DSBD, SEFA & SEDA 2021/22 Quarter 4 Performance, with Deputy Minister

Small Business Development

11 May 2022
Chairperson: Ms V Siwela (ANC)
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Meeting Summary

The Department of Small Business Development (DSBD), Small Enterprise Finance Agency (SEFA) and Small Enterprise Development Agency (SEDA) briefed the Portfolio Committee on the 2021/22 Quarter 4 performances. SEFA and SEDA delivered positive briefings with improvements in target achievements. Targets for supporting SMMEs owned by people with disabilities were missed by both SEDA and SEFA. Both the DSBD and SEDA reported missed targets for incubator programmes.

The Committee was impressed by the progress in funding those in need of support Members asked about SEFA and SEDA increasing their reach and visibility to people who live in poorer communities; their plans to close the gaps in the funding targets they did not reach; funding for more women-owned SMMEs; employment of women at senior level; progress on legislation reform; transparency and oversight of funded beneficiaries and plans to increase due diligence. Reference was made to the news article about alleged funnelling of funds to terrorists across Africa through spaza shops and informal businesses and what DSBD was doing about this.

Meeting report

[First 30 minutes of the meeting missed due to technical issues]

Department of Small Businesses Development Quarter 4 Performance Report
Mr Lindokuhle Mkhumane, DSBD Director-General, led the presentation which reported on actual output for targets with 14 of the 23 quarterly targets achieved; reasons for deviations; corrective measures; financial report; human resource report.

On matters of governance, set meetings scheduled by the executive committee, management committee and sub-committees were all met.

Noteworthy performance achievements included:
• The Department paid 100% of valid creditors within 25 days
• DBSD in partnership with its agencies held 33 public engagements in District Municipalities. An improvement from the previous Q4 target of 6.
• 384 Crafters supported through the Craft Customised Sector Programme. An improvement from previous Q4 target of 300.
• Township and Rural Enterprises supported the value of R177.7 million. An improvement from previous Q4 target of R69.4 million.
• 6 315 start-up youth businesses supported financially and non-financially.

DSBD CFO, Ms Semphete Oosterwyk, said Quarter 4 actual expenditure was R423 428 000 and the variance stood at R55 893. In the DSBD four programmes, overspending was seen in Administration, Sector Market and Development, and Development Finance. On the other hand, there was underspending in Enterprise Development. Spending according to economic classification had overspending in Goods and Services and Transfers and Subsidies. Underspending was seen in Compensation Of Employees and Machinery and Equipment.

Mr Mkhumane said that DSBD was still struggling with capacity and Human Resources did not achieve its Quarter 4 target of a 10% vacancy target. One of its entities was assisting with managing the applications so interviews can happen and people can be hired. The 50% target for employing women at SMS level was not achieved as this stood at 46% due to three resignations by women at senior level management in DSBD since Quarter 2. The 3.2% target for employing persons with disabilities was exceeded at 3.8%.

Small Enterprise Finance Agency (SEFA) Quarter 4 Performance
Mr Mxolisi Matshamba, SEFA CEO, spoke to the SEFA balanced scorecard, loan book performance, development impact of loan performance, post-investment monitoring of loan book, SEFA financial performance, human capital management, marketing and communications, governance by SEFA board and its board committees, implementation challenges and proposed solutions. Also provided was SEFA’s Loan Application Report as requested by the Committee.

He congratulated the work done by the SEFA team in light of the trying period in which SMMEs had to operate. The total loan book at the end of 2021/22 was a record-breaking R3.4 billion. The growth was 3% year on year. The loan application approvals also stood at a record-breaking R1 billion, which represented an over-performance of 234%. Total disbursements stood at R653 million, which represented an over-achievement of 120%. approvals and disbursements are not equal due to clients not meeting certain loan conditions post-approval of their application.

He looked at the statistics for supported SMMEs. SEFA’s ability to support SMMEs was adversely impacted by the COVID-19 pandemic. 13 354 jobs were targeted and only 8 283 jobs were delivered. Disbursements stood at:
• R603 million to black-owned SMMEs.
• R171 million to township based SMMEs.
• R273 million to women-owned SMMEs.
• R154 million to youth-owned SMMEs.

