Access to Finance Bonga Mchunu Head of Regions (North) SABOA Conference - CSIR 15 March 2016

Corporate Profile

Established April 2012 (merged entity)

Corporate Type State-owned Company registered in terms of the Companies Act (formed in terms of S3 (d) of IDC Act 22 of 1940)

Shareholding 100% owned by IDC

Reporting Department of Small Business Development

Funding Government & IDC

Objective Development of sustainable Small Medium and Micro Enterprises and Co-operative Enterprises

Activities Provision of finance to SME as defined in the National Small Business Act of 1996 and Co-Operatives Banks Act 2007, as amended.

Geographic mandate South Africa

Finance Provided funding of R1bn to SMMEs in FY2014 and FY2015

Governance Follows normal company policy and procedures

Small Business Landscape

• Small and Medium Enterprises (SME's) have been identified as productive drivers of inclusive economic growth and development in South Africa and around the world. Some researchers have estimated that, in South Africa, small and medium-sized enterprises make up 91% of formalised businesses, provide employment to about 60% of the labour force and total economic output accounts for roughly 34% of GDP.

• While contributing significantly to the economy, SMEs foster diversification through their development of new and unsaturated sectors of the economy. In addition, innovative and technology-based SMEs can provide a platform for local, regional and international growth, especially in Brazil, Russia, India, China, and South Africa (BRICS) economies.

• SME's are considered an important contributor to the economy as drivers for reducing unemployment, especially since the formal sector continues to shed jobs.

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%

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SA SMME Segment

SA Number of Enterprises

Survivalist 3,348,966

Micro 1,676,053

Small 275,872

Medium 278,878

Total 5,579,769

Source: Finscope, 2010

Brazil International benchmark: study conducted in Brazil by BNDES and SEBRAE indicated that 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.

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.

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sefa’s Target Groups

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Targeted Groups

Women (40%), black people (70%),

youth (30%),

people in rural

communities and townships (45%)

Disabled people (2%).

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). Other

sefa funds in the follow

ing sectors

Lending policy is informed by government’s economic policy - NGP, IPAP, NDP

sefa’s distribution model

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R50k to R5m Up 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

Portfolio of Products

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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

• BAW – Taxi operators

• 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

We fund enterprises that…

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• 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 sefa’s 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

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

What makes sefa different

• 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

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Application Considerations

• Management Profile • Business Operations • Market Assessment • Financial Analysis • Legal Implications • Development Impact

Origination Basic Assessment

Due Diligence

Investment Committee

Disbursement

Act

iviti

es

Estim

ated

Dur

atio

n

2 days 2 weeks 3 days 2 weeks* On-going

Entrepreneurs apply for funding

Application pack

Mandate fit

High-level review of business plan and strategic fundamentals

Review investment proposal

In-depth due diligence process

Review proposal with Credit

Negotiate initial terms

Present proposal at Credit Committees

Finalise term sheet

Finalise legal agreements

Sign agreements

Disburse funds

Entire process dependent on cooperation between sefa and applicants. Complexity of the security can also affect the turnaround times. Target (Term Facilities = 20 - 30 working days and Bridging Loans = 10-15

working days).

Application process

Pricing Formula

• Initiation fee = percentage of loan amount (once-off)

• Prime based interest rate

• Margin for risk

• Discount for developmental impact

Jobs

Youth

Gender

Rural

Actual portfolio = Lowest - 12%, Highest – 17%

Pricing (Guideline)

