuador as the most entrepreneurial among 54 countries surveyed in 2017/18, GEDI in 2018 ranks the US as the country with the best entrepreneurial support.
In the latest GEDI, Acs and co-authors Ainsley Lloyd and Szerb note that: "Good policy can only be generated through focusing the discussion on innovative, growth-oriented entrepreneurship, not the self-employment captured by GEM’s TEA rate".
The team goes onto say that GEDI's definition of entrepreneurship is driven not by necessity entrepreneurship but by opportunity.
Says GEDI in the same report: "While many think of the output of ecosystems as (producing) more start-ups, like GEM, this is wrong and misleading. The dual service created by entrepreneurial ecosystems is (1) resource allocation towards productive uses and (2) the innovative, high-growth ventures that drive this process."
'Can't rely on GEDI index'
GEM no longer includes Hungary among the countries it covers. Herrington said GEM had asked them a few years ago to leave as (Acs) "had tried to use GEM data for GEDI”.
"A number of organisations say they don't want to use a composite index and can't rely on GEDI's (index)," he said,
However he admitted that GEM's new Entrepreneurial spirit measure is the first attempt to form a composite measure. The measure is based on a combination of a country's degree of entrepreneurial awareness, opportunity perception, and entrepreneurial self-efficacy.
Saudi Arabia is ranked number one on the index (ranked as only the 25th most entrepreneurial country by GEM). When Small Business Insight pointed out that this was rather strange, Herrington defended the country's place at the head of the index.
Commenting on the strange GEM data, Acs said he had “no idea what has caused this strange development in the GEM data”. “One reason can be a change in vendor that does things differently but I have no real idea,” he said.
The cat fight between these two groups means researchers and policymakers will be none the wiser on what is really happening in their country. The strange data at GEM now only adds to the confusion. In the end entrepreneurs could lose out.
Correction: The initial version of this post had it that the GEM team had approached the University of Michigan to get assistance in assessing the report's sampling methodology - when in fact GEM still intends to do so. We regret the error.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.Herrington said he and his team are looking at the report's sampling methodology and that they would be approaching the University of Michigan to get assistance in assessing this, as this may have affected the results in some of these countries.
Small and micro businesses in India are responsible for fewer non-performing loans at banks than are large companies, a new report finds.
The report by the Small Industries Development Bank of India (Sidbi) and TransUnion CIBIL found that while the overall non-performing assets (NPA) rate remained between 8% and 11% for small and micro firms in the last two years, the NPA rate of large corporates has more than doubled from 7.9% to 16.9% over the same period (see below graph).
Interestingly the report – which intended to be released quarterly to track MSME credit activity – finds that among small and micro borrowers, it’s NPAs are highest for loans of less than 1 million rupees and those of 50 to 100 million rupees.
The report also found that in the number of first-time business borrowers – mainly micro firms – has increased significantly has increased from 270,000 between January and June 2016, to 400,000 recorded between July and December last year.
In addition firms with loans of under 10 million rupees have grown their credit exposure by 20% between December 2016 and December last year, compared to just 0.5% growth for those firms taking out loans of 1 billion rupees.
Most small and micro firms tap public banks for funding, but private banks are getting stuck in too – having increased their market share from 34% to 40% for the sector between December 2015 and December last year.
The increase has been driven in part by the ratcheting up of the Indian government’s priority sector lending rules – to get banks to lend more to small firms (see this post).
This is good news, as the NPA rate for small and micro firms at private banks has remained fairly constant at 3.7% over the same two-year period – while climbing from 10.3% to 12.4% at public-sector banks.
Credit guarantee scheme boosted
Last month India’s small business minister Giriraj Singh (pictured above) announced the injection of 50 billion rupees ($770 million) by the government into its credit guarantee scheme that helps small businesses to get loans from banks.
This follows an announcement over a year ago by Prime Minister Narendra Modi that the scheme would be recapitalised (see this post).
The scheme, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), was launched in 2000 with a corpus of 25 billion rupees. The new capital brings the corpus to 75 billion rupees ($1.1bn).
