South African Micro-Finance Apex Fund Annual Report 2008/09

Meeting Summary

The Committee was addressed by the South African Micro-Finance Apex fund (SAMAF) a statutory entity established as a wholesale fund to support the development of financial intermediaries who would provide support to financially risky enterprising poor. The presentation outlined the reason for the establishment of SAMAF,its mandate and mission, the sources of funding, its national footprint, and challenges faced and the action plan for the future. The challenges were wide-ranging, including the slow take-up of funds by financial institutions, a decline of member savings, inadequate financial controls and the systems of financial institutions were not aligned to the Generally Accepted Accounting Practice and International Financial Reporting Standards. Some reckless lending and poor handling of funds had led to conflict, and operational instability. There was also no insurance cover available. SAMAF had embarked on an action plan to mitigate risks and challenges. A policy papers was being developed on an insurance deposit scheme for those financial intermediaries with less than R1million in assets, and another to increase the maximum micro loan by R10 000 to R50 000.

Members raised a number of queries about the qualifications in the audit report, including the high levels of reported debt, the fact that the Auditor-General had stated that the financial statements were not complete, and that certain information was not available. Members queried, specifically in relation to Mpumalanga, incorrect references to districts, and the lack of assistance being given to disabled people. Members asked a number of questions that SAMAF said it could only provide detail on during its next presentation in November – including the detailed plan of internal controls, a more detailed plan of action for the future, a breakdown of advertising costs, and a breakdown of travel costs. Other questions addressed the training provided to beneficiaries, the degree of monitoring, whether it was possible to evaluate the performance of intermediaries, whether those blacklisted by credit bureaus could be assisted, the consultancy fees, the underspend, and whether SAMAF was incorporating practices from the Bangladesh system into its own.

Meeting report

South African Micro Finance Apex Fund (SAMAF): Annual Report 2008/09
Mr Sithembele Mase, Chief Executive Officer, South African Micro-Finance Apex Fund, noted that SAMAF was a statutory entity established as a wholesale fund to support the development of financial intermediaries who would then provide support to financially-risky enterprising poor, who were unable to access finance through  commercial banks.

Mr Mase began by explaining the rationale behind the establishment of SAMAF. He said that the Department of Trade and Industry (dti) had identified a financing gap for enterprising and working poor survivalists who could not obtain loans and other financial services from commercial banks. It was not feasible for a government trade entity to lend them money due to the risk level, which was intensified by the informal nature of their businesses, which usually had no fixed address.

The most viable alternative identified was for the dti to establish its own savings and loan vehicle to deliver financial services such as loans and acceptance of deposits. SAMAF was thus established in terms of Section 38(1)(m), read together with Section 76(4)(b), of the Public Finance Management Act (PFMA). It began operating in 2006, providing loans for on-lending, grants for institutional capability as well as technical support.

Mr Mase stated that SAMAF’s mandate was to act as a catalyst for the development of efficient micro-finance services; to support the establishment of sustainable micro-financing. It aimed to provide developmental, financial and non-financial services financial intermediaries through the effective mobilisation and wholesaling of capital. Most of the funding was obtained through grants and loans from the dti, with a small percentage obtained through interest on loans. SAMAF had initially employed 45 people, but now employed 60, with a final target of 75. However, SAMAF refused to employ people just for employment’s sake and did not require additional staff at present.

SAMAF had received a qualified audit from the Auditor-General.

A breakdown of the coverage by province, provincial employment figures and offices was provided.

Mr Mase then proceeded to provide an extensive list of challenges faced by SAMAF. These included the slow take-up of funds by financial institutions, due to meeting financial and reporting requirements. There had been defrauding of the financial institutions by own members and board, and a decline of member savings, which was attributed in part to the recession. Sometimes there was inaccurate and unreliable information, which required intensive verification. There were inadequate financial controls and the systems of financial institutions were not aligned to the Generally Accepted Accounting Practice (GAAP) and International Financial reporting Standards (IFRS). There was also non-compliance with statutory requirements. Another challenge arose when poor financial planning and management was leading to reckless lending methods, missing and poor handling of funds. The poor member and borrower loan repayments led to a high default rate. There had been conflict between financial intermediary membership and the board, resulting in operational instability. The absence of deposit insurance schemes to indemnify cover for financial intermediaries with less than R1 million in assets and fewer than 200 members, meant that there was not effective savings mobilization. Finally, the provinces failed to meet service delivery targets, hampering SAMAF's ability to fulfil its mandate.

Mr Mase stated that SAMAF had embarked on an action plan to mitigate risks and challenges. This included the appointment of an independent service provider to conduct an extensive study of work done, the challenges faced by the organisation and what could be done to mitigate those challenges.

He concluded by mentioning that two policy papers were being developed: firstly, an insurance deposit scheme for those financial intermediaries with less than R1million in assets, and secondly, to increase the maximum micro loan by R10 000 to R50 000.

Mr A Nyambi (ANC, Mpumalanga) asked for an explanation for the high levels of reported debt.

