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Access to Finance for Sustainable SMME Development Thakhani Makhuvha Chief Executive Officer TEP Indaba Workshop 8 May 2015, Durban

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South Africa Surveys: Global Enterprise Monitor (GEM) 2010 survey estimated about 5.9 million SMMEs is SA; and Finscope SA Small Business survey estimates 5.6 million SMMEs during the same period Contribution to SA Economy: to GDP ranging from 36% to 45% with private sector employment ranging from 56% to 61% Brazil International benchmark: recent study tour to Brazil included BNDES and SEBRAE, Micro and Small Enterprises (MSE) in Brazil represent 99.1% of all Brazilian enterprises, 70% of creation of registered jobs; 40% of aggregate wage and 25% of GDP. There are 400 thousand small enterprises, 4 million micro enterprises and 3.1 million individual entrepreneurs in Brazil. Small Business Landscape 2 SA SMME Segment SA Number of Enterprises Survivalist3,348,966 Micro1,676,053 Small275,872 Medium278,878 Total 5,579,769 Source: Finscope, 2010

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Challenges for Small Businesses The 1995 White Paper identified a number of constraints facing small enterprises. These relate to: the legal and regulatory environment, access to markets, access to finance and affordable business premises, the acquisition of skills and managerial expertise, access to appropriate technology, the tax burden, and access to quality business infrastructure in poor areas or poverty nodes. 3

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Vision, Mission and Values To be the leading catalyst for the development of sustainable Small, Medium and Micro Enterprises and Co-operative Enterprises through the provision of finance Our mission is to provide simple access to finance in an efficient and sustainable manner to SMMEs and Co-operative enterprises throughout South Africa by: providing loan and credit facilities to SMMEs and Co-operative enterprises; providing credit guarantees to SMMEs and Co-operative enterprises; creating strategic partnerships with a range of institutions for sustainable SMMEs and Co-operative enterprises development and support; developing (through partnerships) innovative finance products, tools and channels to speed up increased market participation in the provision of affordable finance. Kuya sheshwa! - Speed and urgency Passion for development: Solution-driven attitude, commitment to serve Integrity: Dealing with clients and stakeholders in an honest and ethical manner Transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all stakeholders Innovation: Continuously looking at new and better ways to serve our clients VISION MISSION VALUES 4

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sefas Target Groups Targeted Groups women, black people, youth, people in rural communities and townships people living with disabilities. services (including retail, wholesale, IT and tourism); manufacturing (including agro-processing); agriculture (specifically land reform beneficiaries and micro-farming activities); construction (small construction contractors); Mining (specifically small miners); green industries (renewable energy, waste and recycling management). sefa funds in the following sectors Lending policy is informed by governments economic policy - NGP, IPAP, NDP 5

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sefas distribution model R50k to R5mUp to R5m R500 to R5m sefa DIRECT LENDING sefa WHOLESALE LENDING sefa Funding Model SMMEs can access sefa funding solutions through any of the above channels CREDIT GUARANTEE SCHEMES Finance Intermediaries: (CFIs, MFIs, Joint Ventures & Funds, Retail Finance Intermediaries) Registered financial institutions sefa regional offices and seda co-locations 6

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We fund enterprises that are owned by South African citizens and permanent residents are legally registered with fixed physical address are within the required contractual capacity Operate in South Africa have a written proposal or business plan that meets the requirements of sefas loan application criteria demonstrate the character and ability to repay the loan have provided personal and/or credit references (if available) have the majority shareholder as the owner manager of the business where available, can provide relevant securities/ collateral have a valid tax clearance certificate 7

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High appetite for risk in exchange for high developmental impact Provision of capital and/or interest moratorium (Payment Holiday) up to 12 Months Financing SMMEs including start up businesses that are often perceived as high risk Addressing the financing gap for loans below R500k Provision of pre and post loan business support Provision of funding to entrepreneurs with adverse credit records provided they can demonstrate active remedy of their indebtedness Lending not solely based on security backing long term sustainability potential Specific focus on youth owned businesses 8 What makes sefa different

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Businesses we do not fund The following businesses fall outside the scope of enterprises that we fund: Manufacturing and selling of ammunition Tobacco, alcoholic beverages, gambling and sex trade Political organisations Persons under debt review Un-rehabilitated insolvent shareholders and/or directors of applying entities Primary agriculture (except cash crops and the applicant should have an off take agreement) Speculative property development 9

