THE INFLUENCE OF PRIVATE AND PUBLIC FINANCE ON THE PERFORMANCE OF SMMEs IN THE FREE STATE: A CASE OF AFRO HAIR SALONS IN MANGAUNG METROPOLITAN AREA

Abstract

This study examines the combined influence of public and private funding on the growth and profitability of small, micro and medium enterprises (SMMEs) in the beauty and cosmetology industry. The study drew from an awareness of the fact that the growing body of literature that identifies finance as a major obstacle to the performance of SMMEs in developing countries tends to be indiscriminate about the nature and source of funding. The scant literature that examines the isolated influences of private and public funding on SMME performance makes the unravelling of the combined influence of these different funding sources on the performance of emerging firms a distant reality. More so, the literature on the environmental and organisational variables that mediate the funding-performance relationship in small, emerging firms remains deeply fragmented, hence the study. The choice of the beauty and cosmetology industry was informed by the fact that many hair saloon businesses are predominantly owned by foreign nationals, who frequently struggle to finance their businesses due to their disqualification from public and private funding on nationality and perceived risk grounds. The study drew on a quantitative approach and survey research design, in which 150 structured questionnaires were administered to Afro hair salon SMMEs in the Mangaung Metropolitan Area, which covers Bloemfontein, Botshabelo and Thaba Nchu. A total of 110 questionnaires were correctly completed and returned, representing a response rate of 73%. The combined influence of private and public finance on performance was established using correlational analysis to reveal the significance and size of these relationships. The findings suggest that there is a weak relationship between the both sources of funding and firm performance. Furthermore, the study revealed that most SMMEs depend on private funding, especially loans from Matshonisas (i.e. individual private lenders located in former townships), community or group savings, and family and friends than public funding. The study recommends multiple interventions that broaden access to public funding, improve SMME owner/managers awareness of public funding institutions and improve financial inclusion in funding options available for SMMEs.