Mr Mase replied that at the time of the audit, SAMAF had instituted debt collecting measures and had instituted legal proceedings against several defaulters. However, SAMAF was confronted with a technical problem as it was not a juristic person, and the defendants consequently claimed that SAMAF lacked the locus standi to bring the action, which should rather have been brought in the Minister's name. This issue had been resolved through the delegation of powers to enable SAMAF to institute court proceedings in its own name, and as a result it could now collect what was due.

Mr Nyambi stated that several districts referred to in the presentation as being within Mpumalanga did not exist according to the government systems. He wanted to know what they referred to, and where the names were obtained.

Mr Mase replied that the district names were obtained from members of SAMAF who worked in that area and it had been assumed that the names given were correct. He assured Mr Nyambi that it would be corrected.

Mr Nyambi said that in Mpumalanga, no disabled persons were assisted by SAMAF, and that this was the only province that did not do so. He requested an explanation for this state of affairs.

Mr Mase said that this was an issue of concern to SAMAF. However, as a wholesale fund, their influence over FIs was limited and SAMAF could not compel them to include disabled people.

Mr Nyambi commented that the information provided was lacking in detail and requested a more detailed plan of action for the future. He also expressed concern over an apparent lack of internal controls.

Mr Mase replied that SAMAF did have a detailed plan of internal controls but he did not come prepared to discuss them today. He emphasised he would be able to do so at a later date in November.

Ms M Dikgale (ANC, Limpopo) asked about training provided to beneficiaries. She also asked about the degree of monitoring undertaken, stating that, if necessary, it should done on a weekly basis.

Ms E van Linden (DA, Eastern Cape) echoed her colleague’s sentiments, but said the emphasis should be on mentoring, rather than monitoring, to empower the loan recipients.

Mr Mase conceded that training and monitoring was insufficient, noting that it was difficult to do so.

Ms van Linden asked for an indication as to which of the financial intermediaries assisted by SAMAF were successful, and what was the common best practice between the successful ones.

Mr Mase replied that SAMAF had been in existence for just three years and was not yet in a position to provide a proper evaluation in this regard.

Ms van Linden said that she was concerned that there appeared to be a focus on certain districts in the Eastern Cape, but that others that were equally poor and deserving of assistance were ignored.

Mr Mase responded that although SAMAF did undertake outreach programmes, and received and approved applications, it could not control demand. He conceded the possibility that applications for those districts might have been received after 31 March 2009, but did not come prepared to speak on applications after that date. He said that outreach programme would be undertaken in the North-West on 27 November 2009.

Mr M Maine (ANC, North West) referred to a note in the Annual Report that stated that in respect of the financial statements for the year ended 31 March 2009, some information was not available, and sought clarification.

Mr Adams queried the statement given by the Auditor-General as the reason for the qualified audit, that “Pertinent information was not captured in a form and time frame required for financial accounting.” He also called for comment.

Mr Mase responded that the problem was that the Auditor-General had requested that SAMAF provide financial statements of the FIs.  SAMAF had refused, as the FIs were not part of SAMAF, and to demand that they provide accounts of a sufficiently acceptable standard would be too costly for such institutions that did not have the means to do so.
Mr F Adams (ANC, Western Cape) said that he knew of a case where a lady was denied assistance because she had been blacklisted with a credit bureau. However, this was not supported by the Annual Report.

Mr Mase replied that SAMAF did not, as a matter of policy, routinely refuse to assist those who had been blacklisted. He could not comment on specific details as he did not know the particulars, but said that he would have a look at that particular case.

The Chairperson asked whether the reference to “independent service provider” in the presentation was a euphemism for “consultant”.

Mr Mase replied that the “independent service provider” was an auditing firm appointed through a tendering process.

Ms van Linden asked why R1.6 million was spent on advertising.

Mr Mase replied that the advertising amount reflected the cost of outreach programmes in seven provinces. He said that a breakdown of this amount could be provided at a future meeting.

Mr Adams asked why R2.7 million was spent on consultants, noting that this amount had later increased by R700 000.

Mr Mase replied that SAMAF had had an accounting system that did not fulfil GAAP requirements. A new system of accounting was adopted and auditors were hired to test the new system. The amount reflected the amount paid. He further offered to produce a further breakdown of costs at a later date in November.

Mr Adams asked why subsistence and travel costs had increased by R1 million.

Mr Mase replied that each province had its own offices and that the staff were frequently required to travel deep into rural areas. He again said that a further breakdown could be provided at a later date.

Mr Adams asked whether the National Treasury had approved or taken back monies unspent.

Mr Mase replied that the Treasury had approved the underspend, and had reinstated the R50 million.

Ms van Linden referred to comparison drawn with Bangladesh and several other countries, which had a programme similar to SAMAF for nearly 40 years, asking why they were successful and whether SAMAF was implementing their methodologies.

Mr Mase replied that the Bangladeshi programme was in place for 40 years, which allowed them to evaluate whether it was successful. A comparable system was being fast-tracked in South Africa, but best practice from Bangladesh, Indonesia and South American states were all considered and adapted for South African conditions.

Mr Adams asked whether it was SAMAF practice not to provide a pension contribution for its CEO.

Mr Mase responded that the CEO was under a three year contract and that a pension contribution was not part of the agreement. He said that he was responsible for his own pension contributions.

The meeting was adjourned.


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