South African Micro-finance Apex Fund (Samaf) on its 2011 Strategic Plan

Economic Development

29 March 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The South African Micro-finance Apex Fund (Samaf) presented its 2011 strategic plan and budget. In terms of the key deliverables over the following three years, Samaf had made provision of financial support of R279 million to Financial Intermediaries for on-lending and R115 million for capacity and institutional building and this amounted to more than R100 million per annum. He noted that up till the end of 2010, Samaf had not dispensed more than R23 million in an entire year. For this financial year up till the end of March 2011, Samaf estimated that it would have dispensed more than R40 million. In the nine months they had made tremendous progress and had gone beyond what they had ever achieved before.

Samaf faced several challenges. These included concerns about the sustainability of Financial Intermediaries, capacity within Samaf and the Financial Intermediaries, provincial spatial demographics and turnaround times. Samaf had done a lot of work to address the challenges. It had developed a manual accounting system for start-ups and had trained staff in the current financial year. It was closely monitoring the Financial Intermediaries that had been refunded and expected reports from the provincial financial managers on the Financial Intermediaries on a monthly basis so that interventions could be made if necessary. Capacity was a problem in the provinces as initially mostly social workers had been employed and they lacked the necessary financial skills. Close to R1 million had been spent on training in the 2010/11 financial year to bring them up to speed.

Currently, Samaf provided three products and services. Firstly, there were Developmental Loans that ranged from R4 million to R10 million. Secondly, there were Institutional Incentives with a Fund dealing with capacity building which ranged from R1 million to R5 million. Thirdly, there was a saving formalisation and mobilisation fund that was intended mostly for start-ups and small institutions that had a limit of R200 000. Samaf had split up the services between start-ups, middle sized and large organisations. Previously, it had only provided capacity funding for start-ups but now it could also access funds for on-lending. It had also created special products for special needs that would allow small groups of individuals with a good initiative to access funds. Mr Naidoo noted that thresholds for the current products were under review to ensure relevance and there was ongoing engagement with the community Samaf served. It had also started engaging with the end users to understand what their needs were.

Members asked asked how Samaf would be able to address all their challenges such as capacity building and turnaround times. They also enquired about whether the staff had undergone business training, whether disabled people were included as part of the organisation’s strategy and why Men did not seem to be a focus for the organisation. The Committee also examined the performance targets that had been set, the services that were provided and
the relationship was between Samaf and these intermediaries.


Meeting report

Opening Remarks
The Chairperson welcomed the delegation from Samaf which was led by the Acting CEO, Mr Kumaran Naidoo, who apologised for the lack of female representivity in the delegation.

The Chairperson queried why this was the case.

Mr Naidoo explained that the only remaining female executive, the Human Resources Manager, had an unforeseen emergency and could not be present and the other female executives had resigned.

Samaf Medium Term Strategic Framework 2011-2014
In his introduction, Mr Naidoo gave an overview of the presentation which covered Samaf's mandate, vision, mission and values, the key deliverables envisaged for the next three years and Samaf's products and services including new products. The alignment of Samaf with the New Growth Path (NGP), Performance Targets, the Budget and the challenges were expanded upon (see attached presentation).

The mandate of Samaf was the creation of work opportunities and sustainable livelihoods through the facilitation and provision of affordable access to finance by micro, small and survivalist businesses for the purpose of growing their income and asset base. Basically Samaf supported entrepreneurship and was also required to act as a catalyst in the development of a vibrant micro-finance industry in South Africa. This entailed the creation of Financial Intermediaries (FI's) in various communities so that they could become self-sustainable and equipped to provide Finance to the community at large.

Effectively this Mandate meant that Samaf had to facilitate the provision of affordable access to finance by micro and survivalist businesses enabling the extension of financial and non-financial services into the rural areas, informal settlements and peri-urban settlements of South Africa. Samaf had to build a strong, effective and efficient wholesale Apex Fund. Samaf's basic premise thus was to contribute to a better quality of life for South African citizens and to contribute towards a sustainable and vibrant micro financial industry in South Africa.
 
Mr Naidoo stated that the vision of Samaf was to be a leader in developmental micro-finance. He referred to the imminent merger of Khula and Samaf and the Industrial Development Corporation (IDC) small business portfolio and hoped that this developmental vision would be pursued in Khula as micro-finance was an important endeavour in the country. The mission of Samaf was to provide developmental finance and non-financial services to Financial Intermediaries including the wholesaling of funds, the development of institutional capacity, policy development and the development of partnerships. The Financial Intermediaries were thus mobilized to make loans to the end user.

