Presentation to the Parliamentary Select Presentation to the Parliamentary Select CommitteeCommittee

Presented by : Thakhani Makhuvha

Chief Executive Officer

Cape Town

21 November 2012

Overview and Background

Challenges that led to the establishment of sefa

•Limited success in fostering a strong and large SMME sector

•Weak small business performance

•Poor uptake of Khula and Samaf products

•Poor visibility among small businesses

•Duplication of services amongst government agencies

•High cost of delivering financial services to SMMEs

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Overview and Background (Cont)

Establishment of sefa

•Cabinet support for an integrated approach

•sefa was established on 1st April 2012 as a wholly owned subsidiary of IDC

(merger of Samaf, Khula and the small business activities of the IDC)

•Established in terms of IDC Act

•Shareholder compact between IDC and EDD incorporates sefa

•sefa’s Corporate Plan informed and guided by a number of Legislative and

Policy Prescripts (eg New Growth Path, Outcome 4 and other National

Imperatives and legislation)

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Vision, Mission and Values

Vision

To be the leading catalyst for the development of sustainable Survivalist, Micro, Small and Medium

enterprises through the provision of finance

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Vision, Mission and Values

MissionOur mission is to provide access to finance for Survivalist, Micro, Small and Medium businesses throughout South Africa by:

•Providing finance to small businesses on a wholesale and direct basis•Providing credit guarantees to small businesses•Supporting the institutional strengthening of Financial Intermediaries so that they can be effective in assisting small businesses •Creating strategic partnerships for sustainable small business development and support•Monitoring the effectiveness and impact of finance provision, credit guarantees and capacity development in the small business sector•Developing (through partnerships) innovative finance products, tools and channels to catalyse increased market participation in the provision of affordable finance to small businesses

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sefa’s target market consists of small businesses that have not been able to

access finance from banks and the finance sector.

These include:

•Survivalists and micro-enterprises – those requiring loans of anything between

R500 and R50 000

•Small enterprises – loans between R50 000 and R1 000 000

•Medium enterprises – loan between R1 000 000 and R5 000 000

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Target Market

Overall Strategic Objectives

The strategic objectives of sefa are to:

1.Increase access and provision of finance to small businesses and thereby

contribute towards job creation.

2.Develop and implement a national footprint for effective product and

service delivery.

3.Build an effective and efficient sefa that is a sustainable performance

driven organisation.

4.Build a learning organisation .

5.Build a sefa that meets all legislative, regulatory and good governance

requirements.

6.Build a strong and effective sefa brand emphasizing accessibility to SMMEs 7

Overall Strategic Objectives

The strategic objectives of sefa are to:

1.Increase access and provision of finance to small businesses and thereby

contribute towards job creation.

2.Develop and implement a national footprint for effective product and

service delivery.

3.Build an effective and efficient sefa that is a sustainable performance

driven organisation.

4.Build a learning organisation .

5.Build a sefa that meets all legislative, regulatory and good governance

requirements.

6.Build a strong and effective sefa brand emphasizing accessibility to SMMEs 8

Strategic Objective 1

Increase access and provision of finance to SMMEs and thereby contribute towards job creation

Current Status (year to date):•99 SMEs financed through direct lending to the value of R25 million•16 333 micro enterprises financed through wholesale partners•New approvals to micro finance institutions of R10 million•New approvals to retail financial institutions of R50 million•New approvals through credit indemnity scheme of R7 million•1 990 jobs created and estimated 11 433 in micro-enterprises•Current pipeline in excess of R173 million for wholesale funding•Current pipeline of R105 million for direct lending•Initial training of staff in retail lending and lending platform

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Strategic Objective 1 (cont)Immediate Priorities:•Conclude transactions in the pipeline to increase SMMEs accessing sefa funding•Continuously identify small businesses that require funding•Design business support programmes•More intensive training of staff (especially in direct lending)•Conclude agreements with private and public sector partners

• Pre-loan support (eg seda, Mpumalanga Economic Growth Agency , Gauteng Enterprise Propeller)

• Business Support Centres (eg SAICA Business Hubs)

•Funding of small business opportunities arising out of IDC projects•Procurement opportunities (eg SOEs, government departments)Medium to Long Term Priorities:•Extend footprint (see next slide)•Manage growth in the number of businesses financed•Extend partnerships to other provincial governments, government agencies, community based organisations and private sector. 10

Strategic Objective 2

Develop and implement a national footprint for effective product and service delivery

Current Status:•Regional offices in all 9 Provinces•3 Pilot offices fully operational in terms of direct lending•All other offices accepting applications•5 Khula and samaf offices have mergedImmediate Priorities:•Complete merging of 4 regional offices by the end of October•Capacitate all offices for direct lending through staff training and strengthening lending systemsMedium to Long Term Priorities:•Establish 52 Branch and Satellite offices in order to cover all districts leveraging on the Post Office/Post Bank network

