The Banking Association Debtor Financing Committee: Where does true economic power vest?
Does true economic power vest with banks, governments or the private sector? If so, will the large scale state ‘bailouts’ currently being witnessed in the US and Europe have any form of significant impact on those flailing economies or is it simply a case of make-shift bridges that could collapse in the future?
Although it is widely recognised that both the US and Europe need to address certain underlying economic fundamentals if there is to be any hope of better managing the current economic crisis in the long term, consideration should be given to the conundrum involving the source of true economic power as the undisputed key to mitigating the risk of future relapse rests therein.
Over-indebtedness necessitating large scale cash injections, symptomatic solutions at best, offer no real benefit in terms of the promotion of sustainable economic growth. Industries may enjoy a reprieve in terms of imminent collapse or job losses, but the cash flow necessary to grow and sustain them will remain in short supply. This is evidenced by economies around the world, despite these interventions, not being able to right themselves, as well as individual households finding themselves unable to weather the ‘credit crunch’ and being forced to sell off assets in order to survive.
True economic power, it would therefore seem, may rest in the ability of the consumer to remain economically active. The availability of working, or unencumbered, capital is key to financial well-being, a fact which is still not understood by many business owners and individuals. Many will continue to seek debt relief (further credit, like the US motor manufacturers and many cash-strapped South Africans) and counselling services rather than address the rather obvious underlying economic fundamental of building and maintaining reserve funds.
Small-to-medium-sized-enterprises (SMEs) being a key component of South Africa’s economy, and the source of employment for many, therefore need greater access to the finance necessary to developing their businesses whilst, at the same time, paying suppliers for much needed goods and services. This ‘interim’ funding is often particularly problematic for the small business owner to access and the reason for many associated failures.
Traditional lending institutions, particularly under present fiscal conditions, are not always ideally suited to providing finance for smaller business undertakings. Debtor financing, as it provides a platform from which debtor sales can be leveraged for up to 80% of associated invoicing and does not constitute a loan as it is more a bridging finance (for wages, day-to-day operations, etc) solution. The facility, if intelligently managed, provides risk-free and invaluable access to working capital for enterprises of all sizes. Guidance in terms of financial and general business management is also provided, with specially developed invoice clearing bureaus and invoicing systems being made available to facilitate related processes.
Sustained businesses, as they translate into citizens, or the nation’s buyers, with sufficient disposable income to make purchases and stimulate the economy are therefore where true economic power lies. Having adequate amounts of currency in circulation to conduct business and make sales is essential to righting floundering economies and, for this situation to exist, consumers in the form of business owners and private individuals alike need to have money to spend.
Nations which learn this lesson and plan productive strategies rather than engage in speculative banking deals will prosper, whilst those which ignore the needs and productivity of their citizens will find themselves facing compounding economic challenges.