Mr Naidoo stated that Samaf embraced the values of integrity, transparency, professionalism, accountability and high performance. He commented that there had been a level of discomfort in the organisation and amongst staff but that in the nine months he had been there the situation had improved.

Mr Naidoo stated that in terms of the key deliverables over the following three years, Samaf had made provision of financial support of R279 million to FI's for on-lending and R115 million for capacity and institutional building and this amounted to more than R100 million per annum. He noted that up till the end of 2010, Samaf had not dispensed more than R23 million in an entire year. For this financial year up till the end of march 2011, Samaf estimated that it would have dispensed more than R40 million. In the nine months they had made tremendous progress and had gone beyond what they had ever achieved before.

Samaf envisaged the establishment of 122 new FI's over three years and planned to work more in peri-urban and rural areas and this exceeded anything done in previous financial years. It would thus fund more than 193 FI's including the new FI's. The Fund estimated that 56 000 new jobs would be created. This was the first time that Samaf was setting this target and they had worked with provincial offices and FI's on this projection. It would be monitoring this and if necessary would make adjustments to the estimates year on year but they were fairly confident that they would reach the target.

Samaf planned to diversify its micro-finance products. Samaf acknowledged that in the past it did not have many products that met the needs of its clients. There were now a set of new products and the proposals were with the Department of Economic Development at present awaiting their approval for implementation within the next financial year.

Samaf intended to increase its visibility and promote awareness of its mandate, products and services and had allocated funding for that purpose in the new financial year. It also had to ensure that its offices and support services were aligned to the market initiative. It planned to upgrade its information technology (IT) system including that of the FI's so that it could report better and manage its businesses better. The improvement of turnaround times was also envisaged.

Mr Naidoo elaborated on Samaf's current products and services and stated that there were essentially three products and services. There were Developmental Loans that ranged from R4 million to R10 million. There were Institutional Incentives with a Fund dealing with capacity building which ranged from R1 million to R5 million and a saving formalisation and mobilisation fund that was intended mostly for start-ups and small institutions that had a limit of R200 000. Samaf had split up the services between start-ups, middle sized and large organisations. Previously, it had only provided capacity funding for start-ups but now it could also access funds for on-lending. It had also created special products for special needs that would allow small groups of individuals with a good initiative to access funds. Mr Naidoo noted that thresholds for the current products were under review to ensure relevance and there was ongoing engagement with the community Samaf served. It had also started engaging with the end users to understand what their needs were.

On Samaf's alignment to the New Growth Path (NGP), Mr Naidoo said the organisation would be contributing to the strengthening of access to micro-finance for small enterprises. In terms of enterprise development, Samaf would be promoting small business and entrepreneurship via the FI's, new products and the elimination of red tape. In terms of spatial development, it would promote the extension of Samaf products and services to remote and rural areas by working with communities, municipalities and the provinces. Samaf would also address key developmental goals for women empowerment and youth employment.

Mr Naidoo referred to the Performance Targets for the next three years estimated in terms of end user borrowers, end user service loans and new jobs created (see attached presentation). He noted that the figures were conservative and historically based as the organisation had abided by the directives of Treasury. Using the categories of women and men, youth and disabled and rural and semi-urban, the estimated end user borrowers for the 2011/12 financial year was 22,116 million with a progressive rise to 30,233 million by 2012/13 and 43,190 by 2013/2014. Mr Naidoo stated that the focus was largely on women and rural development. He noted that Samaf had to focus more on Youth and the disabled and they were starting to engage on this and they had begun appointing interns from these constituencies.

In terms of end-user service loans, Mr Naidoo said that Samaf would be focussing on entrepreneurial development and 88% of funding would be going towards that in 2011/12 .The estimates for new jobs to be created was 13,100 for 2011/12 rising to 25,000 by 2013/14. Samaf also encouraged the FI's to promote communities to save with them.

In terms of funding support to FI's, Mr Naidoo drew attention to the progressive increase for on-lending year on year and that the proportion of funds for capacity building decreased. On lending increased from R65 million in 2011/12 to R124 million in 2013/14. Capacity building increased from R35 million in 2011/2012 to R41 million in 2013/14. There would be more on-lending than capacity building as institutions were given more support in the initial years of their establishment.

Mr Naidoo said that Samaf had been very conservative when it came to the repayment rate as at the end of December 2010 this had had been close to 87%. 4 Micro-Finance Institutions were earmarked for the new financial year and 32 Financial Services Corporations were also planned for this period. Micro-finance Institutions were huge institutions that had a presence around the country while Financial Services Cooperations worked with communities in certain locations. This was the largest budget Samaf had ever had and there would be a huge drive to increase the number of FI's.

