Khula, Small Enterprise Development Agency (SEDA), South African Micro-Finance Apex Fund (SAMAF) on Developing the Second Economy via ASGISA

Committee: NCOP Economic and Business Development

Date of Meeting: 13 Jun 2007

Summary

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Minutes

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE MEETING
13 June 2007
KHULA, SMALL ENTERPRISE DEVELOPMENT AGENCY (SEDA), SOUTH AFRICAN MICRO-FINANCE APEX FUND (SAMAF) ON DEVELOPMENT OF SECOND ECONOMY

Chairperson:
Ms N D Ntwanambi

Documents handed out:
Khula presentation on maximizing access to finance for small medium enterprises
SAMAF presentation
SEDA's role in development of Second Economy vis-à-vis the objectives of ASGISA

Audio Recording of the Meeting

SUMMARY
Khula, CEDA and SAMAF provided up-to-date input on how they each worked towards the development of the second economy. Subsequent discussion included the following concerns:
- access at grassroots level by rural communities, poorer provinces and presidential nodal points
- list of the projects and offices that could be evaluated by the Committee.
- access to guaranteed financial aid
- marketing and outreach programmes
- balancing priority between start-up enterprises and expanding businesses
- aid to emerging farmerss
- report-backs on outreach programmes.
- monitoring mechanisms

MINUTES
Khula presentation
Mr Xola Sithole, CEO, looked at Khula’s corporate profile and mandate, their target market, delivery channels, approval and disbursement trends, binding constraints, and finally their strategic objectives (see document). Khula’s mandate was:
- promoting access to finance to maximise financing for SMMEs (small to medium micro enterprises);
- development impact to create jobs, BEE, rural development and empower women; and
- financial sustainability.

Their target market prioritised start ups and development/expansion capital and was biased towards marginalised provinces, and focused on primarily black owned or managed formal businesses. Some binding constraints included the credit indemnity scheme, the
retail financing intermediaries (RFI), their wholesale model, and Khula's capitalisation. Mr Sithole concluded that Khula was committed to meeting the financial needs of small businesses, but added that their wholesale financing model limited the ability of Khula to make an optimal impact.

Discussion
The Chairperson recommended that Khula expand their marketing to include the broader community, especially in order to access rural communities. She asked for the simplification of the role and accessibility of Khula financial aid. Finally the chairperson asked for a list of the projects that Khula had assisted so that they could be evaluated or acknowledged by the Committee.

Ms Temba (ANC, Mpumalanga) reiterated the Chairperson’s request for more information on the SMEs assisted by Khula in each province in order to monitor the manifest progress of Khula. She requested the location of the main offices in each province and their contact details be made available to the Committee. Finally Ms Temba asked what Khula’s plans were for financial sustainability and to bridge the economic gaps in the market.

Mr Sibiya (ANC, Limpopo) asked if small businesses, especially in the rural areas, are being made aware of their commitments to the South African Revenue Service (SARS) regarding the taxation of their fledgling businesses that have been aided by Khula.

Mr Gamede (Kwazulu Natal) questioned the weight given by Khula to expansion growth over startup of small businesses. He asked why Khula’s activities favour the richer provinces over the poorer ones, and in what way Khula would redress this. Finally he asked how access to finance could be attained.

Mr Sithole replied that he acknowledged the Chairperson's concern and said that more marketing could be done. However, Khula had and still continued to utilise radio broadcasting to create awareness regarding Khula’s activities. Information on Khula projects in each province would be provided to the Committee. However he suggested that the Khula regional managers should be consulted in order to gain more manageable information. Contact details would be provided.

Regarding financial sustainability, Mr Sithole said that it was imperative that Khula itself is made financially sustainable, but that money cannot be utilised for direct infrastructure development but is rather used for financing sustainable enterprises.

On the matter of Khula mentorship, he said that the interventions are varied and dependent on the respective needs of the entrepreneurs, where highly trained managers would need less assistance than under-trained managers. He said that the mentorship provides a checklist that covers tax education, but pointed out that the South African Revenue Service (SARS) is itself involved with public awareness.

On balancing priority between start-up enterprises and expansion growth, he said that Khula’s priorities were strongly weighted towards establishing new enterprises which they find to be a contribution to growth.

Addressing the issue of concentration of financing in richer provinces, Mr Sithole argued that the distribution of financing was contingent on private sector interests and infrastructure, which tend towards richer areas. He said it was more expensive for the private sector to be situated in remote areas with lower densities. However, he maintained that while the distribution of financing was 65% concentrated in Gauteng, Kwazulu Natal, and Western Cape, targets were set to reduce this to 40% leaving the rest for more marginalised provinces. Finally he acknowledged the need to make financing more accessible to the broader community.

