By: Khantse Radebe
Asset-based finance has emerged as one of the fastest-growing financial products in South Africa, reflecting a shift in how businesses and financial institutions are navigating the complexities of today’s economy. WesBank's asset-based finance division secured R22 billion in new business, with a total portfolio valued at R39 billion by June 2024.
In South Africa, the financing model’s popularity can be attributed to several factors, including the need for businesses to maintain liquidity, the tightening of traditional credit markets, and the broader economic pressures.
Impact on industry
The impact of asset-based finance on the primary and secondary sectors of the South African economy can be substantial. For many companies asset-based finance can become an indispensable cash preservation tool ensuring growth and sustainability instead of depleting working capital resources. This is especially true in capital-intensive sectors such as mining, construction, agriculture, manufacturing, and logistics.
In mining, it provides critical capital during economic downturns, leveraging machinery and vehicles for funding. Similarly, in construction, it unlocks capital tied up in equipment or property, by providing liquidity. In manufacturing, which declined by 6.4% in March 2024[1], it supports cash flow management, allowing companies to avoid operational disruptions.
Agriculture, which saw a 2.1% contraction in the second quarter of 2024, due to climate issues[2], can benefit from the flexibility of asset-based finance. Given its reliance on seasonal cash flows and market volatility, flexible repayment terms can be structured such that capital payment is matched to revenue expectations from harvests insulating farming activities throughout critical cycles of production.
Lastly, South Africa's transportation sector, which heavily relies on road transport, is significantly impacted by fluctuating fuel prices. Asset-based finance can play a role in helping businesses in this industry manage these rising costs and maintain competitiveness in the face of economic pressures.
Driving economic growth
Beyond its impact on individual industries, asset-based finance can play a significant role in driving broader economic growth in South Africa. By providing businesses with the means to access capital, this financial product positively contributes to investment, creating jobs, and promoting innovation by supporting new technology as industries mechanise their operations. In an economy where traditional lending avenues are often limited, asset-based finance offers a viable alternative that supports entrepreneurship and economic resilience for SMEs in particular.
For South Africa, a country with both significant challenges and opportunities, the rise of asset-based finance offers a productive path forward - one that supports industry, promotes economic resilience, and drives sustainable growth across key sectors such as mining, construction, agriculture, manufacturing, and beyond. For SMEs, this approach opens doors to growth opportunities that were previously out of reach, ensuring that they can contribute meaningfully to the country’s economic development.
* Radebe is a chief executive officer of Asset Based Finance (ABF): Commercial and Corporate Segments.
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