For the first time, Samaf had a target for outreach to new communities as this had only been done on an ad hoc basis before. It had informed the provinces to institute targets and report back on them. Another target that would be reported on was assistance given to FI's in respect of their financial reporting. In terms of assessing the needs of the end users who received money from FI's, Mr Naidoo said this would be a formal exercise with a questionnaire and a proper assessment and interventions would be put in place in order for FI's to assist the end users. In terms of capacity building, Samaf would design products to meet end-user capacity requirements.

Samaf was seven years old and had never achieved an unqualified audit report. The organisation hoped to again receive an unqualified audit report for the current financial year as it had worked hard towards achieving this. Samaf was making it a target to obtain clean audit reports for the next three years. The payment of creditors would take place within 30 days as required and at present it was well within that limit.

Samaf had conducted a survey and the results would be made available within the following weeks. They would address any shortcomings that the report might indicate. In the next financial year, a formalised satisfaction survey would be undertaken with their end users and appropriate interventions would be put in place. The printing of brochures in the 11 official languages would be done in consultation with Khula to ensure that the information was current. Plans were also in place to profile Samaf in the media using community newspapers in various provinces.

On the Budget for the next three financial years, Mr Naidoo said that expenditure for 2011/12 was R61,302,000 and the Transfers to FI's was R100,141,600 and he noted that the ratio of expenditure to Transfers to FI's would decrease progressively into the last financial year ( see attached presentation). Samaf was deliberately targeting the reduction of their administrative expenses and would work on achieving that.

Samaf faced several challenges. These included concerns about the sustainability of FI's, capacity within Samaf and the FI's, provincial spatial demographics and turnaround times. Samaf had done a lot of work to address the challenges. It had developed a manual accounting system for start-ups and had trained staff in the current financial year. It was closely monitoring the FI's that had been refunded and expected reports from the provincial financial managers on the FI's on a monthly basis so that interventions could be made if necessary. Capacity was a problem in the provinces as initially mostly social workers had been employed and they lacked the necessary financial skills. Close to R1 million had been spent on training in the 2010/11 financial year to bring them up to speed.

Spatial demographics and the huge distances especially in the Northern Cape and Eastern Cape had been addressed by the establishment of a quarterly forum where FI's could interact with each other to share experiences and successes. Staffing capacity was a challenge as there were few Samaf staff in the provinces, the maximum being five. Mr Naidoo commented that, hopefully, when the merger between Khula and Samaf took place, the staff would amalgamate and be able to work together and this would be a benefit in addition to the cost savings that would arise from the merger. Mr Naidoo noted that turnaround times would improve with the new software that would be operationalized from April 2011 and he said it would enable them to track turnaround time better.

Discussion
Dr P Rabie (DA) thanked Mr Mark Alard, Samaf's Provincial Manager for the Western Cape, for his constructive visit to his rural constituency where there was a lot of unemployment and poverty. Referring to turnaround times, he asked what the optimal turnaround time Samaf was aiming at as time was very important to the micro-business environment.

Dr Rabie referred to Mr Naidoo's statement that many staff in the provinces were social workers and they had limited knowledge of cash flows and economics and he asked whether they had undergone business training and refresher courses. The Committee had received an instructive submission from a Department official in an earlier meeting in which he had stated that a business plan was not always necessary and some people ran their businesses successfully without it. Dr Rabie asked what the point of departure was for training staff to assess the viability of a micro or small business.

Mr X Mabasa (ANC) referred to Samaf's alignment to the New Growth Path and that Mr Naidoo had mentioned that the organisation would be addressing key developmental goals for women empowerment and youth employment. However, he expressed concern that people with disabilities were not included.

Mr Mabasa referred to the Graph on the Performance Targets and said he had a problem in interpreting the percentages given for the categories of Youth and Disabled which were 10% and 2 % respectively and posed the question  " 10% of what, 2 % of what?"

Mr Mabasa noted that included in Samaf's mission was the 'development of valuable partnerships' and he requested that these should be listed so that the essential partnerships could be visualised.

Mr Mabasa noted the statement that the relevant behaviour by staff had been developed to achieve the values of  integrity, transparency, professionalism, accountability and high performance listed by Mr Naidoo in the presentation. He indicated that he could not interpret the context of the word 'behaviour'.

Mr Mabasa asked two further questions. Firstly, he asked what would be defined as an ideal Financial Intermediary and if that could be mapped out. Secondly, he referred to the list of Samaf Products and Services and requested more information on the Education Loans and Emergency Loans which were located under Developmental loans.

