Assessing the financial inclusion of micro-, small, and medium enterprises(MSMEs) in South Africa: 2010 and 2020 FinScope MSME data

Abstract

The financial inclusion of micro-, small, and medium enterprises (MSMEs) as major stakeholders in the economy remains meagre. MSMEs are the strongest economic activity drivers worldwide, yet many researchers have studied the effect of financial inclusion on MSMEs as it has become a global priority. International and local studies have agreed that removing certain financial system constraints can improve the financial inclusion status of MSMEs. Yet, local studies focused on this concept for South African MSMEs are scarce. The objective of this study is to assess the financial inclusion of micro-, small, and medium enterprises (MSMEs) in South Africa. This study offers the first of its kind to use FinScope MSME 2010 and 2020 surveys to assess the financial inclusion of MSMEs in South Africa and uses the Multiple Correspondence Analysis (MCA) to derive a financial inclusion index to assess the financial inclusion status of MSMEs. This study aims to fill the gap in the literature by using recent data and a different methodology to measure the financial inclusion of MSMEs in South Africa. The relationship between the computed MSME financial inclusion index and various explanatory variables is tested using the Ordinary Least Squares regression model. Thereafter, the likelihood of being financially excluded is measured by running probit regressions.