DSBD, SEFA & SEDA Q4 2022/23 Performance

Meeting report

Opening remarks by Deputy Minister
Ms Dipuo Peters, Deputy Minister of Small Business Development, highlighted what the Minister raised in the budget speech. DSBD paid 100% of all valid creditors within 30 days and they pride themselves on that. Through the Chairperson engaging with the other chairpersons of Portfolio Committees, the Deputy Minister requested that the Committee monitor and encourage other departments to do the same. Some of the payments were able to be processed within seven days and they want to continue sustaining that timeline so that DSBD leads by example. During Quarter 4, DSBD reported 51.8% female SMS representation against the target of 50%, and in partnership with its agencies implemented 21 public engagements within district municipalities with a target of 15. Its Quarter 4 expenditure was R509 000 against the projected R512 800 with an 0.8% variance.

The Deputy Minister reported that the SMME Business Index to identify levels of readiness and capabilities of SMMEs was implemented and a total of 56 products and services against a target of 50 where linked to domestic markets progress report. On 27 March 2023 the Business Amendment Bill was approved by Exco and the consolidated progress report on the finalization of SMME and Cooperative funding policy was approved by the Cabinet. DSBD supported 82 cooperatives compared to a target of 50 – this is something they need to pride themselves on. The National Integrated Small Enterprise Development Master Plan was implemented and approved in which five municipalities were assisted with the rollout of the Red Tape Reduction Awareness Programme. They need to increase the pace at which municipalities are supported, and working together with COGTA she believes that they can accelerate this. Lastly, an assessment review report of SMME regulatory impediments to reform was approved on 27 March.

DSBD Q4 2022/23 Performance
Mr Lindokuhle Mkhumane, DSBD Director-General, presented (see document).

SEDA Q4 2022/23 Performance
Mr Nkosikhona Mbatha, SEDA Acting CEO, said SEDA achieved 19 out of 20 targets for its performance indicators. The unachieved indicator was Technology Transfer Assistance (TTA) due to financial constraints. For the past two to three quarters they have not been able to meet that target, however they have made sure that they implement better planning for this indicator in terms of finances for the new financial year so that they can provide the assistance required.

Mr Mbatha highlighted that SEDA was able to touch base with clients in the areas that follow and were able to do assessments for business readiness and provide services as follows:
● Incubation Programme: this quarter they assisted 2 507 SMMEs with their target being 2 500.
● Productivity Improvement: 569 was achieved with the target of 500 SMMEs that wanted to engage and assist with an improvement in productivity of their manufacturing plans.
● Quality Improvement: exceeded by a far margin in which 1 377 was achieved with the target being 750 and this includes the work being done assisting the clients to understand how they can improve the quality of their products in order to comply with the requirements required in the various sectors so that they can do the work and assist to improve the quality of their produce.
● Priority Sectors: they also met the target in which their target was 30 and they achieved 62, these are the SMMEs that were identified and are being prioritised from a growth point of view so that they can grow and soon they can create industries around those SMMEs but also scale them up so that they are able to reproduce.
● Training, Mentorship and Coaching: the 6 000 target was exceeded as 6 884 was achieved, with both physical and hybrid SMMEs because they now also facilitate training hybrid, and this allows them to also save costs and adapt to the ever-changing world of technology
● SEDA Access Points: for Q4 they were able to sign agreements and establish 34 access points in the rural towns and rural areas with the target of 20, however, on an annual basis the target is not achieved but were able to be achieved on a quarterly basis.
● Access to Local Markets: were able to achieve 2 054 with the target of 600.
● Access to International Markets: target was achieved and in a trip to Ghana they were exposed to their market where they able to showcase their products to African / international markets.

Mr Mbatha reported that SEDA spent 99.93% of its annual budget. Quarter 4 performance in 2021/22 was 83% compared to the improved 95% for 2022/23. An additional R60 million was received for the flood relief and it was spent completely. This increased the budget to 955.20 million for the year and 91% of the budget was spent on core and the remaining 9% on support. Only 0.7% of the budget was not utilized.

SEDA now has 53 branches around the country and 58 access points of which 38 were established in Quarter 4. SEDA is working very hard in sign with other access points and service providers in rural towns and townships. The figure is currently standing at 78 and there is a move towards establishing and training the service providers, however, the training was not accounted for because it took place towards the end of the year. When it comes to other assisted business, female businesses assisted amounted to 8584 with the target of 8072, and youth businesses assisted were 7982 with a target of 6054. People with disabilities businesses assisted were 273 but the target was 1412 which was not achieved. However, the portfolio is working together to reach out more to people with disabilities so in the new financial year the target can be met.

Mr Mbatha went through each performance indicator and the targets achieved for Q4 such as the entrepreneurship awareness target and township and rural businesses target which were both exceeded. The incubation centres established were supposed to be 4 but 11 were done due to catching up with the other quarters where incubator adjudication and finalization did not take place. This met the annual target.

On the number of access points, 34 were established. As mentioned before, the annual target of 80 access points was not met as the signing of agreements had not yet occurred. After March 2023 the ones that were adjudicated were finalized and all that was left was for the process to move to the establishment phase and only a few factors still need to be tied together so that they can continue with a full training and these access points become an important extension of SEDA as well as SEFA.

SEFA is also training the same services, therefore other these portfolios have joined forces to make sure that the services offered are also seamless, and to make sure that they are both aligned in the services offered and for the SMMEs to know that they can walk into one door and can get help on both ends, that is, SEDA and SEFA in one location or space and get all the services they need. This is not the only time these two organizations share offices spaces in some of the regions because we are moving towards that reality where there is sufficient space to host both SEFA and SEDA and there is currently a search for available spaces so that when the merger take places they are ready space-wise and that they have the numbers in terms of investment officers and business advisors.

Both targets for supporting and assisting SMME access to the local and international market were met. SEDA was able to support a significant number of SMMEs to participate in tradeshows. The incubation programme target was achieved and surpassed as well as the target for productivity improvement.

However, the TTA target was missed again this quarter due the funding being insufficient due to the high number of applications received.

The number of jobs created through the interventions was 2 255 and they are still able to sustain them – mainly because the interventions focused on retaining jobs.

Over and above the financial report, an additional R60 million was received for flood relief and it was spent completely. This increased the budget to R955.20 million for the year and 91% of the budget was spent on core and the remaining 9% on support. Only 0.7% was not utilized.

The Auditor General findings have led to an improvement of various internal systems. One system is going live only in June. It will enable SEDA to capture all data from previous systems and everything becomes system based and nothing is manual. By the end of 2023/24, all AG findings should be resolved.

On governance compliance, three board meetings took place in Quarter 4 and there were three strategy and organizational performance board committee meetings that also occurred.

SEFA Q3 2022/23 Performance
Mr Mxolisi Matshamba, SEFA CEO, reported that the SEFA total loan book at the end of Q4 was R4.18 billion and R656 million was approved which is 147% more than the target. Previously the targets were less due to cash flow challenges as approvals had to be paused so that enough money can be collected to finance the disbursements. The over delivery in disbursement approvals was achieved because interest rates were rising and SEFA investment income earned more interest. R555 million was disbursed which was 139% for the quarter. For youth-owned businesses R131 million was disbursed and for black-owned businesses, it was R474 million.

The Q4 scorecard target was R446 667 for approvals and R655 945 was achieved (147%). In most of the targeted critical areas the goal was exceeded by a far margin. The target was unachieved for disbursements to enterprises owned by people with disabilities – this still poses a challenge because R28 million was the target and only R209 000 was achieved which made 1%. This is a long-standing challenge that DSBD and Department in the Presidency for Women, Youth and People with Disabilities are working tirelessly to address. Customer feedback and reviews were not the best because at least 83% was the target. The Customer Satisfaction Index was 67% which is understandable because of the challenges faced by the organisation.
 
The target for total capital raised outside and interest income was R85 million and R123 million was raised, hence the 146% performance.

The target for cost-to-income ratio for property rent was to contain the cost at 400%, however, only 402% was managed. This is due to the property portfolio being occupied by tenants who have been on rent boycott for an extended period of the year, but work is being done by the legal team to regularise those tenants. There is an increase in rental collections because now they are converting those tenants occupying these properties to be direct SEFA tenants and vacating those who are sub-letting properties illegally. Rental collections increased by 65% and this is driven by the intervention put in place to force the legal tenants to sign lease agreements and convert electricity payments through a metred system so that clients buy the electricity in advance. The increase in number of tenants who sign a lease has resulted in the improved collections rate.

The target for emergency repairs was 40% but it was contained at 10% within the properties. The target was 20% of tenants to be funded by SEFA but client uptake from the lending division was low as the properties are not attractive. There is an ongoing renovation project of the properties so that they become attractive and fit for purpose. There are other tenants who are not funded by SEFA. With the Khula Credit Guarantee (KCG) capital leverage ratio, the target was 6.25% and the achievement was 6.31% which means that for every rand KCG guaranteed with the banks, the banks were able to lend R6.31. So if R100 million was guaranteed, R6.31 million will be lent by the banks to market which is a stunning performance by the KCG team.

Accumulated impairments is one area with a challenge as the target was a containment of impairments at 38% but it increased to 44% due to clients – in direct lending specifically – struggling to pay as they have challenges such as load-shedding during operating hours. The target for portfolio at risk – which is linked to impairments and collections – was 42% but it went up to 49%. Portfolio at risk is clients that are 60 + 1 day behind with payments and it is also a reflection on impairments. The collections rate was targeted at 87% but it was 85% and this reflects the challenges SMMEs are facing to meet financial obligations.

With the use of online applications once the client is finished applying, human intervention is needed. However with a high vacancy rate, the turnaround time is affected as there is not enough human capital to speedily process the applications. There are about 60 vacancies within SEFA.

Out of 38 indicators, SEFA was able to achieve 30 (79%).

There is always an underperformance for people with disabilities (PWD) as the target setting is not scientific. If 7% of the population is PWD, DSBD needs to dedicate 7% of its loans to PWD. This fails to understand that not the entire 7% is pursuing a business, some are working regular jobs and some do not work. Thus this results in the target not being met. A re-evaluation of the percentage needs to occur so that funds can be disbursed accordingly.

Discussion
The Chairperson noted SEFA never meets the PWD target and is working to find a resolution where the percentage is more accurate. How is SEFA going to get the information to align the budget and meet the target in the near future?

Mr M Mabika (DA) asked DSBD about intermediaries. SEFA states it is looking forward to extending their working relationship with the intermediaries. Does DSBD think the intermediaries are doing good and helping DSBD to grow small businesses? However, it seems as if the intermediaries are the ones benefitting instead of SMMEs. Secondly, it does not look as if there are clear plans to extend support to the rural areas? He mentioned the deep rural areas did not form part of the Committee oversight visit to the North West where only townships and towns were visited. Rural areas are still excluded and not taken into consideration. People who live in townships and cities are exposed to and have access to information and opportunities. DSBD needs to also support rural areas and not forget about the disadvantages that come with living in the rural areas. Therefore, DSBD should become more rural biased and come with a strategy to reach out to the rural areas.

Ms K Tlhomelang (ANC) (experienced technical difficulties and he was asked to write he question).

Mr H April (ANC) noted that SEFA planned to disburse funds to 16 967 SMMEs/cooperatives but increased this by 70% to 28 924. How did SEFA source the funds to disburse to more SMMEs and cooperatives in Q4? They managed to disburse R2.4 billion against an annual target of R2 billion. Where did the extra R400 million in disbursements come from? Secondly, SEFA had been asked to separate the number of cooperatives when reporting on disbursements and approvals so how many are cooperatives and how many are SMMEs? In Q4 how many SMMEs versus cooperatives were funded? Thirdly, to address underperformance in approvals SEFA plans to launch fintech product and learning platforms to improve the overall financing and approval systems and enhance financial inclusion. Could SEFA provide more information on this such as cost to company and addressing challenges that may be faced by the introduction of tech?

Could SEFA provide more information on the addition of the five partners and include the names and who owns them? On the repayments terms and interest rates charged by a financial provider, could SEFA explain what it means such as with the Small Enterprise Foundation (SEF) and SEF seems to be a good payment client of SEFA. What are the terms and conditions of the payment plans with the SEF?

Ms B Mathulelwa (EFF) noted the SEFA comments about the percentage of PWD in business. If the percentage is 1% instead of 7%, there is still a need to provide the list of beneficiaries. The Committee is interested in knowing how many people does 1% involve and whether it covers all nine provinces or a select few. On the number of approved applications, the concern is if those application are from intermediaries or directly from owners of SMMEs and cooperatives? Can SEFA break down who exactly it is going to fund as it has approved a lot of applications?

Ms Mathulelwa requested that SEDA train people so that there could be a SEDA representative in each municipality because people are struggling to access SEDA.