Mr N Gcwabaza (ANC) referred to the Performance Targets for end-user borrowers in the semi-urban areas and noted that a progressive decline was indicated year on year. He said he raised this question as semi-urban areas were made up of poor informal settlements yet a decline was envisaged in Samaf's targets.

Mr Gcwabaza referred to the performance targets for Youth and commented that the youth were the majority of the unemployed at this point in time and yet the targets were significantly low. Why was this so?

Mr Gcwabaza noted that men did not seem to be a focus for Samaf and wondered why this was the case. Were the majority of them employed? He commented that one would assume that women were the family providers. Finally, Mr Gcwabaza expressed his appreciation that Samaf had targeted obtaining an unqualified audit report.

Mr S Marais (DA) said that Samaf had a huge role to play and in his opinion they could make a greater impact on economic development than many people thought. He referred to the Committee's recent visit to Khayelitsha. He noted for the sake of clarity, that Samaf's customers were not the end user but were the Financial Intermediaries and the corporates. He asked what the relationship was between Samaf and these intermediaries as forwarding lenders of that money and their alignment with government’s objectives on economic development. To what extent could Samaf prescribe to them on how they had to structure their deals and how to determine their interest rates and service costs? Were these things that Samaf could prescribe and should these things be regulated? How best should one do that? Mr Marais observed that this depended on the relationship and agreement that Samaf had with the financial intermediaries.

Ms D Tsotetsi (ANC) concurred with Dr Rabie on the challenges and asked how Samaf would be able to address all their challenges such as capacity building and turnaround times. She noted that Samaf had a turnaround time of 14 days at present but they were now targeting 30 days time and she asked why they did not sustain their good practice of 14 days turnaround time.

She also noted that there was no provision for maintenance in the budget and she said if the software was not maintained they had to replace it and this was not cost effective. She expressed her appreciation for the contact list of the offices in the provinces.

Mr Z Ntuli (ANC) concurred with Mr Gcwabaza on the target set for an unqualified audit report which he said was encouraging. He noted that Samaf did not make loans to individual end users and he queried how the educational loans were disbursed.

Mr Ntuli asked for examples of how the small business suppliers were paid, the 30 days turnaround time and who these suppliers were.

Mr Ntuli asked how the targets were quantified and noted that it was a question that had been directed at Khula as well. Samaf had set a target to create 56 000 new jobs, how was that figure arrived at? How did Samaf quantify the number of jobs vis-a-vis the money? How did they know that so many opportunities would be created? Was it just thumb sucking or was there a benchmark of some sorts?

Mr Ntuli said that he would build on the question posed by Mr Marais. When the Committee had visited KwaZulu-Natal (KZN), they had found that the modus operandi of Samaf was inconsistent.  Some FI's had been told they needed to have a certain amount of capital and for others a plan had been made and they received the money. Mr Ntuli added that in terms of funding for capacity building, some FI's had received money while others had not. The argument was about the lack of consistency and why different criteria were applied for the same product. What was the reason for that?

The Chairperson added that she was not sure what was stated in the Product and Services list. She queried whether it was a definitive list as Mr Naidoo had noted that the thresholds were under review to ensure relevance to the market Samaf served. At the same time they were still awaiting approval from the Department. She asked if in terms of the products, sufficient capacity had been built up in a sustainable, effective and efficient way.

The Chairperson said her colleagues had spoken of their experiences on oversight visits and she said it was quite clear that people were not inducted uniformly. Therefore the application of rules and procedures were not the same. Was this intentional or a mistake?

The Chairperson referred to the consolidated targets for provinces in the principal Strategic Plan document and the note that been appended. She asked whether it meant that the targets should not be taken seriously as the Department was still going to verify them. She stated that the document was their Annual Strategic Plan and they could not have notes like that as it was the plan for the institution. The committee needed concrete information as they needed to track progress. She said they did not want Samaf to come back and say that the Department did not agree with the targets. She said this led her to her next question which was whether Samaf had the necessary tools and capacity within the institution to deal with the information. She said the Department's role was to oversee the institution and ensure that they did the right thing but it could not prescibe what they should be doing. The targets had to be set by Samaf and the targets in the presentation thus gave no commitment from Samaf. The Chairperson requested that Mr Naidoo relook at the matter.

The Chairperson asked Mr Naidoo if he compared the current financial year's strategic plan to the one he had presented what the difference was generally speaking.

The Chairperson said she had a similar challenge in understanding the breakdown of the percentages given for the performance targets as expressed by Mr Mabasa especially for the Youth and Disabled percentages.