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Strategic Objective 3

Build an effective and efficient sefa that is a sustainable performance driven organisationCurrent Status:•EDD Bargaining Chamber established and Transfer Agreement signed•Placement of staff from Samaf and Khula almost complete•CEO and some Executive positions – recruitment in process •Structured Change Management process well underwayImmediate Priorities:•Align staff to the current organisational needs•Continue to build a new organisational culture geared to delivering•Re-skill staff where necessary•Develop the sustainability model of sefa•Sign MoU with IDC to provide institutional development support•Analyse the cost driving activities and increase efficiencyMedium to Long Term Priorities:•Analyse the cost driving activities and improve operational efficiencies

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Strategic Objective 4

Build a learning organisation

Current Status:•Limited R&D capacity•Continuously building body of knowledge of small businesses and small business funding through interaction with other entitiesImmediate Priorities:•Make use of IDC’s Research and Information capacity•Benchmark using available existing researchMedium to Long Term Priorities:•Establish R&D capacity and capability

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Strategic Objective 5

Build a sefa that meets all legislative, regulatory and good governance requirements

Current Status:•Unqualified audit reports for year ending March 2012 for Samaf and Khula•Board and Sub-Committees established and functioning•Compliance brought into line where gaps existedImmediate Priorities:•Address audit findings identified by external auditors•Recruit Compliance Officer•Update all policies, systems and proceduresMedium to Long Term Priorities:•Improve corporate governance and compliance

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Strategic Objective 6

Build a strong and effective sefa brand emphasizing accessibility to SMMEs

Current Status:•Limited promotional activity•Corporate identity developed with assistance from IDC•Communication plan developed and being finalisedImmediate Priorities:•Improve service as the main brand building initiative•Align communication plan with organisational plan, step by step, concluding first phase by February 2013Medium to Long Term Priorities:•Continued focused communication and brand awareness campaigns

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What is Different With sefa’s Wholesale Model?

• Partner with stronger financial intermediaries such as Small Enterprise Finance (SEF) and Women’s Development Business

• Develop demand driven products that can be distributed through intermediaries that operate in line with sefa’s developmental objectives

• Increase utilisation of the Credit Indemnity Scheme by all registered banks and other non bank financial intermediaries through improved processes

• Influence interest rate charged by intermediaries to SMMEs (eg through capping of interest rates)

• Institutional strengthening of intermediaries through targeted capacity building grants and technical support (eg systems and skills development)

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What is Different With sefa’s Retail Model?

• Provide finance directly to SMME’s that are unable to access private sector funding• Implement simpler loan- and approval processes (eg. forms, contracts)• Increase efficiency in terms of processing of applications (current average turnaround

time = 60 days, to be reduced to 30 days in the next 18 months)• Affordable pricing of products • Co-locate regional offices with IDC and other DFI’s wherever possible to enhance cost

efficiencies • Pro-actively target businesses in sectors identified in the New Growth Path (e.g. green

economy, manufacturing, agro-processing and tourism)• Provide post loan support to funded SMMEs (in partnership with public and private

institutions such as SEDA and SAICA)• Link with IDC enables funding of small business opportunities arising out of mega

projects• Identify sustainable opportunities for small businesses from Public Sector procurement

programmes and provide funding to SMME’s to take advantage of these

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Products & Services - Retail

Product Description

Revolving/Bridging Loans

To facilitate short term capital requirements or bridging finance for delivery of contracts or orders (eg a small business gets a contract to supply stationery, but needs finance to buy the stock)

Asset Finance For acquisition of fixed assets (eg a small business needs a new machine. sefa provides a loan, repayable over 5 years)

Term Loans To finance longer term business expansion requirements and specific capital acquisitions (similar to asset finance, but not necessarily linked to a specific machine)

Working Capital To finance purchase of stock, overheads, etc (eg sefa provides a shorter term loan (3 years) to a small shop to buy stock needed to expand)

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Products & Services - Wholesale

Product Description

Business Loans Partnership with Non Bank Financial Intermediaries for on-lending to SMMEs (eg sefa provides loan to WDB, who lends money to micro enterprises)

Funds/ Joint Ventures Partnership with mainly private sector entities for on-lending to SMMEs (eg sefa’s partnership with Anglo to provide finance to small mining contractors)

Credit Indemnity Scheme sefa provides guarantees to banks, enabling loans to small businesses that do not otherwise have sufficient collateral/security to support facilities.

Land Reform Empowerment Fund (LREF)

Facility through which sefa lends money to commercial banks and other reputable agricultural lenders for on-lending to land reform beneficiaries

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Products and Services - Non Financial Services

Product Description

Post-loan Business Support Programme

This service is only provided to SMMEs that have benefitted from facilities provided by sefa and its financing partners as a risk mitigating intervention (eg sefa provides a mentor to a small business to assist with specific aspects of running the business)

Institutional Strengthening Grants

Aimed at providing institutional strengthening and technical assistance to Financial Intermediaries (eg grant funding provided to an intermediary to assist it in improving its systems)

Co-Operatives support Programme

The following will be undertaken to support Co-operatives:

•Set a target on the number of co-operatives to be supported and value to be

disbursed

•Set clear outcomes in terms of the support provided

•Benchmark internationally including drawing on other African states

•Provide capacity building support and mentorship to Co-operatives.