Payment Terms Maximum Fee

Less than 12 months 5%

13 – 24 months 4%

25 – 36 months 3%

37 – 48 months 2%

49 – 60 months 1%

2011/12 2012/13 2013/14 2014/15

ex-Khula and ex- samaf sefa sefa sefa

Approvals R211 million R440 million R1 065 million R1 billion

Disbursements R143 million R198 million R549 million R1.3 billion

Funding Activities Since Establishment

R 211 R 440

R 1,065 R 1,000

R 143

R 198

R 549

R 1,300

R 0

R 500

R 1,000

R 1,500

R 2,000

R 2,500

ex-Khula and ex- samaf sefa sefa sefa

2011/12 2012/13 2013/14 2014/15

Milli

ons

Approvals and Disbursement Comparison over a 4 year period

Approvals Disbursements

Sectorial Information

Economic Sector FY2015

Agriculture* 4% Mining and Quarrying* 3% Manufacturing* 14% Electricity, Gas and Water 0.1% Construction* 41% Wholesale and Retail Trade 12% Catering, Accommodation, and Other Trade* 2% Transport, Storage and Communications 6% Finance and Business Services 11% Community, Social and Personal Services 7% Total 100%

Developmental Impact

Direct Lending Gauteng Case Studies

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African People Mover • Africa People Mover (Pty) Ltd hereinafter

referred to as APM is a black majority owned and managed enterprise which provides intercity passenger transport services within South Africa.

• The company is a JV between Diducap (Pty) Ltd (51%) and The Johann Ferreira Trust (49%).

• APM Business model is based on rolling out 23 routes over the next four years by effectively utilising a fleet of 60 coaches. The capital expenditure required for the coaches is estimated to be R245 million.

• They approached sefa for a 5 year term loan facility to acquire 6 x new 2015 Volvo 60-seater.

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Key information • Location: Gauteng, Johannesburg • Job creation: 37 jobs • Funding amount: R5 million • Sector: Transport

Gudex – Steers Franchise • The business is a start-up Steers franchise,

which is set up at the domestic side of the OR Tambo International Airport. The shareholders were awarded an opportunity to operate this franchise, commencing on 01 July 2015 to 30 June 2022. The business is owned by Thulani Nevele Kambule as the CEO of the company and the Managing Member of the business. He will be operationally involved on a daily basis. Lebohang Matthews will be strategically involved in the business on a part-time basis. She will be involved in the business and in charge of the bookkeeping and financial management of the business.

• The clients were referred to sefa by NEF.

• The clients approached sefa for a funding facility of R3,464,334 (including initiation fees), to aid in setting up the operation.

• The initial application was based on 25 jobs being created, however only 16 jobs have been created so far, excluding the 2 shareholders. There is still room for the further 7 jobs to be created as operations stabilise.

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Key information • Location: Gauteng, Johannesburg • Job creation: 7 jobs • Funding amount: R3, 464,334 • Sector: Food

Maredi Telecom & Broadcasting (Pty) Ltd

• Maredi Telecom & Broadcasting (Pty) Ltd (hereinafter referred to as MarediTel) is 100% black-owned and managed by Lancelot N Manala (45).

• MarediTel are a Midrand ICT company focused on three categories within the ICT sector, namely Telecoms Infrastructure Deployment, Fibre Installation, Repair and Maintenance and Technology Sourcing and Integration

• The companies main clients are Telecoms carrier companies such as Vodacom, Telkom and ICT related entities, including Prasa, Sapo, Eskom

• The client contacted sefa through the regional office.

• MarediTel established the Maredi FET Colleges Internship Programme in 2011 with the aim of Building telecoms infrastructure deployment skills within the Black community and Building internal capacity within the organization for long term competitiveness.

• Over 40 students have participated in the Maredi FET Colleges Internship Programme to date.

• sefa funding of R3 868 722 was used to finance the implementation of contracts awarded by PRASA, Huawei, and Vodacom worth an estimated value of R60 million over a 36-48 months period.

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Key information • Location: Gauteng, Midrand • Job creation: 36 jobs • Funding amount: R3, 868 722 • Sector: Communication

Prephill Trading (Pty) Ltd • This is a company of a young women of 26

years old who started her building and civil construction company in 2013 with a help of a family mentor.

• She started working for a construction company few years back as a clerk but developed great passion for the construction industry. Her aspirations for starting a business were supported by her then employer who gave her subcontracts of small projects to build her profile.

• She has now been awarded a project of R14 million in which she needed bridging finance from sefa as referred by a family member (previous sefa’s client).