The Chairperson said she wanted to ascertain from Mr Naidoo if they were real figures he had supplied in the light of what they had experienced previously. She noted that there was an issue with capacity which he had alluded to and at the same time he had set high targets and she did not know which should come first. She stated that if he did not feel capacitated enough it would be better to deal with that before setting such high targets. He was placing undue pressure on himself to achieve what he might not be able to. She reiterated the importance of Samaf as an institution and said that they were dealing with the poorest of the poor.  They should guard against making false promises especially if they were unable to deliver what was expected. The new products and services were good but their value would depend on Samaf's readiness to implement.

Mr Naidoo said he would respond to most of the questions but would be assisted by the delegation when necessary. In terms of the turnaround times posed by Dr Rabie and Ms Tsotetsi, he said that there were different turnaround times that had to be considered. For the setting up of a new start-up FI, there was a lot of work, such as setting up institutional capacity and that turnaround timeframe was a minimum of 90 days. For an FI that was up and running and understood the workings of business, the target was 30 days. If the documentation landed up in a provincial office, it had to be assessed and a consultation set up within a week. In the Pretoria office there was a further engagement and a due diligence process was done.

In terms of refresher courses for the staff, Mr Naidoo said that R1 million had been spent on training. The University of Pretoria had a programme specifically for micro-finance and most of the provincial staff had attended that. Training had been done on all the Micro-soft products. They had commenced with the creation of templates income and expenditure on an Excel spreadsheet and this was for the benefit of the FI's and the staff. Together with a National Treasury subsidiary, they had developed a manual accounting course that all the staff had gone on. They had set the basis of capacitating the institution and it would be an ongoing process.

In terms of the percentages, Mr Naidoo referred to the target of 22,116 for end-user borrowers for 2011/12. He explained that the 10% target for Youth was calculated as a percentage of the 22, 116 and the 2% target for the Disabled was a percentage of 22,116 as well (see presentation attached).

On partnerships, Mr Naidoo explained that Samaf had partnerships with the University of Pretoria in terms of the micro-finance course. They also had a partnership with a German institution (DRDG), that had done training for Samaf effectively free of charge and they had a formal agreement with them on micro-finance. There were others and they would be listed when Samaf did their Annual Report.

Mr Naidoo stated that the context of the behaviour and values relating to staff had been expanded on in the principal document of the Strategic Plan and he had been unable to put them in the presentation as they were too many.

Mr Naidoo replied that an ideal Financial Intermediary was one that would be self-sustainable. In order to achieve that, they should have all the systems and processes in place to manage the finances internally and to collect all of their debts in order not to have write-offs. Governance structures such as the board had to be in place as well as reporting mechanisms. Samaf had conducted research into the FI's taking all the FI's together.  Further research on the FI's had been done with CBDA, one of their other partners and they had identified the gaps in the FI's and a comprehensive report had been released recently. There would be interventions based on the report and the report would serve as a benchmark.

In respect of the Education Loans and Housing Loans, Mr Naidoo said they were dispensed by the FI's to the end-users. Housing loans were for renovations and extensions and education loans were for school fees. However, Samaf had prescribed that only a certain percentage could be made available for these purposes as they were essentially consumption loans and the bulk of Samaf funds were meant for entrepreneurship development.

On the percentage decrease for semi-urban end-users queried by Mr Gvwabaza, Mr Naidoo said that when the strategic plan had been developed all Samaf staff had been consulted and provincial managers had consulted with their financial intermediaries. Mr Naidoo noted that while the percentages decreased the actual numbers increased as the total number of end-user borroweres would increase year on year.

The Chairperson called for further clarity on the Performance Targets. Using the targets for 2011/12 as an example, she said that Samaf had simplified matters and it was difficult to track what the percentages for the designated groups of women, men, youth, disabled rural and semi-rural were in each category. As it was at present, it had the potential of hiding the relevant information and the committee would not be able to track progress.

Mr Naidoo said they would supply the information as soon as possible.

The Chairperson reiterated her concern with the fact that they were awaiting the review from the Department on the targets and she was worried about the figures as they did not represent certainty. She requested that the information be supplied by Friday of that week as the committee had to finalise their report by the following week.

Mr Naidoo clarified that the note in the Strategic Plan Document only applied to the new jobs created and this was because it was the first time that Samaf was reporting on this as a target. They had engaged with their FI's and they had given them that information. Samaf had engaged with the Minister on this as well, and he had said that as there was no historical data one could not say how accurate the figure was. What they would do was amend the figure during the year and that was the only reason why they had added the note.

The Chairperson said that she understood that they did not have a baseline. Her concern was about the implications of the note as it stated that the figure was currently being reviewed by the Department to ensure that they were credible and verifiable. She was also concerned that, according to the note, the figure had been provided by the provinces and that it had not been consolidated and checked by Mr Naidoo. She found this problematic as the information on which the strategic plan was based was not credible and solid.

