Small Enterprise Finance Agency on its 2012/13 Annual Report

Economic Development

25 October 2013
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Small Enterprise Agency presented its annual performance report for 2012/13. SEFA was a result of a merger of the South African Micro Fund (SAMAF) and Khula Enterprise Finance Ltd and it was still experiencing a few teething problems, given the economic climate, and remaining issues with the merger and staff takeover. Despite these, SEFA had had far more positive results than the previous institutions because it had managed to reach more people. its mandate was to provide financing to small, micro and medium enterprises (SMMEs), in amounts ranging from R500 to R5 million. It had built more awareness through communications and road-shows, which publicised the products and services that SEFA offered. SEFA currently provided finance to small business through its head office and nine other offices around the country, through direct lending channels and wholesale financing with about six financial intermediaries. The models included specialised funds, banks and micro-finance institutions, and credit applications were assessed by committees. It offered bridging loans, assisted with working capital facility and asset finance for purchasing equipment, and assisted co-operatives, as well as managing the specialist Land Reform Empowerment Fund for the Department of Rural Development and Land Reform. It had an arrangement with the Small Enterprise Development Agency, which had a wider presence, and whose staff were trained to offer SEDA products.

Members had requested an outline of what happened to the Khula Direct pilot project that had preceded the establishment of SEFA, and it was explained that there had been three pilot branches in Tshwane, East London, and Cape Town, with approvals given for R23.4 million out of the total R55 million budget. There was a 98% collection rate. There had been some challenges around capacity and skills in credit. Members later requested a fuller description and this would be provided at a later meeting.

SETA had managed to meet or exceed many of the targets, and had, in this year, managed to finance 28 362 SMMEs and create 19 853 jobs. SEFA approved R146 million and disbursed R41 million of loans through direct lending. Under wholesale financing, SEFA approved R293 million and disbursed R157 million loan products. Although it did not meet the target for disbursing finance to the youth, and slightly underperformed on the target for disbursements to women, it had exceeded its targets for disbursements in rural areas, to black-owned business, and 45.4% were loans under R250 000. It was aware of the need to increase the outreach to the rural provinces, but was partnering with several other entities to do so. It had done a number of road shows, taken part in community radio shows and was using the print and television media as well. It had 163 staff at present, but was aiming to increase this, and was upfront about the challenges.   

Members asked for an explanation between funding, loans and grants, asked how many of the beneficiaries were cooperatives, how the retail financial intermediaries were assisting, and commented favourably on its progress. Members asked how many clients, and employees, were persons with disabilities. They asked the criteria for determining a province as a priority province, and asked where exactly SEFA had its offices. The age, race and gender profile breakdown of clients, and an indication of the types of businesses was requested. One area of concern was the disparity between numbers of approvals and loan disbursements, particularly in view of letters received by the Committee complaining about the long lapse of time between approval and payout. The links between SEFA and the National Youth Development Agency were questioned, as well as more information being requested on Senvest, the eight banks and specialised funds with whom it worked, how it was affected by the growth of the private loan sector, whether it was transforming internally, and what specifically would be done to ensure that it met targets. Members expressed concern about the provincial spread of the SEFA services, which suggested that some economically deprived areas were ignored. Members also wanted more detail on how SEFA checked on the applicants, and mentored to ensure that businesses would not fail. Members asked that a follow up meeting be arranged to discuss the Khula Direct pilot projects, to answer questions not answered in the short time available, and to be briefed on the financial statements.

Meeting report

Small Enterprise Finance Agency (SEFA) 2012/13 Annual Report briefing
Ms Sizeka Rensburg, Chairperson, Small Enterprise Finance Agency, noted that the Agency (SEFA) was a merged entity from three others, and, as a new entity, had experienced some serious challenges with building inclusive economic growth. She explained that South Africa, in global development terms, had experienced some serious issues around low quality education. Small enterprise development was one of the interventions in response to that situation and to try to address the historical legacy.

However, despite the challenges, SEFA had had far more positive results than the institutions who merged to form it, because it had managed to reach more people. It had built more awareness through communications and road-shows, which publicised the products and services that SEFA offered. The organisation had also formed new partnerships to reach businesses more effectively.