• sefa has been able to finance the project with an amount of R4.7 million.

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Key information • Location: Mpumalanga, White River, but

project in Sebokeng • Job creation: 150 • Funding amount: R4 743 154 • Sector: Construction

Linked Thoughts Consulting cc • Linked Thoughts Consulting CC is an entity

involved in the Construction and Project Management Consulting.

• The business is constructing 200 houses in the Tswelopele district in Tembisa.

• The client heard of sefa through word of mouth.

• sefa funded the business’ working capital which consist of brick, cement etc. The total funding was R4 967 000.

• The funding is for rural development, the project was initiated by the Department of Human Settlements. This is line with rural and township development plans– The project has thus far created 133 jobs which consists mainly of youth and women from previously disadvantaged backgrounds.

• The business plans to grow its market share by capitalising profits and using those funds to identify suitable land for self-funded residential and commercial developments.

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Key information • Location: Gauteng,

Johannesburg • Job creation: 132 jobs • Funding amount: R4 967 000 • Sector: Construction

Thumuhle Trading – Engen Jabavu • Thumuhle Trading t/a Engen Jabavu, owned by

a young couple (Mr and Mrs Sithole) was funded to operate a currently defunct Engen petrol service station based in Jabavu, Soweto. In March 2014, sefa funded this couple for R3, 6 million to purchase the petrol station. The site will consist of four operations, Forecourt, Quickshop, Corner Bakery and Car Wash. This business will employ 29 young individuals (male and female), who were previously unemployed.

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Key information • Location: Gauteng, Soweto • Job creation: 29 jobs • Funding amount: R3, 6 million • Sector: Fuel Station

Pilot initiative to increase access to Finance

• Pilot initiatives is aimed at establishing a new generations intermediaries − Reduce to cost of credit, especially to micro enterprises − Provide sefa with scale to reach thousands of enterprises − Technical capability and expertise to provide post investment support to SMMEs

• Fresh Produce Markets − Majority of informal traders buy fresh produce from municipal markets − 18 municipal Fresh Products markets in SA and 30-40% of buyers is informal traders − Pilot programme initiated with Durban and Mangaung Fresh Produce Markets − Short credit facilities with a 20% interest rate cap

• Supplier Credit Programme − Indemnifying suppliers of input goods to SMMEs against possible default by SMME − Short term trade credit facilities (30 day, zero interest) − Pilot initiative – Construction and Steel Sector

• Mobile Micro Enterprise Finance − Technology platform to extend credit via online application server and credit scoring − Focus on youth entrepreneurship

• Structured Enterprise Finance Solutions − Promote enterprise development and encourage supply chain reform and business linkages with

large corporates − Aligned with the BBBEE codes

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Strategic partnerships

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– 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

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Location & Co-location

• Head Office − Eco Fusion 5, Building D, 1004 Witch - Hazel Avenue and Teak

Close End, Eco Park, Centurion. • Branch Office

− Forum IV, 33 Hoofd Street, Braamfontein • Co-location

− 4th Floor, 536 Francis Baard & Steve Biko Street, Pretoria • Planned Co-location

− Riversands − Sebokeng

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Contact Details

Thank you

Access to FinanceCorporate ProfileSmall Business LandscapeChallenges for Small Businessessefa’s Target Groupssefa’s distribution modelPortfolio of ProductsWe fund enterprises that…Businesses we do not fundWhat makes sefa differentApplication ConsiderationsApplication processPricing FormulaPricing (Guideline)Funding Activities Since EstablishmentSectorial InformationDevelopmental ImpactDirect Lending�Gauteng Case StudiesAfrican People MoverGudex – Steers FranchiseMaredi Telecom & Broadcasting (Pty) LtdPrephill Trading (Pty) LtdLinked Thoughts Consulting ccThumuhle Trading – Engen JabavuPilot initiative to increase access to FinanceStrategic partnershipsSlide Number 27Location & Co-locationSlide Number 29Slide Number 30