Banks are able to use the fund to guarantee up to 85% of any loan they provide to small businesses. The fund acts as a safety net, reimbursing banks when small firms fail to repay loans. In turn small firms don’t have to rely on providing collateral to secure a loan.
The government, which runs the scheme with the Small Industries Development Bank of India (Sidbi), has also adjusted some rules to make it easier for smaller firms to access the scheme. IT infrastructure will also be updated.
The changes will mean among other things that firms that take out a guarantee will no longer pay a fee on the amount lent out, but rather on the outstanding amount.
In addition, 75% of a loan above 5 million rupees will be covered by the scheme, up from 50%, a practice note says.
Importantly, the scheme will now allow guarantee cover for the portion of credit facility (up to 20 million rupees) not covered by collateral security. Termed partial collateral security, the option will become applicable to any new loan guaranteed after April 1.
Since its inception the scheme has approved three million guarantees covering loans amounting to over 1.4 trillion rupees ($25.8bn). In this time the government has paid out 43.2 billion rupees to 166,578 claims (or three percent of all disbursals).
Those firms that received funding created 9.9 million jobs and contributed 83.8 billion rupees in exports.
If this is indeed the real default rate – it is extremely low when compared to that of the overall NPA rate that banks report.
Yet like many such state credit guarantee schemes, there is no publically available evaluation on the scheme, making it difficult to test out Sidbi's numbers.
An OECD report last year of existing studies said though there appears to be evidence that credit guarantees are positive for company access to debt finance, less is known about the financial sustainability of these programmes. Worryingly, it said some studies suggest that loan guarantees are associated with increased default risk of beneficiary companies.
This is particularly concerning given the massive ramp up in lending by the scheme reported last year by Small Business Insight (see this post).
A measure introduced in a circular by the scheme dated 14 March will allow small finance banks with paid up equity capital of at least 1 billion rupees to now also offer the guarantee.
This may help, given that non-performing loans are concentrated more in public-sector banks.
In the end what is needed is better data. States need to commission rigorous evaluations of the performance and cost effectiveness of such schemes. Only then will one know if those firms supported and jobs created will really prove sustainable.
Timm is a South African who writes on small business. He was briefly on holiday in February. Follow Small Business Insight on Twitter at @Smallbinsight.
Is South Africa’s Department of Small Business Development about to be axed?
The department – which has long come under fire for doing too little to support small business (see this post), was set up in 2014 by Jacob Zuma, who last month stepped down as president.
Cyril Ramaphosa, who took over as head of state, has vowed to down size the cabinet. In his State of the Nation Address last month he said a review would be carried out on the number and size of government departments.
Following the speech, Small Business Minister Lindiwe Zulu survived a cabinet reshuffle Ramaphosa carried out last month.
But a report by City Press earlier this month quoted an unnamed insider as saying the department is likely to be dissolved and allocated a director-general in the trade and industry department.
At present the Department of Small Business Development is struck with having to carry out a R1 million forensic audit into a poultry co-operatives project in the Mpumalanga.
This, after the Small Enterprise Finance Agency (Sefa) released the findings of a forensic investigation into a R20-million loan deal, in which instances of embezzlement, fraud and theft were uncovered.
In addition it has struggled to get a Sefa enterprise development fund off the ground that intends to take private-sector commitments from businesses which can then score Black Economic Empowerment (BEE) points by capitalising the fund.
Last month Parliament was told that the fund has been held up for over two years, because the Department of Trade and Industry has not given Sefa the go ahead to allow those firms that make commitments, to score BEE points.
Adding to a long list of promises it has yet to fulfil, the department has yet to set up a promised Co-operatives Development Agency to support co-operatives.
More than two years after a review of its programmes (see this post), the department is only now finalising its new approach to assisting small businesses, in what it calls the “portfolio for architecture” project.
The department outlined in Parliament last month that the approach would see the department tailor-make support programmes depending on the phase a business was in – whether this be pre-start-up, start-up, growth or decline (see the presentation here).
