What does South Africa’s greylisting mean for my small business?

What does SA's greylist status actually mean for your small business?

As you have no doubt heard, South Africa has been ‘greylisted’ by the FATF. But what, we hear you ask, does greylisting mean in real terms for South African businesses? That’s what you’re here to find out, and that’s exactly what we’re going to tell you in this short article.

The FATF – Who the F are they?

Unless you’re 100% caught up on your latest issue of Global Money Laundering and Terrorist Financing monthly, this might be the first time you’ve heard of the FATF. Well, as Julie Andrews famously advised, let’s start at the very beginning – we’ve heard it’s a very good place to start.

The FATF stands for the Financial Action Task Force, a body that supervises, monitors and attempts to prevent global money laundering and terrorist financing. Working with governments across the world, the FATF works on the policy side of things; they aren’t breaking down doors, making arrests or engaging in adrenalin-fuelled high-speed car chases. Rather, they collaborate with governments to update and reform national legislature and regulations aimed at addressing potential opportunities for these crimes, greylisting or even blacklisting countries that don’t match up to their standards. 

Who are the FATF?

What’s a greylist?

It doesn’t sound too bad, does it? The scary danger colours are red, orange and yellow, so we’re probably fine… right? 

Well, there’s good news and bad news on that front. First, let’s explain one of the core functions of the FATF.

As a body that leads the charge in the global fight against money laundering and terrorist financing, they are in the best position to assess how effective a country’s finance policies are. The FATF conducts regular reviews of each country’s policies, judging them against their own 40 recommendations and 11 immediate outcomes. If the FATF identifies serious deficiencies, they will issue a report with a timeframe in which to address them. 

Should the country fail to adequately address the issues, they will be placed on the infamous greylist – and if things get even worse, the country is placed on the blacklist. 

But a greylisting isn’t all doom and gloom. Sure, it tells the world that SA’s financial policies aren’t stringent enough to provide decent protection against money laundering etc., but it’s definitely not a death sentence. Countries on the greylist are subject to increased monitoring, and are given further opportunities to fix the holes in their policy armour.

In our case, SA did poorly in an evaluation that occurred in 2019, when many institutions were at their weakest due to state capture – you can find out more about the full report on the FATF’s website. Since then, our policymakers have worked to address the 67 recommended actions submitted by the FATF; but while we made significant progress in some arenas, we failed to meet the standards required. As a result, the FATF placed South Africa on the greylist, perhaps as a more aggressive motivation for those at the top to put more effective policies in place.

We hope it works.

The bottom line: What does SA’s greylisting mean for my small business or SMME?

Okay, now that you’ve got the background, it’s time to get into what this all means for your small business. After all, it’s not like you can change the policies around money laundering and terrorist financing (and if you can, why are you reading this article? Go make our systems better), so let’s break it down.

There are two main ways this could impact your business: Issues with cross-border trade, and difficulties in raising capital or funding.

The impact of South Africa’s greylisting on cross-border trading

Cross-border trade issues will naturally only affect those who are in the business of exporting goods, finances or services, so if that’s not your business, go ahead and skip straight to the next section. All transactions from South African companies or individuals will now be deemed as medium-risk transactions, so expect to jump through a bunch of administrative and compliance-related hoops to prove that you’re not trying to defeat the ends of financial justice.

The impact of South Africa’s greylisting on cross-border trading

The impact of South Africa’s greylisting on funding & interest rates

Perhaps the biggest issue facing South African businesses – especially SMMEs – is related to raising capital from international markets. With a higher level of risk comes a reluctance to offer debt, in the same way you don’t lend money to that one uncle who always seems to spend more than he earns. Some foreign banks may simply stop investing in South Africa altogether, while others are likely to jack up their interest rates to exorbitant levels, making it near impossible for small businesses to access the funds they need.

In a recent study on the impact of greylisting on Ethiopia, the World Bank reports that interest rates on corporate loans rose by as much as 60% in a single year, jumping from 10% to 16% year-on-year from 2012 to 2013. 

This doesn’t only apply to international banks either. Local banks are businesses too, and their access to international investment will be similarly impacted – leading to a reduced ability to offer funding at decent interest rates to their customers. If you’ve been struggling to get a loan on good terms, now you know why.

When funding is accessible, you’ll find that – just like cross-border trading – there will be a lot more checks and balances than before. International lenders will need to be assured that your company is not only compliant to local laws, but to the international standards held by the FATF and other watchdogs.

The impact of South Africa’s greylisting on funding & interest rates

Okay, I get it now – but what can I do to mitigate the effects of SA’s greylisting on my business?

There are a few steps you can take, including enacting and showcasing your anti-money laundering controls and maintaining a strong credit rating, but those are more relevant to larger companies. But you probably clicked on this article because, like us, you’re obsessed with ensuring that your small business not only survives SA’s greylisting, but thrives despite it – so let’s look at the main thing SMMEs can do to safeguard their business.

Find alternate sources of funding for your small business

The main issue you’re going to face is rising interest rates from almost all established sources of funding. Can you guess what the solution is? Yep – fast funding from an independent small business funding organisation, and wouldn’t you know it, that’s just what we do.

GroWise Capital is a group of like-minded entrepreneurs who are motivated by driving growth in SA’s SMME sector, and after our country’s greylisting, this mission is more important than ever. Our model is not pegged to the FATF’s assessment or any other list South Africa might get put on (although we do like it when Cape Town hits the top tourist destination listicles that pop up from time to time). 

This means that our ability to get you the funds you need seriously fast, with minimal paperwork and low interest rates, has not been affected at all, and we are still able to put up to R3 million in your company coffers within 24 hours – sometimes as fast as 45 minutes. 

To make things better, all our solutions are tailor-made to your business needs. We work with you to figure out exactly what your business needs to succeed and how we can help you make it happen. We’re not just lending you money; we’re investing in your future profits and the overall success of your venture.

Now more than ever, GroWise Capital is the smartest choice a small business can make. If you need to wait in line to see your underwriter or broker, you’re at the wrong place. Click here to find out more and apply now in just 4 minutes – you don’t even need to take a ticket.

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