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Portfolio of Products DIRECT LENDING SECTOR-SPECIFIC FINANCING PRODUCTS MICRO-FINANCE CO-OPERATIVE FINANCIAL INSTITUTIONS (CFIs) CREDIT GUARANTEE SCHEME Working Capital Facilities Asset Finance Term Loans Revolving Loans Bridging Loans Short-term Trade Finance Land Reform - Land Reform Empowerment Facility for emerging black farmers. Tourism: iKwezi Tourism Facility (sefa /Tourism Enterprise Partnership (TEP)) Sugar Farming: sefa/ Hulett Sugar (THS) Facility Mining: sefa Anglo-American Mining Fund Youth: sefa/Awethu Youth Fund sefa has partnered with 11 active MFIs nationally sefa has partnered with 10 CFIs across the country Designed to indemnify commercial banks and suppliers who extend credit to SMME. Supplier Credit Guarantee programme is in its pilot phase. funding from R50k up to R5 million small scale finance between R500 and R50k. facilities from R500 up to R50k 10

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S S S S S S S S S S S S S S S S S S S 10 sefa Main Offices 4 Strategic Partnerships 8 Specialised Funds/Joint Ventures 7 sefa colocations 10 Co-operative Financial Institutions 6 Retail Financial Intermediaries 11 Active Microfinance Intermediaries S 37 proposed new access points S S S S S S S S S S S S S S S S S S

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sefas Development Impact R822m disbursements 46 702 SMMEs funded 46 402 permanent and contract jobs facilitated YOUTH OWNED ENTERPRISES 10 291 R157 million WOMEN OWNED BUSINESSES 44 302 R362 million RURAL-BASED ENTERPRISES 36 729 R429 million BLACK OWNED ENTERPRISES 43 643 R599 million 7

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sefa-TEP Ikhwezi Tourism Facility PURPOSE OF FUNDING To fund SMMEs in the tourism sector Access to the tourism sector THE WHOLESALE FUNDING ALLOCATION The funding consists of R45 million business loans to entrepreneurs; Loan sizes of between R10 000 to R5 million offered for up to five years; R2 million business support e.g. mentoring and training support for the entrepreneurs R3 million Institutional strengthening support to enable TEP to set-up operational functionality for the facility.

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Rational for the partnership Leveraging the existing technical capacity and national footprint from TEP Special lending rates offered to SMMEs prime plus 1.60% to prime plus 3.60%. sefa needs to participate in different sectors and tourism is one of them. Fill-in TEPs funding gap to SMMEs. sefa / TEP

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Rational for the partnership (cont) Leverage existing 3500 SMMEs on its database Leverage TEPs Intervention Model(skills, development, couching and mentoring) TEP has existing processes to assess the technical SMME clients and provide practical solution thereof. Fastest growth sectors for job creation Long-term joint partnership

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sefas role will be to: Carry the credit and financial risk of each transaction funded. Receive the applications and verify the technical due diligence performed by TEP. Perform the financial and credit assessment of the client. Present the applications to sefa Credit committee for approval. Generate loan agreements to be signed-off by the client. The contracting will be between sefa and the client. Pay out to the SMME based on cash flow projection requirements. Fund Business Support required by the SMME. Collect directly from the SMME. TEP will assist with the collections through the Co-ordinator, mentors and/or consultants interacting with the clients. 17 sefas role in the partnership

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Targets for the facility The following targets have been set for the next five years of the facility; Target No. of Black SMMEs to be funded15 % of Women funded SMME45% % of Youth funded SMME30% Rural % coverage45% No. of Jobs created500

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Status on Funding The partnership is unique. The current funding activity is low with only 2 approvals, with a total of R3,7 million. Reasons for these are advanced below. Commitments of over R10m to SMMEs. A total of R41.3 million is still available. Current approvals are all based in Gauteng Sectors approved include, transport, guest houses, travel agencies. 19

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Implementation Challenges Internal teething problems experienced Loan Administration system delayed project implementation IT configuration between the two institutions also caused some delays Initial applications did not qualify with the sefa minimum criteria Content of submissions remains a challenge especially the technical and marketing analysis Delays in receiving information and fulfilling conditions for approval & disbursement 20

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Going forward Issues at resolutions stage and lessons learnt form part of the revised implementation strategy There is greater collaboration between TEP and sefa which result in improved efficiency. Closer scrutiny of the applications before going to sefa committees to ensure quality of applications. sefa IT, as part of the wide IT systems configuration and modification, is creating a swifter, more streamlined information sharing platform for all parties Loans of R10 000 to R500 000 and outside of Gauteng will be given attention. 21

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22 Contact Details

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Thank you