Mr Naidoo stated that with regards to the figures, Samaf they had gone through a process together with the Department in which they had looked at the strategic plan document and the department had insisted that they put the note in.They had also engaged with their FI's and had arrived at the figures with them.

Mr Gcwabasa referred to the Strategic Plan document and said that the provincial figures were inconsistent and that in one instance, when the percentages were added together, the total was 112%. He also noted that the increases for KwaZulu-natal were significantly low in all categories especially with respect to women and youth.

Mr E Nyekembe (ANC) noted that women and rural areas were the two designated groups receiving the major focus from Samaf. He said Samaf had failed to indicate how many women were reflected in the percentage given for rural areas and he supported the Chairperson's request for the information to be broken down.

Mr Myekembe was disturbed by the fact that Samaf had employed social workers instead of persons with business skills and therefore had to capacitate staff at huge cost in terms of administrative expenses. He queried why there were not partnerships with the universities not only in terms of capacity building but also for recruiting new staff.

Mr Nyekembe said that although Samaf was targetting women, this was not reflected in their staff at senior management level and this was not a good sign.

The Chairperson stated that information from Samaf should be credible and it helped the portfolio committee to help them to do their job better. They were not there as opponents but the committee was overseeing their work and they wanted to endorse the information with confidence so that implementation could be successful.

Mr Naidoo said he felt that Members had misunderstood him. He added that he agreed with the Chairperson and would supply the information for the performance targets as requested.

Mr Mabasa said that the reason why the Committee was so particular was for record purposes that could be referred to. Figures and graphs had to be accurate so that they could be interpreted accurately by other people.

Mr Naidoo stated that the reason that there was not a focus on men was because they had found that women tended to access micro-finance rather than men. They were not being discriminatory but responding to what they had experienced on the ground when they set the targets. Mr Naidoo reiterated why there were only men in the delegation and that the female executives had resigned. He noted that the male executives including himself were in acting positions and that the positions had not been filled due to the impending merger with Khula.

In terms of partnerships with the FI's, Mr Naidoo stated that it was not just a formal relationship in terms of the contractual obligations and while they could not impose their intension was to build up a relationship with them. In terms of the contract, 80% of the funds had to go to entrepreneurship but they could not impose the interest rates charged as the FI's used that for their own sustainability. He acknowledged that the committee had problems with the high interest rate charged and they had begun a process of interacting with the insitutions as some were charging high interest rates and were making high profits.

On the target of payment of suppliers within 30 days, Mr Naidoo stated that they were abiding by the legislative requirement but that they were, in fact, paying within 14 days.

In response to the query of Ms Tsotetsi, Mr Naidoo noted that maintenance was included under administrative expenses in the budget and that would include software.

Mr Naidoo stated that the new products and services he had referred to had been submitted to the Department for approval.

In response to the question posed by the Chairperson on whether Samaf could execute their strategic plan and the new products and services in terms of capacity, Mr Naidoo stated that they had spent a lot of money on building capacity in the past year in order to roll out their plans and building capacity would be an ongoing process. There would be gaps as they dealing with nine different provinces but he believed there would be sufficient capacity.

On the issue of the employment of social workers, Mr Naidoo said that it had been historical going back to when Samaf was established. It had been felt that social workers would be able to interact better with communities and he reiterated that they had undergone training in micro-finance subsequently, amongst others, at the University of Pretoria. Samaf had also starting utilising interns who had accounting degrees and they assisted in provincial offices.

Mr Naidoo stated that the strategic plan differed from the previous one in that there had been no targets set per province in the past. There were employment targets and targets for outreach to communities for the first time as well. In the nine months that he had been Acting CEO, Samaf had dispensed R37 million which was more than it had ever dispersed in any year. The annual report would reflect that the had established many institutions that were now registered and the basis had been set in the current financial year to take the expansion further.

Mr Naidoo noted that the modus operandi for dispersing funds to FI's should be consistent and the same criteria should be applied. Samaf had put a further process in place and a due diligence team was established to ensure that there was consistency.

Mr Patrick Mathoma, Acting Chief Operations Officer, Samaf, addressed the matter of benchmarking in terms of what it took to establish a micro-enterprise and in quantifying how many jobs were created. He said that there had been no benchmarking as far as he knew. They were looking at a situation where a R5000 micro-loan was dispensed to start a micro-business and this could be interpreted as creating a job. Depending on the size of the loans the number of jobs created could possibly be increased but the loans given were mostly small loans of R5000-00.

Mr Ntuli asked if he was saying by implication that when the Government and President had said that they were creating 5 million jobs in ten years, there was nothing tangible with which they could say that.