She conceded that there had been some other challenges in trying to build a new culture and in working with the Economic Development Department (EDD) as a result of the merger. Some staff also wanted to remain in the public sector, instead of moving to SEFA. SEFA had tried to build new systems for a more efficient delivery model. SEFA was looking at sustainability of the organisation in an environment of limited resources. The organisational capacity had, however, increased and new staff had been recruited, due to expansion of programmes for a firmer foundation. She thanked the Portfolio Committee Members for its guidance and constructive criticism.

Mr Thakhani Makhuvha, Chief Executive Officer, SEFA, presented the annual performance report. He reiterated that SEFA had resulted from a merger, and that its mandate was to provide financing to  small micro and medium enterprises (SMMEs), in amounts ranging from R500 to R5 million. He then shared what happened to the Khula Direct pilot project that had preceded the establishment of SEFA, as requested by Members. The three pilot branches were in Tshwane, East London, and Cape Town. The amount of R23.4 million had been approved out of a R55 million budget for lending and capacity building. There was a 98% collection rate. The portfolio profile was 100% of the bridging loan. There were challenges around capacity and skills in credit. All of this, however, preceded the SEFA business model.

SEFA currently provided finance to small business through its head office and nine other offices around the country. This was achieved through direct lending channels and wholesale financing with about six financial intermediaries who would ensure that funding was distributed. All activities were done from the head office, especially in the areas of governance and risk management. Specialised funds, banks and micro-finance institutions were part of the business model. Credit communities sat three times a week to assess credit from the applications received. Clients could also apply for funding online, which resulted in an automated work flow process. SEFA provided funding for clients who might have a contract from the private sector, or provincial or financial Government, mostly through the bridging loan facility. SEFA assisted with working capital facility and asset finance for purchasing equipment. It also managed, for the Department of Rural Development and Land Reform, the specialist Land Reform Empowerment Fund. He also noted that the Small Enterprise Development Agency (SEDA) had located in 25 of the SEFA branches, partnering with other agencies and providing support for co-operative enterprise. SEDA staff were also trained to offer SEFA products, in order to entrench small businesses who might be far from SEFA offices. The companies and Intellectual Property Commission (CIPC), which was a sister agency of SEFA, was in charge of registering those agencies. SEFA further provided lending to co-operatives. The Co-operative Banks Development Agency (CBDA) regulated and supervised the financial co-operatives.

The Chairperson interrupted and asked Mr Makhuvha to explain the acronyms, which he did.

Mr Makhuvha proceeded to explain that SEFA, working with other entities, managed to exceed its expectations and targets. It had also, as stated already, managed to do better than its legacy institutions. In the 2012/13 financial year, it had managed to finance 28 362 SMMEs and create 19 853 jobs. SEFA approved R146 million and disbursed R 41 million in loans through direct lending. Under wholesale financing, SEFA approved R293 million and disbursed R157 million of loan products. The target to disburse financing specifically to youth owned businesses was 30% of total disbursements but 16.5% was achieved. The target for disbursements in rural areas was 45% and 45.4% was achieved. The target to disburse to women-owned businesses was 40% and 39.8% was achieved. The target to disburse to black-owned businesses was 70%, and 78.1% was achieved. The target to disburse 40% of disbursements requiring less than R250 000 was 40%, and 45.4% was achieved.

He summarised that SEFA had exceeded the targets to disburse in priority provinces, black owned businesses, and to end users.

SEFA was most prominent in the Gauteng and Western Cape provinces, and thus wanted to expand its activities to more rural areas and priority provinces, as there was still room for improvement. Mpumalanga had had significant approvals. SEFA was fully aware of its mandate in terms of deliverables and would continue to spread its services. SEFA conducted awareness activities around the provinces. SEFA was partnering with SEDA and also incorporating the National Youth Development Agency (NYDA), the Industrial Development Corporation (IDC), South African Revenue Services (SARS), Department of Trade and Industry (dti), provincial development corporations and local government and local chambers of commerce with the road shows for brand and stakeholder awareness. It had done 19 road-shows, covering all provinces except the Free State, but would be heading there soon. It was trying to gain feedback on how the road-shows were received by people. It was also raising awareness through print, media radio and television. It had established a partnership with NYDA and IDC on the past Monday, to provide financing for the youth.

