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Extortion through protection fees has become a major challenge to small businesses in rural towns of the Eastern Cape, South Africa. This study examines how extortion operates as a form of localised criminal governance and its socio-economic effects on small business owners. The researcher adopted a qualitative approach, conducting semi-structured interviews with 12 small business owners and 4 key informants, including local government officials and community leaders, in 3 rural towns in the Eastern Cape. Thematic analysis showed that the issue of extortion arises from systematic demands for protection fees and the creation of parallel governance structures that undermine state authority, leading to significant socio-economic consequences, such as business closures, decreased investment, job losses, and psychological distress. The findings also suggest that perpetrators target vulnerabilities, including the absence of the state, economic disparities, to establish territorial power, and withdraw resources from both sectors, the informal and formal economy. The study concludes by emphasising that extortion is not only criminal opportunism but also reflects institutional failures in governance that affect the success of economic development, state legitimacy, and social cohesion in rural areas. Strategies to improve must focus on both law enforcement limitations and the underlying socio-economic challenges that enhance criminal behaviours. This study contributes to the advancement of Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth) by highlighting threats to small business sustainability, SDG 16 (Peace, Justice and Strong Institutions) through its focus on criminal governance and weakened state authority, and SDG 1 (No Poverty) by demonstrating how extortion exacerbates economic vulnerability in rural communities. Key Terms: Extortion; Protection fees; Criminal governance; Rural crime; Small businesses; Eastern Cape; Informal economy, Local governance