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Regular version of the site

Article

The South African Support System for Start-Up Companies: Assessing the Khula Indemnity Scheme

Competition and Change. 2012. Vol. 16. No. 1. P. 56-70.
Thurner T., Cramer P.

This article examines the South African financial system for start-up companies, and focuses particularly on the support provided by the Khula indemnification scheme. Most research rests on the assumption that a lack of finance is the sole impediment to success of start-ups; however, it is unclear whether such government intervention can indeed foster successful entrepreneurial activity. We show that the current system provides profit making opportunities for both banks and consultants, but lacks focus on sustainable business development. There are incentives to create companies not in an attempt to be profitable, but rather as a means to gain access to government or government-backed money. We question whether a lack of finance is the primary obstacle to the formation of businesses. Instead, we argue that it is a lack of accountability and an insufficient application of business tools such as basic cost accounting that make entrepreneurs less creditworthy.