He then shared some success stories. Ms Vuyiswa Bheyi started her fruit and vegetable enterprise through loan financing from Tetla Development Services, a SEFA funded microfinance institution. Ms Bheyi was now self-employed and able to provide for her family. Mr Mqwathi, owner of Specialised Security Services, received a loan of R1.8 million from a Free State retail financial intermediary. The enterprise now employed 1 500 staff members. SEFA provided a bridging loan of R3 million to Mr Wilson Matete, of BBT Construction, to service construction and maintenance of road in Botshabelo and Bloemfontein areas. This enterprise employed 165 staff. Mr Dumetsi Masha received R600 000 by way of a loan from SEFA for On Point Manufacturing, which was a steel fabrication and engineering design youth enterprise, manufacturing conveyor belt components for a platinum mine. Ms Lungile Nkosi, owner of a slimming clinic that provided non-invasive slimming treatments, received R250 000 for her business.

SEFA had a united workforce of 163 staff, the majority being women. Human capital management activities included the establishment and approval of the organisational structure, transfer and placement of employees into the new organisation, implementation of change management programmes, integration of the ex-SAMAF and ex-Khula regional offices, development of SEFA integrated human capital related policy framework, and addressing on-going merger related challenges. He explained that some activities to address challenges were on-going, because SEFA had been unable to address all challenges at the same time.

The Chairperson interrupted the presentation at this point, and said that there would not be possible to deal with the financial statements today (see attached presentation for full details on the figures), as the Committee faced time constraints. She was pleased with the work that SEFA was doing. She said the members wanted more information on the progress that SEFA had had since the last time the Portfolio Committee paid SEFA an oversight visit.

Ms D Chili (ANC) thanked SEFA for the presentation. She asked what the difference was between funding, loans and grants. She asked how many SEFA clients were persons with disabilities and how many people with disabilities were employed in the organisation.

Mr X Mabasa (ANC) expressed his appreciation for the report. He wanted to know how many of the organisations assisted by SEFA were co-operatives, and how much they were receiving. He then asked about how retail financial intermediaries had really assisted, and said that SEFA should monitor how much of the money that was given to the intermediaries was lost along the way.

Ms D Tsotetsi (ANC) said the progress of SEFA was really something to be proud of. She added that what remained for SEFA was to ensure that there was good oversight and assessment. She asked what factors SEFA took into account when determining that a province was a priority province. She also asked where exactly the SEFA offices were located. She asked about the age, race and gender profile breakdown of clients and for an indication of the types of businesses are, especially those of the women.

Mr K Mubu (DA) thanked SEFA for the presentation. He noticed that there was a huge disparity on the table showing number of approvals and disbursements of loans. He asked why this was so. He noted that an entrepreneur from KwaZulu Natal had appealed to him, saying that his contract with the manufacturers with whom he was working with was almost cancelled due to the delay in receiving the loan, despite the fact that it was approved. In regard to the steel fabrication and design youth enterprise, he asked whether the business was associated with a particular person whose name he did not want to mention, but that all Members knew about.

The Chairperson interrupted and requested that in future all questions should be channelled through the Chairperson, and not in a fragmented way.  

Mr Mubu clarified his point that someone had written directly to him.

The Chairperson said that the same person also wrote to her.

Mr Z Ntuli (ANC) requested that the next time the SEFA team came to present to the Committee, full details must be given on the Khula Direct lending project – failures and successes included – so that comparisons could be made between the old project and the SEFA project. He asked that time should be set aside to discuss the Khula project.

The Chairperson said that this information had been requested in the previous meeting by the Members. She asked to be excused at this point. Mr Ntuli took over as Acting Chair

Mr S Mohai (ANC) asked what the significance and impact of the road-shows had been.

Rev W Thring (ANC) expressed his appreciation for the insightful presentation. He too asked for a more detailed briefing on the situation with the Khula Direct lending project, stating its successes, challenges and problems. He said he was concerned about the provincial spread of the SEFA services, as he felt that many economically deprived areas were ignored. He also expressed concern about the eight equities (banks and specialised funds), asking what relationship SEFA had with these entities and what the monitoring mechanism was. He referred to the bad publicity NYDA was receiving and asked whether SEFA was looking into performance and returns of investments with NYDA. He said he had noted mention of Senvest bank and asked what entity that was. He urged that the inequalities in Human Resources (HR) needed to be addressed, and asked what SEFA would do to ensure all population groups were represented in the organization. He also mentioned that, as a new Member of this Committee, he needed to be told upfront what the acronyms were referring to.

Mr F Beukman (ANC) asked what the target of SEFA was. He asked how the impact and targets of SEFA were affected by the growth of the private loan sector (institutions such as Capitec Bank). He asked how transformation was proceeding, internally, after the institutions merged. He asked what SEFA would do about the 39% of targets that it had not met.

Mr N Kwankwa (UDM) asked what SEFA would do to address the non-meeting of the target to disburse facilities to youth owned enterprises, pointing out that this was the only unmet target out of the five SEFA development impact indicators. He asked what SEFA was doing about the increasing interest rates of the financial intermediaries compared to SEFA’s interest rate stipulation. He also asked what SEFA would do about the discrepancy between approvals and disbursements, and if actual strategies had been put in place to deal with these.

Mr Ntuli asked that any financial performance questions should be asked at the follow-up meeting.

Mr Makhuvha explained that SEFA provided loans to SMMEs which were supported by grants. He said the grant augmented the loan and the grant did not need to be paid back. SEFA was working on employing people with disabilities in the organisation although it did not have disabled persons in its employ yet. It would also try to ensure that people with disabilities did get access to funding to build their enterprises. SEFA assisted 10 co-operatives at the moment and would forward a detailed list about these to the Portfolio Committee. However, there was also a challenge with where the co-operatives resided and a report would be provided on this. He said that the majority of the approvals under wholesale finance were largely made to the intermediaries. SEFA saw the role of intermediaries as reaching everyone, and it would engage with those intermediaries that subscribe to the developmental mandate of SEFA. He confirmed that SEFA had lost some money along the way with intermediaries who do not perform well.

Mr Makhuvha agreed that interest rates had been high but SEFA was working on this issue to ensure that end-users did no pay high interest rates. He said that factors to identify priority provinces were aligned with the definition of provinces that were largely rural, from the Government perspective, such as Limpopo and Eastern Cape. SEFA would provide the Members a report with gender and age split of the SEFA clients.

Mr Makhuvha explained the discrepancy between approvals and disbursements, by saying that disbursements would take place only after approvals, particularly when relating to wholesale business. When providing money to intermediaries, not all money was provided upfront, but over a period of time – for instance, there might be draw-downs of R5 million per quarter for a loan of R20 million. As SEFA improved, the organisation wanted to see the level of disbursements moving along as quickly as the approvals, particularly in direct lending business. The current aim was for 80% approved loans to be disbursed and SEFA would continue to work on this.

Mr Makhuvha confirmed that SEFA would provide a report on the Khula Direct project. When SEFA was established last year, the organisation did not advertise too much. Road-shows helped create awareness about SEFA as a new organisation, especially in the rural areas. SEFA engaged largely through community radio stations. The impact of these road-shows was measured, in terms of funding forms that clients filled in to gauge how people viewed SEFA. However, SEFA was aware that the communication was something to be improved.

SEFA would provide the Members with detailed information on provincial spread of SEFA services. Most specialised funds were owned by SEFA, and the largely legacy institutions and whatever income arose from the funds would go directly to SEFA. The funds were comprised of investment committees to ensure that SEFA had confidence in the fund representatives.

SEFA did not give funds to NYDA. The relationship with NYDA and IDC was just a partnership which would provide more opportunities for the youth. He reiterated, however, that no funds were going into NYDA from SEFA. Senvest was a financial institution and SEFA had entered into an agreement with it regarding a guarantee insurance scheme with Senvest bank. This was for protection so that should clients fail to meet credit obligations after receiving their loans, they could still be able to come to SEFA through the guarantee insurance claim, as it would assist them in meeting their obligations.

SEFA had noted the need to ensure equality in the workforce spread as the organisation grew. He said the Portfolio Committee members should be pleased to note that SEFA had more women employees than men.

Ms Rensburg explained that SEFA was working on having more women at the executive level in the organisation.

Mr Makhuvha continued to explain that a number of activities had taken place in the micro enterprise space, via intermediaries, to address the target market for survivalist and micro enterprises. He explained that it was hard to get sustainable proposals from the youth, due to lack of mentorship. The partnership with NYDA aimed to address this but he added that more municipalities and entities needed to get involved. SEFA had identified this need and would do something about it.

Mr Makhuvha noted that SEFA funded On Point Manufacturing which had no relationship with On Point Engineering enterprise. SEFA was an organisation in transition and had put interventions in place to ensure that it would deliver on its mandate, regardless of how challenging. The National Empowerment Fund (NEF) was the sister fund that assisted SEFA to deliver on its mandate. He added that SEFA employees continued to receive on the job training to ensure that the organisation delivered. In regard to competition from others, he noted that Capitec did consumer lending whilst SEFA did enterprise financing, so that Capitec had no effect on the impact of SEFA, although SEFA would like to forge relationships with other institutions in the future.

Mr Kwankwa referred to page 14 of the Annual Report, saying that the issue of disparity between approvals and disbursements was related not only to wholesale finance but to direct lending as well, although Mr Makhuvha had only mentioned the wholesale finance case.

Mr Beukman asked what exactly SEFA would do to ensure that targets that were not met were attended to.

Mr Mabasa asked what the relationship was between SEFA, SEDA, and the CBDA.

Mr Thring asked again what relationship existed between SEFA and the eight equity/specialised funds. He asked whether funding was going into SEFA from the equities market, and who was monitoring the performance and the risk.

Ms Tsotetsi asked how it happened that some loans were not repaid and SEFA then incurred a loss. She asked why people were not trained and mentored properly to ensure that their businesses did not fail. She asked if there were many clients who defaulted on payments. She commented that people in rural areas were smart and knew what information to provide to apply for loans. She then asked whether SEFA had a mechanism to ensure that it was not the same people with different businesses who kept receiving loans from SEFA.

Ms Chili noticed that there were less-funded provincial areas. She asked why that was so and wanted to know from the SEFA delegation if more road-shows were perhaps required to build more awareness about loan products.

Mr Ntuli said Mr Makhuvha had five minutes to respond to the pertinent questions, and asked that the rest should be answered in the follow-up meeting.

Mr Makhuvha said he agreed with Mr Kwankwa on the discrepancy between approvals and disbursements under direct lending, and he explained that his answer was based on the statistics on progress, assessed after the financial statements were published in March. He said the challenges would be addressed. The eight equities or specialised funds were the funds that SEFA controlled, and trustees and investment committees approved transactions relating to funds. SEFA also had a post-monitoring department. SEFA did its best to mitigate risk. SEFA believed in the clients that it invested in. He admitted that unfortunately not all risk could be mitigated, no matter how precise the risk assessment. In relation to the less funded areas, he agreed that more road-shows would help create more awareness. He added that municipalities must also help to identify the areas. He concluded by saying that there was room for improvement.

Mr Rensburg said the SEFA had had some problems last year with legal internal capacity for disbursements, and so it had experienced difficulties in making the disbursements in a seamless way following the approvals. SEFA had co-operated with the National Empowerment Fund, to use some of its capacity, in order to meet SEFA targets. SEFA aimed to bring in the right capacity to ensure that business plans were properly developed, when it was making the new appointments.

Mr Ntuli asked  that at the next meeting, the SEFA team should answer all outstanding questions, before presenting the financial performance report. He thanked the presenters and Members.

The meeting was adjourned.


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