The funding model of small and medium social enterprises in KwaZulu-Natal, South Africa

Abstract

Background: Small and medium social enterprises (SMSEs) in developing countries, particularly in South Africa, play a crucial role in a country’s economy. With an entrepreneurial mindset, they respond innovatively to social, economic and environmental societal problems. However, SMSEs in emerging economies experience critical survival and performance challenges, including financial sustainability. Thus, investigating the funding model is important to overcome those challenges. Aim: The study aims to investigate the funding model of SMSEs in KwaZulu-Natal (KZN), South Africa, to identify the initial and primary funding source, and to explore the revenue-generating activities and revenue growth. Setting: The research was conducted in KZN with SMSEs participated in the champions’ programme of local economic development (LED) project at the University of KwaZulu-Natal (UKZN). Methods: A qualitative research design of 10 purposively selected case studies were conducted using an in-depth interview. The data were analysed using NVivo software. Results: The study found that self-funding followed by revenue generated from a commercial business is the most common funding model SMSEs adopt. A lack of access to different funding sources to secure success and sustainability hindered the development and growth of SMSEs. Conclusion: Diversifying funding might help SMSEs avoid the challenge of sustainability and will enable them to focus on improving their activities towards achieving their social mission. Contribution: The study brings a new theoretical approach to the funding model of SMSEs. Furthermore, the study contributes to the enterprises’ management.