Mr Naidoo said he would explain the methodology they had used. In the interaction with the end-users and others and bearing in mind that Samaf loans were a maximum of R10,000-00 , they had worked out with their FI's  how many jobs an average loan could create. What they had concluded was that it would take R5 000 to create one job. For example if a person wanted to do sewing, they could take out a loan of R5 000 or R10 000. Mr Naidoo stated that it was not just thumbsucking but was scientifically done and in consultation with their FI's.

Ms Tsotetsi said that her question related to lack of capacity vis a vis key deliverables over the three year period, and she asked how Mr Naidoo was going to achieve the key deliverables and if he had a contingency plan while he was dealing with capacity.

Mr Naidoo reiterated that the staff had been capacitated and at provincial level they had recruited interns who were accounting graduates. He believed that they could meet their targets given their progress in the past nine months and he believed that the targets were fair and practical.

Ms Tsotetsi said she was concerned about the resignation of the female staff and she queried whether they had been engaged with to discourage them from leaving. She said that normally there was an exit interview and from that an assessment was made on what could be improved institutionally.

On the many acting positions in Samaf , Ms Tsotetsi commented that this was a problem in terms of commitment and planning.

Ms Tsotetsi said that commitment was needed on the turnaround timeframes and when they would achieve it in order for the committee to do the necessary oversight.

Ms Tsotetsi was concerned about the education loans even though Mr Naidoo had said that they were dealt with by the FI's directly. She said that indirectly Samaf was involved as students could graduate and take a long time to find a job, and she saw a risk of bad debt.

Mr Ntuli asked about the training and noted Samaf's partnership with the University of Pretoria. He commented that the Department of Higher Education also did training and he asked if Samaf had a relationship with them and the SETA who also did capacity building. He said he was checking for duplication and parallel tasks and differentiating between who did what.

Mr Ntuli said that Mr Naidoo had said they could not prescribe to the FI's on issues such as the interest rates. He asked who was being targetted and if it was not the end user who was the poorest of the poor. By giving the money to the IF's without being able to prescribe the interest rate they were allowing them to exploit the end users and charge them high interest rates. It was the government's intention to eradicate poverty but at the same time Samaf was saying they could not regulate what the FI's did and prescibe what they charged. Mr Ntuli said this was a contentious issue and should be debated.

Mr Naidoo said that the issue of the interest rates related to the sustainability of the FI's and this dictated their interest rates. Samaf had begun a process of interacting with the institutions on a voluntary basis for an indication on what level of capacity building money they would require so that their interest rates were not too high and would ensure that they were still sustainable. Unfortunately, the interest rate they earned was the only source of income they had. Mr Naidoo said that when they presented the annual report they would be able to give some feedback on this interaction. He agreed that they could not be giving the FI's money to allow them to make high profits for themselves.

The Chairperson said that the matter should be opened for discussion. Samaf had a reason for its existence and it was targetted at people who were referred to as survivalists. The FI's might be survivalists as well but not at the expense of the poor. If people wanted to operate in a purely business mode, they should compete with the relevant people and not be opportunistic. If they got funds from a commercial bank and commercialised it was fine but they were targeting people who depended on this money as a means of generating an income for their families and they also had to deal with the repayment. The chairperson said it was politics of the stomach and as such was a sensitive matter and they did not want to make people rich at the expense of the poor. She added that they could not be FI's if they were not developmental in approach and to be developmental they had to have a heart. Samaf had been taken out of Khula so that it could address challenges of the rural areas and now urban people and the affluent were taking advantage of it to make quick money and they were not going to allow that.

Mr Mabasa asked whether one needed Financial Intermediaries and what their purpose was. If they were mistakenly brought on board they should be offloaded and the needy should interact directly with Samaf. It was possible that the end-user was paying a higher interest rate than what they would be charged by a commercial bank and the FI's were no longer different than loan sharks.

Mr Nyekembe concurred with Mr Mabasa's and said that if the FI's did as they wished they was no difference between them and labour brokers. For the record, he read the mandate of Samaf, emphasising why Samaf was created and that that the loans should be affordable.

Ms Tsotetsi said the practice defeated the good intentions of the mandate.

The Chairperson said that they were representing those people and said that Members had families who were being drained by these loan sharks and developmental money from government should not be used for this purpose. She said the Committee should refocus and put things into perspective as Khula could cater for the FI's who really wanted to do business. Shrewd business people should not be allowed to operate at this level as these people needed tender care as had been obvious on the committee's oversight visit where women in a sewing group had spoken of the difficulties of repayment. The Chairperson said that the government was focusing on outcomes so that one could see the real impact on the ground. She said the committee had given Mr Naidoo something to look into and Samaf should model themselves developmentally in order to help those people. The committee itself would do their homework and come back to the Minister on their recommendations on what should be done through parliament.

