The South African Micro-Finance Apex Fund briefed the Committee about their key prorities for the 2010/11 financial year. From 1April 2010, samaf would fall under the remit of the Ministry of Economic Development. Samaf had been established as a pilot trading entity that was supposed to have ended in 2009, but had a budget allocation till 2012. An independent evaluation report for this pilot project would be completed soon.
A lack of skills not only in samaf but also in the community organisations were a serious factor hampering samaf’s work. The quality of the community institutions would require a long-term skills capacity building program by them.
Questions raised by the Committee Members included why there was a need for financial intermediaries; why samaf requested a doubling of their budget when they had not fully spent their previous budget; how bad debts were being followed up, what the difference between samaf and other financial bodies such as Kula and the IDC (Industrial Development Corporation) were. They wanted a more detailed financial breakdown and strategic plan from samaf, which was to be presented at a later date.
Briefing by samaf
Mr S Mase, Chief executive Officer (CEO),samaf, briefed the committee on the priority areas of concern for the fund. He prefaced this with a brief background on the mandate and achievements of samaf to date.
The trading status of samaf had been intended to expire in 2009 but it had been had been transferred to it to operate beyond 2009 in anticipation of samaf adopting a corporate legal status by March 2012. Samaf’s mandate was to contribute to poverty reduction by acting as a catalyst in providing wholesale micro-finance and other related non-financial services.
The achievements of samaf over the past three years included the disbursements of R76 million through 49 financial intermediaries to over 61 000 individuals; improving the loan recovery rate from 14% to the current 60% and the removal of a R3.8 million audit qualification for 2006/7.
Key priorities for 2010/11 were listed as being strategy implementation; investment in the institutional building of the developmental micro finance sector by improving the skills capacity; building confidence in the developmental micro finance sector and to lobby for policy research and an enabling regulatory framework for the sector. (See accompanying report for details)
Mr Z Ntuli (ANC) asked what the difference between samaf and bodies such as Kula and the IDC were and why all these entities could not be in one body. Whether the interest rate charged by samaf was the same as that charged by the other institutions. Why samaf had requested more funds from government when they had not utilised the money allocated to them previously. If the recession, had any impact on it’s functioning. Why samaf could not be involved in the recently announced billion rand lay-off training scheme.
Mr X Mabaso (ANC) asked for clarification on samaf’s role as intermediary and to what degree samaf monitored and mentored organisations that they helped. How they related to provincial economic bodies and whether samaf was known and accessible to the people whom it sought to serve.
Ms D Tsotetsi (ANC) noted that they bad debts of 40% and asked how they dealt with this. What were the conditions necessary for approval of appointments to the staff of samaf and information on samaf’s recruitment process? Whether, samaf had mechanisms in place to avoid double dipping.
Dr S Huang (ANC) asked for the average loan amount allocated per household to be given. He asked for more detail, financial and otherwise, to be given on the samaf pilot model and on how they intended to spend their budget not only in 2010 but also in the following year.
Ms P Bhengu (ANC) asked what the community based institutions they were helping, were doing and whether samaf had any criteria to be met for these institutions to be assisted. She wanted a breakdown of the 49 community based institutions that were helped by samaf.
Ms M Coleman wanted clarification on the interim arrangement of samaf’s trading status. What type of grants was given to the community based organisations, who qualified for them and what beneficial outcomes arose out of the grant. She wanted more information regarding the identification of inadequacies raised at a round table policy debate as mentioned in the report and why they wanted to more than double their budget.
Mr Mase replied that a policy review of the Department of Trade and Industry (DTI) in 2005 identified problems facing the small business sector where an organisation like samaf, catering for micro businesses like hawkers, could operate. However as this market was very mobile, samaf could not deal directly with this market. As such samaf had to act as a wholesaler to entities like stokvels and community organisations that would loan micro finance funds. This explained the use of the term “financial intermediary”. The target market also distinguished them from Kula and IDC and this explained why they were formed as a trading entity.
The size of loans ranged from R100 to R10, 000. He said the lay- off training scheme was with the IDC and so could not comment on it. The recession had had an impact on samaf because more people laid off from work had started a small business to survive.
Mentoring and support was an ongoing activity involving training community Members, assisting them with the structure of their entities, and teaching them financial management. He said they worked with provincial bodies, where they would offer institutions grants, which allowed them to leverage their output.
On the question of whether samaf was known, he said that one had to bear in mind that samaf was a wholesaler of micro-finance, however they had programs to publicise the work that samaf did and the opportunities they offered. Individuals might not know about samaf but community organisations involved in development finance would know about it.
The maximum amount given to organisations was about 10 million rands at an interest rate of 6 %. State attorneys were used to recover bad debts from the institutions, not from individuals. Funds were given to formally structured institutions with a history of operation.
Samaf followed a clear recruitment process involving advertisements, interviews by a panel and orientation after appointment.
He would supply the extra details requested by Members, e.g. the average amount of an approved loan. He said they did not as yet have a means to measure the growth of small businesses that had taken out samaf loans. The quality of the community institutions was a concern. They (community organizations?) suffered because of a lack of skills, fraud; conflict that arose within them created instability and resulted in a high institutional death rate. This was samaf’s current focus. After this they would look at the development of the small businesses that took out loans. They had dealings with 32 financial co-operatives and 34 financial intermediaries, the difference between the two being that whereas financial intermediaries only granted loans financial co-operatives granted loans but could also take deposits.
The interim nature of samaf was because it was formed by a letter between the Minister of Finance and the DTI as a trading entity to pilot a project over three years. Irrespective of where samaf was housed, developmental micro finance providing small loans to the poor had to be in the policy framework. This arrangement was due to expire in 2009 but had been budgeted for until 2012. Samaf were currently awaiting an independent evaluation report that would determine samaf’s future.
Regarding the budget request being double the previous year, he said that in its first year of operation it disbursed R20 million, R24.5 million in the second year and approximately R21 million to date.
As to the inadequacies, he said that the skills required to operate in the developmental micro finance sector were such that a banker or businessman or community worker or organiser or social worker could not automatically be expected to succeed. Rather it was someone who possessed a combination of these skills. As for the community based retailers, there would always be capacity problems and these had to be addressed in a long-term framework. They were not going to do a wholesale duplication of the Grameen Bank model.
Ms Tsotetsi asked what mechanism there was for sustained mentoring over a long period of time. She wanted a breakdown of the allocated loans in terms of race and gender.
Mr Ntuli asked whether the maximum amount of a loan was R10, 000 or R10 million.
Mr Mabaso asked what samaf would like the committee to do, as they wanted to help samaf help the poor to succeed.
Ms Coleman asked whether the interest rate charged by the community based organisations was regulated and what happened to the money that they recovered.
Mr Dhulane, Chief Operating Officer (COO), samaf said on the issue of the loan amount, that the maximum amount loaned to an institution was R10 million and from the institution to an individual the maximum loan amount was R10 000. He said the National Credit Act regulated the interest rate charged by the community-based institutions. Repayments were re-distributed as wholesale loans.
Mr Mase said that they would be studying the evaluation and Auditor General’s reports amongst others. There after they would be able to say how the committee could assist them. Their key concern was to put the agenda for developmental micro finance in the policy framework of the country.
Ms Coleman, in closing the meeting, questioned the need for financial intermediaries and whether there were service level agreements signed with the intermediaries.
The meeting was adjourned
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