South Africa SME Fund

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A public-private investment fund designed to scale high-growth small and medium enterprises (SMEs) by mobilising capital and professional investment management to drive transformation and job creation in South Africa.
What are the main aims and objectives?

The South Africa SME Fund was established to address structural barriers to growth for small and medium enterprises (SMEs), including limited access to capital, a fragmented support ecosystem, and lack of opportunities for black-owned and managed businesses. Its main objective is to foster inclusive economic growth by investing in professional fund managers who support scalable SMEs, with a strong focus on job creation and economic transformation. The fund aims to crowd in additional private sector and institutional investment, strengthen the country’s venture capital ecosystem, and support first-time and diverse fund managers. It places strict mandates on supporting black-African, Indian, and Coloured owned and managed enterprises, aiming to deepen transformation, catalyse innovation, and boost the sustainability of early-stage businesses in South Africa.

How does the program work?

The South Africa SME Fund operates as a fund of funds, meaning it invests in a portfolio of professionally managed venture capital and growth funds, rather than deploying capital directly to individual SMEs. By doing so, the policy leverages established investment and support infrastructure, scaling its reach across multiple sectors and stages of business growth. Its primary tools are equity investments and tailored support into accredited fund managers, who are rigorously assessed for sector expertise, track record, and alignment with transformation goals. The Fund is required to invest at least 50% of its capital with fund managers supporting black-African-owned and managed businesses, and at least 25% with Indian and Coloured owned and managed SMEs. The remainder is allocated at the manager's discretion, but all investments must drive high-growth, job-creating potential.

The fund’s coverage includes early-stage startup funding, growth capital, and special interventions. A notable feature is its backing of first-time and diverse fund managers through the Fund Manager Development Programme, designed to boost industry transformation and expand the pipeline of black investment professionals. The SME Fund also invests in innovation accelerators such as Grindstone, and has championed the #PayIn30 campaign to support SME cashflow by encouraging faster supplier payments.

During and following the Covid-19 pandemic, the Fund launched the SMME Crisis Partnership Fund—deployed with development finance partners and Gauteng provincial government—to provide R300 million (about $16 million) in debt to township and informal businesses. The SME Fund’s investments span seed-stage (through the R300 million Seed Fund of Funds allocated in 2024) to growth and expansion, with eligibility criteria set by the partner fund managers and typically focused on SMEs with enterprise value under R100 million. Across its portfolio, the Fund applies robust monitoring, with annual integrated reports detailing financials, transformation performance and impact measurement.

What is the overall cost?

Since its formation in 2017, the South Africa SME Fund has raised over R2 billion (approx. $107 million as of August 2025) through contributions from more than 50 listed South African companies and the Public Investment Corporation (PIC). This includes the initial R1.4 billion capitalisation, a R300 million Seed Fund of Funds, and a R300 million SMME Crisis Partnership Fund.

How was it implemented?

The South Africa SME Fund was created after the 2016 CEO Initiative—an alliance of private businesses, government departments, and labour unions—identified SME financing as a key barrier to economic growth. Established formally in 2017, implementation began by securing pledges from over 50 major corporations and the Public Investment Corporation. The fund was set up as an independent, professionally managed entity overseen by an external board and investment committee to ensure clear governance and accountability. From the outset, the Fund adopted a fund-of-funds model, selecting experienced venture and private equity managers to deploy capital, coupled with strict requirements for supporting previously disadvantaged entrepreneurs.

Implementation included the design and launch of the Fund Manager Development Programme to support industry transformation, and the backing of strategic ecosystem initiatives such as Grindstone and the #PayIn30 campaign. During the Covid-19 pandemic, collaboration with the Gauteng provincial government led to creation of the SMME Crisis Partnership Fund, which used a risk-sharing structure to boost debt support for township businesses.

Operational systems put robust impact measurement and annual reporting at the core, enabling ongoing refinement and adaptation. Implementation relied on partnerships with both established and emerging fund managers, integration with government small business policy, and continuous stakeholder consultation. Over time, the Fund has adjusted investment focus areas and expanded its support programmes in response to evolving gaps identified in the South African entrepreneurial ecosystem.

What impact has been measured?

By 2023, the South Africa SME Fund had supported investments into over 480 SMEs, distributed R598 million in financing (approx. $32 million), and provided more than 900 loans through affiliated programs—over 80% to black-owned businesses. The Fund played an anchor role in the launch of multiple new venture and growth capital funds, unlocking a further R1.39 billion in third-party capital.

In 2022, the Endeavor Local Scale-up programme—supported by the Fund—reported 26 local companies creating an impressive 3,700 jobs.

What lessons can be learned?
  • Critics have noted that while large and well-networked SMEs benefit from the Fund’s investments, many rural and township firms still encounter barriers to inclusion in the formal funding ecosystem.
  • Media analysis has highlighted that some entrepreneurs find eligibility criteria complex or feel the due diligence process favours companies with prior exposure to institutional investors.
  • Lessons from the SMME Crisis Partnership Fund show that risk-sharing mechanisms and public-private partnership structures help de-risk lending to underserved market segments and could be scaled nationally.
  • Industry reviewers call for more flexible funding models and simplification of grant or loan application processes, particularly for first-time founders or those from historically excluded backgrounds.
  • The Fund’s annual integrated reports recommend ongoing adjustment of sectoral priorities, continuous support for new fund managers, and improved outreach to non-urban and non-traditional businesses to widen impact and equity.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom