SEFA 2023/24 Annual Performance Plan

Small Business Development

18 April 2023
Chairperson: Ms V Siwela (ANC)
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Meeting Summary


The Portfolio Committee heard from Small Enterprise Finance Agency (SEFA) about its 2023/24 Corporate Annual Performance Plan. SEFA also presented its current challenges in implementing its mandate which includes the effect of loadshedding on small businesses. Loadshedding affects a company’s income which subsequently affects SEFA as clients are unable to repay their loans. As a result, SEFA collections dropped from 75% to 35%.

Another factor preventing SEFA from implementing its mandate is the merger of SEFA and SEDA. SEFA lost 15 professionals because of the pending merger between SEFA and SEDA. The Department Director General assured the Committee that they are working towards and pushing for the merger.

Committee members raised concerns which included SEFA’s plans to support small businesses with power backup; that SEFA is not a one stop shop; its application process is long and slow and how can the application process be made easier for clients. It was noted that SEFA does not follow up to ensure the beneficiaries received the funding and the correct amount. They asked about the high interest rate that the intermediaries charge beneficiaries and why the interest rate is not consistent. It was suggested that SEFA’s intermediaries need to be investigated because of suspected acts of corruption. Members asked about the condition and rental costs of SEFA offices

As part of its response, SEFA said that subject to the availability of funding from National Treasury it will offer small business power backup and it condemned acts of corruption and encouraged Members to come forward with information to help them fight acts of corruption.

Meeting report

The Director-General of the Department of Small Business Development (DSBD) Mr Lindokuhle Mkhumane led the delegation in the absence of the Minister and Deputy Minister.

Small Enterprise Finance Agency (SEFA) 2023/24 Corporate Annual Performance Plan
Mr Mxolisi Matshamba, SEFA CEO, presented the SEFA strategic and annual performance plan and budget. The briefing included SEFA’s efforts in supporting Small, Medium, Micro Enterprises (SMMEs) and prioritising women, youth, and people living with disabilities. The CEO highlighted that funding availability is an issue as small businesses are currently affected by loadshedding. Small businesses that used to operate for six to eight hours are now operating for four hours because of loadshedding. These small businesses need support in order for them to operate during loadshedding to reduce the financial loss they are currently experiencing. He also mentioned the revenue loss that small businesses experienced from the July 2021 looting. The support that SEFA provided the affected businesses and plans for continuing to support the affected companies were explained.

The CEO highlighted the following challenges:
- Loadshedding effects on small businesses: businesses operate fewer hours which affects their productivity resulting in reduction of revenue. This causes them to be unable to repay SEFA loans.
- In November/ December 2022, collections dropped from 75% to 35%, this has resulted in SEFA’s inability to offer financial support to other SMMEs.
-The pending merger of SEFA and the Small Enterprise Development Agency (SEDA) resulted in SEFA losing 15 professionals in a space of three months because they feel there is no job security. The loss of these employees directly impacted SEFA’s ability to execute its mandate.

The CEO presented the following support interventions subject to funding availability:
- SEFA intends to increase its collection rate to 85%, in so doing, one of the critical interventions that SEFA wants to try is to provide alternative power backup for their clients so that they are able to operate a minimum of six hours if they cannot achieve 8½ hours a day. SEFA intends to assist its client with solar panels, batteries, and generators.
-SEFA intends to allocate more funding to microfinance to support women in rural areas.
- Provide post-investment support to companies; mentorship; access to the market and networks.
- Establish Khula Credit Guarantee (KCG) as a fully operating subsidiary of SEFA.
-Build SEFA brand and SEFA visibility.

[See presentation document for further details]

Mr M Mabika (DA) asked if SEFA does in fact do a follow-up on the intermediaries. According to Mr Mabika, in Limpopo the beneficiaries do not benefit from the funding. SEFA sounds pleased about the work of the intermediaries and it sounds good on paper but not in real life.

Mr Mabika highlighted that most of the discrepancies that the Committee came across were from the intermediaries. They found that as per the intermediaries, an amount of money is granted to a client. However, when they did a follow-up on the client, the client is unaware of the funding given to them by the intermediary. There is also inconsistency in the interest rate that clients pay.

Mr H Kruger (DA) said the SEFA properties which business owners are renting, are in a very bad state. He asked SEFA about the state of its properties? How much will it cost to get these properties in a good functional condition? How much will it cost to provide the businesses with power backup?

Mr Kruger went to Mpumalanga to visit small farms to do oversight. These small farms received funding from the Department of Agriculture, Land Reform and Rural Development (DALRRD). He asked why Rural Development does not form part of DSBD. He suggested that the merger of Rural Development and Small Business Development needs to be considered.

What is the average loan to a small business in a township versus to a small business in a rural area? What is the average loan to a township cooperative versus to a cooperative in a rural area?

Mr Kruger asked if SEFA does not receive the requested funding from Treasury, will its business plan remain the same if they do not receive a bailout from Treasury.

Ms B Mathulelwa (EFF) registered her disappointment with SEFA. She does not trust SEFA anymore and that as a Committee they must open a criminal case against SEFA. Investigations must be made into the intermediaries. SEFA must not receive funding from government anymore.

Mr H April (ANC) asked what SEFA has done so far and what still needs to be done as it has not yet produced its 2021/22 annual report and audited financial statements. We cannot say that we cannot accept what has been presented today because we need to first see the audit report of the auditor general to come to a conclusion.

Mr April suggested that the Committee needs to look at the funding policy, how the funds are being spent, how far along the SEFA/SEDA merger is, and lastly how much money is being returned to Treasury by SEFA.

Mr F Jacobs (ANC) said that during the Committee oversight visit to the North West, they found an organisation called Small Enterprise Foundation which is a microfinance retailer. It gets a good rate between 5% and 10% from SEFA but it charges almost a 29% interest rate to the people it lends to. That is clearly not sustainable for businesses. If you do not have affordable funding for small businesses, you are creating exploitation and more problems than solutions.

Mr Jacobs asked is there a way SEFA can regulate the interest rate which their intermediaries charge. R2.2 million funding was given to a company called Queens and Kings Heart but when they did follow-up, they found there is no company named Queens and Kings. He asked for a response to this. He asked if SEFA does follow-up after giving funding. Are we giving money to our friends? Is a proper process being followed?

Mr Jacobs noted the Khula Credit Scheme gave spaza shops R3500 to buy stock instead of R10 500. Where is the other R7000 that was allocated to them? Townships tend to be densely populated compared to rural areas. Why is the amount allocated to townships less than the amount allocated to rural areas? Why is there no proportional funding arrangement for the townships? Then we know we are giving the people who are in real need access to money. Is there a bulk buying strategy for SMMEs? Is SEFA going to be missed if SEFA closes its doors, seeing that SEFA only funds 6% of SMMEs?

SEFA response
Mr Matshamba explained that SEFA has different types of intermediaries that they work with and they have different compliance requirements that they must comply with. For instance, we have banks that are governed by the Reserve Bank, and we have non-banking financial institutions. We also have microfinance institutions as well as suppliers for suppliers’ credit guarantee and suppliers’ credit guarantee and cooperative financial institutions. These intermediaries operate within different frameworks of the law and the majority of the smaller intermediaries operate with the National Credit Act (NCA) and National Credit Regulator (NCR). Their lending rate is governed by the NCR and as SEFA we try to monitor lending patterns of these intermediaries to ensure their lending is within the parameters of the NCR and NCA.

On the discrepancies the Committee found during its oversight visit, the CEO replied that he has instructed his team to draft a written response to that.

On the funding that spaza shops were supposed to receive and did not receive, Mr Matshamba replied that after the July 2021 looting violence in Kwazulu-Natal and parts of Gauteng, SEFA took the decision that it needed to provide a relief programme. At the beginning of the programme, the money was R7000 with R3500 as a grant. Due to the feedback that received from the market, it decided to increase the funding from R7000 to R10 500.

The money was disbursed through Nedbank, using a closed loop debit card and SEFA made an agreement with Nedbank that the clients who previously received R3500, they will top up with R7000. The bank then sent an SMS to clients that they have received additional funding. The CEO said that SEFA have since noticed that the clients who claimed not to have received their additional funding, had changed their cell phone numbers.

The money that was sent to the clients was not being picked up by the clients because they did not receive the notification sent by the bank to them. SEFA then notified the clients via email. SEFA also intends to use local radio stations, use its website and community newspapers to alert clients that their money is indeed in their debit cards and that they must go to Nedbank and update their cell phone numbers.

Mr Matshamba said SEFA will provide a detailed report about that. He confirmed that no money was stolen; the money is sitting there awaiting the recipients.

On the rental challenges and the state of SEFA’s properties, the CEO replied that the work of improving the properties is done by the Department of Trade Industry and Competition (DTIC). SEFA is busy engaging with DTIC to help improve SEFA properties to make them fit and proper for business. He is not certain if the properties Mr Kruger saw were those of SEFA or not and assured Mr Kruger that they do not have industrial properties in Mpumalanga.

With SEFA properties, clients cannot demand good space when they do not want to pay for the space. Current clients that do sign lease agreements, we start with the renovations, and now others are beginning to see that if you are a good tenant, SEFA will support you.

The CEO assured the Committee that SEFA is trying to improve these properties despite all the limitations budget-wise and they are engaging with DTIC for funding. The rental SEFA charges the client is far below market because they understand they are dealing with small businesses so it is important for SEFA to come with a favourable rental charge for the client.

The average loan varies for each product. For cooperatives, the loan is about R2.5 million, with 70% of that being a grant and 30% a loan. Will SEFA be able to deliver its mandate without financial support? The answer is no.

The CEO condemned corruption and said they have suspended employees that have been found to have committed corruption. They do not turn a blind eye to corruption. They support and welcome any information on corrupt activities.

SEFA does not return money to Treasury.

On Kings and Queens Hearts, Mr Matshamba asked to provide the Committee with a detailed written report.

On the interest rate that intermediaries charge, SEFA does not work with an intermediary that does not have an NCR certificate. The NCR regulates the intermediaries and the interest rate that the intermediaries can charge. Even though the intermediary interest rate is seemingly high, it is within the rate set by NCR. SEFA is thus working to reduce the set interest rate.

SEFA is working to mitigate loadshedding. Treasury is not likely to give SEFA funding to purchase alternative power sources for small business. SEFA will use the balance of the funds that were saved from the Covid relief programme to provide funding for alternative power sources. SEFA will look at enterprises that fall within townships and rural areas. Even if the funding will not be enough, it will provide some comfort. With regard to financial support applications, SETA is targeting to approve R80 million worth of loan programme applications.

Further discussion
The Chairperson condemned acts of corruption and urged Committee members to come forward with information on corruption. She urged SEFA to do follow up to ensure that the support they offer is actually helpful to the beneficiaries.

Mr April said that not a single person received the R10 500 and what is being reported to the Committee as the amount of funds given to beneficiaries is often not the correct amount the beneficiary actually received.

Mr Kruger complained that SEFA is not a one stop shop. The approval process is too slow, yet small businesses need money as soon as possible and there is no plan to reduce the red tape problem in South Africa.

Mr Sibusiso Gumede, Committee Content Advisor, requested the CEO provide the 2021/22 SEFA Annual Report.

SEFA response
The CEO explained that they are improving the system to make the application process quicker. They do not accept applications sent via email. This is to ensure that the applicant receives assistance first as this process might get lost when applications are sent via email.

SEFA intends to improve the turnaround time for clients to receive responses from SEFA more quickly compared to now.

The CEO ended by requesting a timeline for the Annual Report to be sent to Mr Gumede.

DSBD response
DSBD Director-General Lindokuhle Mkhumane reassured the Committee that they are pushing for the merger of SEDA and SEDA.

The Committee approved the 2023/24 SEFA Annual Performance Plan and budget.

The Committee approved the letter for the German programme that Members will take part in and the meeting was adjourned.

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