He briefly looked at the balanced scorecard. The Quarter 4 total of the loan book grew by R1.4 billion from Quarter 3. The target for jobs facilitated only reached 46%. The level of jobs and SMMEs financed were impacted by aggressive targets set at the beginning of the year. Funds had to be shifted to the economy recovery programmes due to the July 2021 violence in Kwa-Zulu Natal. This necessitated a reduction in the targeted jobs and SMMEs to be funded. Targets for turnaround times for direct lending and wholesale lending had been reached. He stressed the challenge of complete applications as applications can only be processed once they are fully completed and only then can turnaround time be counted. He highlighted the noteworthy Capital Leverage (KCG) target which was achieved by 102% against the target. It is noteworthy as it means that financial institutions SEFA work with extended credit to SMMEs by 6.38% for every rand guaranteed by SEFA.

Loan book approvals for Quarter 4 were R1 billion. The main drivers for the over-performance were the Wholesale SME Finance and the Microfinance division. The loan book’s improvements were not due to under budgeting but due to the nature of the operations of the business. The driver for the improvement in direct lending approvals and disbursements was the conversion to the Economic Recovery Programme. The team had to focus efforts towards economic recovery. Approvals in that space were the main driver behind the 280% over-achievement.

On development impact, there was underperformance for SMMEs financed. Underperformance was due to: aggressive planning targets for Township and Rural Empowerment Programmes (TREP); reallocation of funds to the Economic Recovery Programme, and delays in approving programmes that had to be revised. The same thread can be seen when looking at the development impact on jobs facilitated.

On development impact on targeted groups, the majority of SEFA disbursements were done in Gauteng, Western Cape, and urban Kwa-Zulu Natal. Interventions have been planned to allocate more funding to provinces characterised as poor. These interventions included increasing SEFA’s capacity in the poorer provinces.

• Concern was noted about on-time collections. The low amount of on-time collection can be attributed to SMMEs operating under lockdowns. He brought the Committee’s attention directly to the loss/profit before tax on the abridged income statement. R18 million profit was achieved. He addressed the controversy of the tax treatment in the income statement. SEFA opted to treat grants as taxable until SARS granted an exclusion, hence losses were higher last year. The tax exemption was granted post-balance sheet. R270 million was reversed from last year and is now coming in as a positive this year.

There were no serious material changes to the abridged balance sheet except increase in cash and cash equivalent due to the gap between disbursement and approvals as well as funds that have been interdicted in court. High turnover in human capital was noted but the focus for Quarter 4 human capital management was to recruit more people on fixed-term contracts.

SEFA implementation challenges:
• Quality of applications not being at the level SEDA can finance.
• Client sustainability.
• Client’s inability to meet their financial obligations.
• Getting clients to understand their business challenges.
• Restructuring client’s debts
• Linking clients with SEDA.

Roll out of the loan origination system is being speedily worked on to increase turnaround times. The programme should be rolled out by mid Quarter 2 of 2022/23. There is concern about uncertainty around the merger leading to high turnover of staff in key positions. People are going to be specially hired to deal with the underperforming support for SMMEs owned by disabled people. Marketing budget has been increased for SEFA visibility and client outreach.

He closed by referring the Committee to the SEFA Loan Application report it previously requested.

Small Enterprise Development Agency (SEDA) Quarter 4 Performance
Mr Nkosikhona Mbatha, SEDA Acting CEO, said the organisation was able to achieve 83% of its targets for Quarter 4 and 80% overall for 2021/22. SEDA has been hosting pop-up markets and facilitating the participation of SMMEs in international events to expose them to new customers. SEDA is working to ensure the quality of SMME products is on par with international standards.

Mr Mbatha went through the performance dashboard of the 29 indicators for SEDA. Most indicators show that the targets were reached and surpassed for Quarter 4. The missed target for Ecosystem Support is attributable to the ecosystem support model being redesigned. The incubation support target was missed due to some SMMEs graduating during the quarter. The number of incubation centres is expected to increase. Much work needs to be done to increase its client profile of disabled people from 3% to 7%. SEDA was able to reach out to 58 463 SMMEs in Quarter 4.

There is a big improvement between last year’s Quarter 4 performance and this year when looking at the comparison chart. Overall SEDA has achieved 80% of its annual targets, which is a huge improvement from last year’s 52%. The target for the number of spaza shops and general dealers supported was not reached. This is due to SEDA branches experiencing trouble converting them from informal to formal as many of the shops were owned by foreign nationals. Many associations are being roped in so that the necessary support can be given. The target for the number of fruit and vegetable vendors supported was missed due to relocation of funds to support informal businesses impacted by the KZN riots.

Reaching the target to support panel beaters, motor mechanics and auto-fitment businesses was a struggle throughout the year. Underperformance is due to low uptake of the programme. Although the target for the number of SMMEs assisted with the incubation programme was not reached, Mr Mbatha was proud to announce that new incubators were established. The work being produced by SMMEs that are part of the incubation programme looks promising. A particular SMME that is part of the incubation programme is attracting international investment. The network of incubators is expanding in multiple provinces.

Mr Elias Maabane, SEDA CFO, discussed Annual Approved Funding vs Fund Received for 2021/22. All baseline targets have been received except for the funding received from the DSBD for the Gazelles project. External earning exceeded target by R34,2 million due to funding received from provincial government, local government and other specific projects. SEDA planned to receive R886.2 million but received R897.7 million. The revenue target was exceeded by 1%. The expenditure budget was revised and has increased as result of the surplus from the 2021 financial year being made available for this year. 99.8% of invoices were paid within 30 days.

Mr Matshamba concluded the presentation by covering governance and key projects undertaken by SEFA.

The Chairperson was happy that targets have been reached. She expressed concern at National Treasury putting a hold on tenders hindering the Department from making progress with its work. What is happening about that? She was also concerned about SEFA’s statistics for job creation. SEDA and SEFA must join hands to close their gaps, especially their visibility. All SEFA’s challenges must be handled properly. Job creation and poverty need to be tackled but she appreciates the efforts made nonetheless. She asked for a list of applications for the Portfolio Committee to assist properly. Progress needs to be seen on incubation. She appealed for workers to be considered more as those funds assist them.

Ms M Lubengo (ANC) appreciated the report. She asked what struggles SEFA face that prevent it from reaching its targets.

Mr H April (ANC) welcomed the reports and the progress made. However, he was concerned about the disparity between approvals versus disbursements as the disbursements tend not to reach the many entrepreneurs on the ground. More focus must be given to disbursements. He asked how many applications from SEDA are funded by SEFA. He was of the view that most applications from SEDA are not being assisted by SEFA.

Mr D Mthenjane (EFF) recognized that there has indeed been a funding improvement. However, he asked for the reasons certain applications for funding were rejected. Are there common reasons or do these reasons vary from application to application? Do SEDA/SEFA use broadcasting media when marketing their funding opportunities and funding requirements to the public?

Ms B Mathulelwa (EFF) expressed concern over the low percentage of support given to businesses owned by people with disabilities. What are SEDA’s new strategies to eliminate failure to reach targets? She asked what are DSBD’s promises to finish up implementing the previous Deputy Minister’s plan to take its services to every municipality with a plan to establish offices to assist township and rural area people with their start-up businesses and DSBD services more accessible.

Mr F Jacobs (ANC) raised concern over the Committee’s long struggle to obtain a legislative framework for informal traders. He asked when such a Bill is going to be tabled in Parliament. This is leading to the neglect of many informal traders in cities such as Cape Town.

He noted concern over the gender disparity in senior management and in funding. In light of DSBD’s failure, is it not time to employ women leaders in the department and fund women-owned business?

He requested DSBD share the draft of the Cooperatives Funding model with the Committee. He requested site inspection to be conducted for people who are requesting funding to see that money went to the correct people. The Department should work with parliamentary constituency offices and ensure deliverables are managed through the District Development champions.

Mr J De Villiers (DA) referenced the news article about alleged funnelling of funds to terrorists across Africa through spaza shops and informal businesses. He asked what the Department is doing. Are checks being done to assess if businesses funded by SEFA are not involved in the alleged illegal funnelling of funds? Is there interaction with law enforcement agencies to investigate this? He asked if a list of business benefitting from the different programmes can be included in these reports. It is important to see who the funded recipients are and for the Committee to exercise its oversight role. There is no transparency about the beneficiaries.

SEFA response
Mr Matshamba affirmed that hawkers do indeed need to be supported, organised and formalised as it makes it easier to finance them. A special arrangement needs to be made to support the conditions under which they operate. Government roadshows assist them to understand the needs of hawkers. He emphasised that government policies need to be responsive to the needs of their clients.

On the low percentage of support given to businesses owned by disabled people, Mr Matshamba replied that the target is set by the Department of Planning, Management and Evaluation (DPME). The target is formed according to the percentage of the SA population who are disabled. The target set by DPME does not take fraud into consideration. It assumes that every disabled person is a business owner. The target will continue to change until a more scientific and realistic one is set. They are trying by all means to deliver against that target.

Mr Matshamba explained that disbursements will perpetually track approvals. Safeguards do exist for disbursements. Disbursements will not occur unless certain documents are provided and due diligence is done for an approved application. Disbursements only happen when the relevant documents are submitted. The nature of the operation of funding is that disbursements and approvals will never be equal at any point.

On SEDA to SEFA applications, he replied that SEFA has programmes that work with SEDA and majority of these clients are assisted at SEDA then brought to SEFA for approval. The majority of loans do not go through SEDA but are for clients who go directly to SEFA. SMMEs that come through SEDA are those that are not funding ready and need further assistance. SEDA does assist them to the point that their business is viable. There is no direct correlation between what comes from SEDA and what gets approved at SEFA. The majority of the programmes that the two entities work on together work well.

On advertising, Mr Matshamba replied that advertising is indeed done through media, however using broadcasting media is costly and thus makes it difficult to reach a broader audience. SEFA prefers to use platforms such as community radio and community newspapers to reach their targeted clients. A budget increase will help SEFA reach its targeted audience. Brochures and webinars are also used to share product knowledge and funding information with clients.

On transparency, he replied that the Protection of Personal Information Act (POPIA) must be considered. POPIA limits when information of applicants can be shared and therefore limits the sharing of numbers and names of applicants. A legal opinion was sought on this. The opinion confirmed that names of businesses can be shared; however, the applicant’s consent is needed. Audits and verification are done by the Auditor-General on the number of clients and names of businesses reported. Information given is compared to that which is on the database. It will provide this as guided by the POPIA Act.

SEDA response
Mr Mbatha did not address the funding questions as those had been covered by SEFA. On visibility, both entities are working together to improve visibility.

Budget cuts are constraining marketing. Most marketing is done through relationships with municipalities, the website, and SEDA participates in all the campaigns in multiple districts. During its annual stakeholder event, SEDA did go to the radio stations across the country and had its provincial managers explain the work that SEDA does. The budget is prioritised to help the SMMEs that are always demanding its services.

DSBD response
Director-General Mkhumane clarified that National Treasury released an advisory note that departments must not issue tenders until further notice. They were asked to submit projects that cannot wait and SEDA submitted these projects in accordance with the advisory note. They are yet to hear a response about this submission. One of the SEDA projects involved tendering for someone to look into financial records. This process is affecting a lot of operations.

On visibility and accessibility, SEDA and SEFA are establishing eight contact points this year at a cost of R24 million to be more accessible to small businesses.

On finalising the legislative framework, there are two bills that are targets for this year. The focus is on the Businesses Act that was pronounced upon by the President. The work on the Bill is ongoing and consultations are being made. On the National Small Enterprise Amendment Bill, the department is done with everything. Only certification from the Office of the Chief State Law Advisor (OCSLA) is needed for the Bill to be taken to Cabinet for approval for introduction into Parliament. If extra amendments are introduced, they will never get approval from OCSLA.

DSBD replied that having fewer than 50% women at senior level is a unique situation. Getting recruitments done on time is a challenge. The moratorium on filling vacancies is a factor. Resignations by women leaders have led to the numbers going below 50%.

He affirmed that the audit findings need to be speedily resolved. The proposed intervention was to ask SEDA to assist with site visits for funded business post-investment. However, there was misalignment as some of the reports were not consistent with what SEDA was asked to verify. DSBD is working on this to close the loop to finalise it.

On combating alleged money laundering and illegal activity, Mr Mkhumane noted that it is a big issue. Safeguards included applicants being required to have bank accounts and valid IDs. These safeguards were often raised as red tape but the safeguards were necessary. The Financial Intelligence Centre (FIC) as empowered by legislation is responsible for ensuring that anti-money laundering activities are dealt with. The Portfolio Committee can call in the FIC to hear about money laundering and financing of terrorist activities.

The Chairperson agreed that the funding of illegal foreign activities was serious in nature and she believed that the Minister will take it up.

Deputy Minister Sidumo Dlamini said the Ministry appreciated the support for the approval of the Small Business Development budget vote in the National Assembly the previous day. He reassured Ms Mathulelwa that the work started by the former Deputy Minister is indeed still happening. He gave an example of such work being done in another province. He appreciated today's discussion and reassured the Committee that progress is being made with the assistance of the Portfolio Committee.

The Chairperson asked the Committee to adopt the reports by DSBD and its entities which were duly adopted. She thanked the Ministry and DG and their teams. The meeting was adjourned.

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