Dr Rabie said that he agreed with the Chairperson’s statements.

Mr Naidoo said they were in agreement and that they would like to interact with the committee when they were finalising their recommendations. They also wanted the costs to come down and the new products which were community based would address high costs.

On the resignation of the female executives at Samaf, Mr Naidoo stated that there were issues of poor performance with one and the others received better jobs but the merger with Khula had also acted as an incentive for them to leave. He thought that the acting positions would not be filled in terms of the merger which was already in motion. Administratively, they were already coming together. The positions of CEO, COO and CFO would not be duplicated and the acting positions would remain till the merger process was finalised, hopefully by the end of 2011.

Ms Tsotetsi said they had not been given a specific date from Khula for the merger. She said that HR was a critical aspect of an organisation and she asked why women had been the only ones to resign and what had been the pressure on them to leave.

Mr Naidoo said there was no pressure and men who were part of the executive including the CEO and the HR executive had also resigned.

Ms Tsotetsi said that for skills retention, HR should engage with people and find out the reason for the resignations to improve the organisation. She asked if they had been engaged with and asked why they wanted to leave.

The Chairperson asked if they had a retention strategy in place and if the procedures had been followed and if a certificate of release had been issued. If they were valuable had counter-offers been made. Did clear records exist of the process followed?

Mr Naidoo replied that the HR procedures had been followed and he had personally spoken to one of the female executives that had left to ascertain if she could be retained.

In terms of the timeframes requested by Ms Tsotetsi, Mr Naidoo stated that there were quarterly milestones that had been developed for each of the targets that had to be achieved.

In terms of the collection and bad debts Mr Naidoo stated that if Financial Institutions were struggling to collect the funds, they could apply for a moratorium on repayment or a reduced repayment. There had been small institutions that had got into serious financial distress and Samaf had suspended legal actions against them and had tried to investigate what the reasons for the difficulties were. They had found that they could resuscitate the institutions and there was a product that they were submitting to the Department on the resuscitation of these financial institutions without writing off what these institutions owed. 
 
Ms Tsotetsi asked how this would affect the interest rate.

Mr Naidoo said there would be no effect from the FI's to the end-users.

The Chairperson expressed her interest in the rescue package and she asked Mr Naidoo how it worked and who they rescued and who qualified.
 
Mr Alard said that when Samaf started the programme, they initially injected about R480 000 into a small start-up Intermediary. There was a budget put in place with that intermediary and they were informed to keep their interest rates low. During the first year they had conducted business well and repaid there loan consistently for about two years. They had then developed problems and they could not sustain themselves and repay Samaf and they started lagging behind and repaying Samaf less while some stopped operating completely. Samaf had re-looked at the matter and come up with the resuscitation plan to bring them back on board as their clients still wanted their services.

The Chairperson observed that there was a danger there as they might have bitten off more than they could chew. She referred to the women's group the committee had visited in KZN who were borrowing at 3-6 % and they did not go beyond 6%. Samaf's rates were 4.4% and they charged their clients not more then 6% and they had been able to sustain themselves. They were women and they were developmental in approach. She referred to a women's group in Khayelitsha in the Western Cape that had been resuscitated and asked if the reasons for the difficulties had been investigated. She asked if there were conditions as rescuing people out of their own carelessness was not assisting them. People did not understand their mandate and they overcommitted and then they died out. People were charging 16% interest rates and could not sustain themselves and others charged less and survived. People could expect to be resuscitated time and again and she asked Samaf to provide them with the model of what the Western Cape was doing. If it was a working model that would help others there had to be conditions as it was taxpayers money. They did not want to curtail and interfere but if it had to do with the plight of the people then the committee had to come in.

Mr Naidoo said that the Committee's input into that particular product would be useful as they had not implemented it yet and they would forward it for their attention.

The Chairperson said that the Committee had a great interest in the matters under discussion as it dealt with the core of the population who were genuine, honest and did not complain and they should not be taken advantage of. The Committee saw the reasons for the existence of this type of intervention by government but it should be done correctly.

She thanked Mr Naidoo and his delegation and said the Committee cared about ending poverty in the rural areas and the Department was leading the programme for achieving Outcome Four and other related outcomes as they were critical to the country. She reminded Mr Naidoo of the information that he had to supply in order for the committee to complete their report by the following week.

Mr Naidoo thanked the Committee and said they took whatever had been said very seriously.

The meeting was adjourned.


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