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2013-2017 Performance Targets –Approvals

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Product 2012/2013R’m

2013/2014R’m

2014/2015R’m

2015/2016R’m

2016/2017R’m

Total

R’mSME Direct

Lending 185 370 485 563 630 2 233

Micro Wholesale 80 120 170 280 350 1 000

SME Wholesale 115 138 196 229 268 946

Credit Indemnity 90 90 90 90 90 450

Land Reform Empowerment

Facility50 55 60 65 70 300

Approvals Total 520 773 1 001 1 227 1 408 4 929

2012/2013 Performance Targets

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Indicator SME Direct

Micro Finance Wholesale loans

to Intermediaries

SME FinanceWholesale Loans to

IntermediariesCredit

IndemnityLREF

Total

Approvals R185m R80m R115m R90m R50m R520m

Average SMME

Loan SizeR250 000

R4 500 (by

intermediaries)

R750 000 (by intermediaries) R300 000 R150 000 N/A

No. of SMME's Financed

292 10 667 160 240 453 11 812

No. of Jobs Created 1 462 7 467 800 1 200 2 267 13 196

2013-2017 Impact Targets -SMMEs Financed & Jobs Created/Sustained

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Product Indicator 2012/2013

2013/2014

2014/2015

2015/2016

2016/2017

Total

SME Direct Lending

No. of SME’s Financed 292 951 1 166 1 456 1 612 5 477

No. of Jobs Created 1 462 4 755 5 830 7 281 8 059 27 386

Micro Wholesale

No. of Micro Enterprises

Financed10 667 16 000 22 667 37 333 46 667 133 333

No. of Jobs Created 7 467 11 200 15 867 26 133 32 667 93 333

SME Wholesale (includes RFI’s,

Credit Indemnity and LREF)

No. of SME’s Financed 853 842 934 1 003 1 107 4 739

No. of Jobs Created 4 265 4 210 4 670 5 015 5 535 23 697

Totals

No. of SME’s Financed 11 812 17 793 24 767 39 792 49 386 143 549

No. of Jobs Created 13 196 20 165 26 367 38 429 46 258 144 416

Performance Overview – SMMEs Financed

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2012/13YTD

2012/13Annual target

Number of SMEs Financed – Direct Lending 144 292

Number of SMEs Financed – Micro Wholesale 28 038 10 667

Number of SMEs Financed – SME wholesale 99 853

Approvals – Direct Lending R26.5m R185m

Approvals - Wholesale R86.9m R80m

Total Number of SMMEs Financed 28 281 11 812

Performance Overview – Approvals

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2nd Quarter to date 2011/12

Khula + samaf

2nd Quarter to date2012/13

sefa

Gauteng R5.3m R22.1m

Western cape R10.9m R4.3m

Eastern Cape R0.9m R3.3m

Northern Cape R0.0m R0.4m

KwaZulu Natal R5.6m R0.7m

Mpumalanga R0.1m R7.3m

Limpopo R20.0m R0m

Free State R0.2m R35.3m

North West R0.0m R20.0m

Performance Overview – Jobs Created/Sustained

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2012/13YTD

2012/13Annual target

Number of Jobs Created/ Sustained– SME Direct Lending 516 1 462

Number of Jobs Created/ Sustained– Micro Wholesale ** 28 038 10 667

Number of SMEs Jobs Created/ Sustained– SME wholesale 1 990 4 265

Total Number of Jobs Created/ Sustained 30 544 16 394

** This is largely attributed to jobs created by the following intermediaries: WDB, SEF and Phakamani.

Targeted Group Funding

• 30% of funding disbursed targeted towards youth-owned enterprises.

• 45% of funding disbursed targeted towards priority rural provinces.

• 40% of funding disbursed targeted towards women-owned businesses,

progressively increasing in subsequent years.

• 70% of funding disbursed targeted towards black-owned businesses.

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Delivery NetworkThe retail network consisting of regional, branch and satellite offices will span across the nine provinces and all districts of the country. Added to these will be Financial Intermediaries who will also distribute sefa products throughout the country to ensure access by qualifying SMMEs. Initially sefa will roll-out its retail products through the existing regional offices whilst the branch and satellite offices are being set up. The regional offices are:

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Province Regional Office Telephone Eastern Cape East London 043 726 0756

Free State Bloemfontein 051 444 1040

Gauteng Johannesburg 011 838 5482

KwaZulu Natal Durban 031 301 1922

Limpopo Polokwane 015 291 5428

Mpumalanga Nelspruit 013 755 2370

Northern Cape Kimberley 053 832 2275

North West Rustenburg 014592 6391

Western Cape Cape Town 021 425 6774

Head Office National Call Centre 08600 54852

Delivery Network

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Existing sefa offices

Existing Retail Financial Intermediaries

Existing Micro-finance intermediaries

Planned sefa branch/ satellite offices (branch office is a small staffed office. Satellite office is a desk in eg. seda/Post Office, manned at specific times.)

Cities/towns

THANK YOUTHANK YOU