Green SMEs often grapple with the difficulty of accessing sustainable finance, despite South Africa’s well-established financial sector that is structured to cater to the needs of mature businesses rather than nascent and early-stage SMEs. Compounding this issue is the steep cost of financing from non-banking financial institutions. The financial barriers for most SMEs are not limited to the expense of capital alone; they also face obstacles related to information disparities and challenges in preparing for investment opportunities.
Catherine Wijnberg, the founder and CEO of the business growth agency Fetola, has highlighted a significant funding gap for SMEs, particularly those seeking less than R1 million in financing. These amounts are often considered too large for microfinance, too insignificant for venture capital, and too risky for conventional commercial banks. Fetola’s internal research underscores that 71% of SMEs are in need of funding below the R1 million threshold.
Fetola’s recent publication, “The Circular Economy Accelerator Report: A Roadmap for the Success of Small Businesses, Leveraging the Power of Sustainability,” sheds light on the additional difficulties faced by green and circular economy SMEs in securing finance. These challenges are attributed to the relative novelty of the green economy and the inherent risks associated with innovative green business models.
Wijnberg notes that while green businesses are designed to start small and scale quickly, they often lack the necessary collateral and financial history to attract flexible growth financing. The absence of sustainability performance data further complicates their ability to meet the criteria of potential investors. She points out that sustainability tracking and reporting is a specialized skill that many entrepreneurs are not equipped with, which places these businesses outside the risk tolerance of traditional lenders.
In response to this challenge, Nedbank has introduced The Nedbank Green Economy Fund, aiming to finance up to 100 startups in key sectors aligned with Nedbank’s Green Economy Strategy and the United Nations’ Sustainable Development Goals. However, the green SME funding gap is not a problem isolated to South Africa alone.
An OECD report titled ‘Financing SMEs for Sustainability: Drivers, Constraints and Policies’ reveals that green SMEs must navigate a complex ecosystem and often miss out on sustainability-linked finance due to their limited ability to provide sustainability performance data, including ESG assessments. The report suggests that stakeholders in the ecosystem should offer non-financial support to SMEs to help them move towards net zero and overcome knowledge and capacity constraints.
This is where Hloolo comes in. Officially launched by Fetola, Nedbank, JP Morgan Chase, and the Embassy of Finland, Hloolo is the latest phase of the Circular Economy Accelerator (CEA), a multi-year initiative aiming to cultivate a robust circular economy ecosystem in South Africa. Hloolo focuses on bridging the gap between green businesses and the financial and market opportunities available to them.
Maluta Netshaulu, Senior Lead of the Green Economy portfolio for Corporate Social Investment at Nedbank, expresses pride in Nedbank’s involvement with Hloolo. He emphasizes the initiative’s extension of the successful CEA program, which has already aided over 100 small businesses with specialized training and growth support.
As the business case for sustainability strengthens, Nedbank is dedicated to helping SMEs become more resilient and investment-ready, unlocking commercial funding to accelerate their growth and impact. Nedbank’s Green Economy Strategy is designed to make a positive social and environmental impact and contribute significantly to the United Nations Sustainable Development Goals, as revealed by Netshaulu.