But DA member Toby Chance asked why since a review conducted by the department in 2015, it had taken over two years to develop a portfolio architecture that had merit.
He noted too that the presentation did not recognise what was happening in the private sector in the business life cycle.
Zulu responded by saying that the department is still fairly new and that it would take time for things to be developed. She said the that the department is still deciding on what aspects should be dealt by Sefa and Seda.
This doesn't do much to justify the continuing funding of a separate department - to the tune of almost R1.5 billion ($130m) in the 2018/19 financial year. This will climb to almost R2.6bn as the first tranche of a R2.1bn fund for start-ups is allocated to the department.
Keep minister, cut department?
Better perhaps would be to do away with a separate department, but to perhaps keep the role of a minister - which is what Canada and New Zealand do, where the small business minister is part of the trade or economic department.
South Africa could benefit from the co-ordinating role a minister could play, But this might work better if the minister were to be placed in the presidency - such as Brazil did in 2013 when it selected a small business minister, Guilherme Afif Domingos.
The position was cut in 2015 as part of a downsizing of ministries carried out by then president, Dilma Rousseff. Domingos now heads the state's small business agency Sebrae.
The department’s Lindokuhle Mkhumane last month told Parliament that it had established a national interdepartmental coordinating committee made up of representatives from 24 government departments which meets once a quarter.
Mkhumane said the committee has for example engaged with the Construction Industry Development Board (CIDB) about aligning its Contractor Incubator Programme (CIP) with Small Enterprise Development Agency (Seda) incubators.
This could play a valuable role -- similar as that played by Malaysia's SME Development Council. Perhaps Ramaphosa - a former businessman himself - needs to head the South African one up, to ensure its effectiveness.
This, together with keeping a small business minister close to Ramaphosa in the presidency could just be what the country needs. What it surely can do without - is more of the same poorly performing bloat.
Only a few countries have small business ministers - here they are:
Democratic Republic of Congo
Timm is a South African who writes on small business. He was briefly on holiday in February. Follow Small Business Insight on Twitter at @Smallbinsight.
Banks' lending in South Africa to large corporate companies over the last five years grew at almost double the pace of that to SMEs, reveal Reserve Bank figures.
While lending to corporates expanded by 60% in the last five years (between November 2012 to November 2017), loans to SMEs grew at a slower 39%, but still faster than the overall expansion in credit of 32% over the same period (see Graphic 1, below), figures drawn from the Reserve Bank by Small Business Insight show.
The figures are from the Reserve Bank's Bank Supervision department BA200 forms (see them here).
Those for SME lending include two categories – namely: SME Retail lending (retail loans of up to R7.5 million - or $600,000 for businesses) and SME corporate (loans to firms with an annual turnover of up to R400m - $33m).
The latest report follows a 2016 Financial Mail story which revealed that banks' credit exposure to small businesses had remained almost flat since the 2008 recession, while increasing for large businesses (see this post).
The financial sector code compels banks to invest billions of rands for various targeted investments, including black farmers, black SMEs, transformational infrastructure and affordable housing. This should therefore be driving far more lending to small businesses.
Will new code driving SME lending?
Yet increased credit does not necessarily mean more black SMEs are getting funding. While Nedbank’s loans to black SMEs increased from R1.5bn in 2012 to R4.5bn last year, the number of firms financed fell from 4,300 to 2,500.
The new amended financial sector code was gazeted by Trade & Industry Minister Rob Davies in December last year.
Banks must lend a further R32bn collectively to finance equity deals for big investors to buy stakes in large companies (B-BBEE transaction financing) as well as for black business growth and SME funding.
It remains to be seen whether the new, higher targets will drive up the increase in bank lending to small businesses, in line with the recent increase in credit to large companies.
To do so, the Reserve Bank should look at regularly publishing easily accessible figures -on both overall bank lending to SMEs in general and that to black SMEs in particular.
This may go some way to clearing up whether indeed banks are (as they claim) doing enough to fund small businesses and black-owned small firms - or not.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a