South African Micro-Finance Apex Fund (SAMAF) presentation
Mr
Sitembele Mase, CEO: SAMAF, looked at the products and services offered by SAMAF, their infrastructure network, their financial outreach up until March 2007, and highlighted its partnerships. SAMAF’s mission was to provide competitive and customized micro-finance services by going deeper and broader to target the market, and their vision was to lead the field of developmental micro-finance and provide best practice models in South Africa. The products and services elaborated on included its lending fund, capacity building, and saving and mobilisation fund (see document).

Small Enterprise Development Agency (SEDA)
Mr Kaybee Motlhoioa, CEO: SEDA, looked at their outreach model for 2007/08, their statistical achievements, the three pillar strategy of government, government interventions for the second economy and SEDA’s support for the second economy, and their target market (see document). The presentation highlighted a growth in SEDA’s outreach model from 39 to 43 branches, and from 102 to 110 outreach units. The presentation also provided a breakdown of their roll-out status for each province. He spoke of a total of 366 success stories. Their target market comprised of 20% medium-sized enterprises, while the remaining 80% was for small and micro enterprises. Their second economy interventions included: fresh produce and street trading, SMME micro credit, agrarian reform, tourism, bio-fuels, chemicals, creative industries, clothing and textiles, and downstream minerals beneficiation.

Discussion
The Chairperson asked if the population in the presidential nodal points, especially rural areas, could understand and are made aware of projects such as SEDA. She said that it was their responsibility to educate the population and market SEDA more broadly. She asked if individuals or companies who had been previously blacklisted could gain access to financing offered to address certain gaps in the market.

Mr Hendricks asked whether factories could be helped to be established in these marginalised nodal points to encourage economic growth. He argued that the percentages of aid provided to farms were too low to ensure that they establish themselves, and asked what could be done to redress this. He asked how SEDA was helping the textile industries in Western Cape and who the beneficiaries of this aid were.

Ms Makwena asked how SEDA reached these marginalised communities. She also asked if financial aid could be guaranteed. Finally she asked about the roll-out to marginalised areas.

Ms Temba asked for a breakdown of contacts in each province and for elaboration on any challenges faced by SAMAF. She also asked SEDA for contact details, and she emphasised the need for report-backs on outreach programmes.

Mr Gamede asked if SAMAF was accessible at grassroots level. He asked who owned the Financial Services Cooperatives (FSCs) and Micro-finance Institutions (MFIs) being targeted.

Mr Motlhoioa replied that one of SEDA’s first priorities were their outreach programmes. He said that 24 enterprises were supported, and information centres targeted at outreach areas were established to provide the relevant information and support.

He acknowledged the point raised by Ms Makwena regarding monitoring mechanisms which he admitted had not been established but would be prioritised. Regarding access to finance for blacklisted companies, SEDA could only lobby for access to these funds but the problem was locating the authority or directorate that would grant SEDA the mandate to intervene in cases of blacklisting.

Regarding the establishment of factories in rural areas, Mr Motlhoioa said that SEDA could only play a facilitating role in financing loans from various sources. SEDA could also conduct studies to establish sites for potential factories.

On aid to farmers, he was not sure that it was within the mandate of SEDA, however, they do collaborate to improve productivity to already established farms but again more lobbying could be provided.

Mr Motlhoioa said that SEDA could not guarantee loans, however it did attempt to provide a checklist to its clients to ensure that their business proposals meet the criteria of the various lending institutions.

Mr Mase, in his response, said that the contact details of the provincial managers would be provided to the committee. SAMAF explicitly did not want to discuss its challenges because SAMAF was still a fledgling organisation. Regarding SAMAF’s grassroots location, he said that every effort was being made to make SAMAF accessible at the grassroots level but he reminded the Committee again of the fledgling status of SAMAF.

He explained that the ownership of FSCs was made up of its membership and therefore had no owners. The composition ratios are biased towards women but black males still tend to dominate. MFIs were black owned and had a large percentage of women top executives. On the matter of credit and blacklisting, he said SAMAF at present did not use credit criteria but that other lending institutions must develop policies to circumnavigate credit bureau status.

Mr Kolwezi referred to the presentation slide dealing with the
Savings and Credit Co-operative League of South Africa (SACCOL) and asked what was meant when it stated "provide this funding at arms length from SACCOL". Secondly he asked why commitment for technical support was not provided in some critical areas.

Mr Mase replied that funding SACCOL at arms length meant that funds could not be channeled via SACCOL as it would result in an inefficient process of funding. Regarding support functions, he said that SAMAF provided support by using its support funds to outsource technical support in certain areas, but it did not have its own technical support staff.

Ms Makwena asked how access to international markets could be provided to small enterprises.

Mr Motlhoioa replied that an export programme was provided to provide access to international markets as well as marketing through exhibitions and a trade point programme.

Mr Kolwezi asked how one would get invited to an exhibition.

Mr Motlhoioa said that one would get invited through one's relationship with one's business advisor who was working with the SMMEs.

Meeting adjourned.


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