Can a person DSBD representative be appointed because there are a lot of questions MPs need to pose to DSBD, and right now there is no one in DSBD to answer those questions. That person should make the Portfolio Committee a priority as direct questions need to be asked.

Mr H Kruger (DA) proposed that there should be satellites offices for both SEDA and SEFA in each municipality where they provide help desks especially in rural areas and for PWD so that people can receive the help they need.

Mr F Jacobs (ANC) appreciated the presentation. He focused on the areas needing improvement in Q4 and asked for the consequence of the underperformance. He asked about the audit. Were all the public engagements physical or online? Why has the incubation reports not yet been finalized and what are the reasons for the delay? There are blurred lines between the 5991 cooperatives / SMMEs in the report that it is not clear, so a breakdown is needed of how many cooperatives and how many are SMMEs were assisted.

Can universal bylaws be adopted so that all municipalities are included and helped instead of doing municipalities one by one as that is going to be time-consuming? Can DSBD provide more details about the Ghana trip?

SEDA response
On rural area inclusivity, there are about 57 core locations within municipalities and there is a need to look into them and their effectiveness. What led to the move to access points was the challenge of the efficiency and effectiveness of the Local Economic Development (LED) offices in the municipalities where now everyone is associated with that lack of performance. There is currently an MOU project in collaboration with the Matatiele municipality. They trust that the access points will work so that they can reach rural communities.

On the incubation project delay, SEDA changed its incubation strategy in line with the District Development Model (DDM) as last year a decision was made that incubators must now go forward in line with the economic activity of the various districts and municipalities. Thus when they make a call for incubation proposals these were specific in terms of what was targeted based on Ministry visits to that district.

On cooperation between SEFA and SEDA, they are aware that not every SEDA client qualifies for funding. However, they have been able to interact and gauge with SEFA on some of the clients. This year, basically for this quarter, they have been able to raise R80 million for various clients including from other funders as well. There are initiatives to improve access to funding between the two entities as they have now established a team that comprises the SEDA provincial branch and SEFA regional office and provincial manager. The second layer is the one comprising of (inaudible, 02:31:46).

When comes to access points there is a delay. In some areas they had to readvertise to find a suitable candidate to run the access points because of the need for proper experience. Some of the delays are due to this because they had to go to the market more than once to look for suitable service providers.

SEFA response
When it comes to people with disabilities, SEFA is not saying they do not have the ability to run business but not all of them are in business. Also a person with mental health problems who takes care of themselves through medication will not be counted as part of the PWD target. There is already an engagement with various departments and stakeholders to find a new and scientific way for setting the target to help people living with disabilities in business. In engaging with the Minister, it is noted that the PWD programme does not have a grant element. The majority of the applicants are looking for grants and SEFA does not provide funding that is grant only. SEFA      provides a portion of a loan that is a grant. There was an agreement in principle with DSBD that there is a need for the creation of a product that caters for this.

Secondly, microfinance intermediaries (MFIs) are not to be confused with SMMEs because MFIs are the ones who provide funding to SMMEs. IDO went to provide funding late last year and we work closely with them because the majority of the intermediaries apply for SEFA money. We agreed that we need to work closely together as a separate sector in the intermediary space. Then you have your banks that can provide credit guarantee and that is another completely different thing and that sector there is no use of SEFA money. In this instance, if you provide the credit guarantee to ABSA to drive transformation in the agricultural sector, ABSA uses its own money and its mandate to finance it. Once it is disclosed to people that it is SEFA money, people do not want to pay it back.

Thirdly, which is the pillar of the SEFA mandate, MFIs provide access to the unbanked and excluded poor rural women. That programme is one of the successful interventions. They must not forget that the SEFA mandate and government policy was to partner with the private sector so they provide access to funding to excluded people in rural and township areas. On interest rates, SEFA is committed to contacting all the stakeholders, that is, intermediaries in the microfinance space and even communities to come with an intervention that is going to be a win in both ways bearing in mind that their main target is that end user assisted by partners such as the Phakamani Foundation.

The SEFA board held a special meeting led by the audit committee chair because in the previous board meeting, they ran out of time and the Q4 report was not approved because, and then a special meeting was organized to approve the Q4 report. The board then held a formal meeting to express a response to the concerns raised by the Portfolio Committee’s North West oversight visit.

The appointment of forensic investigators was for the investigation of the impairment matter as SEFA picked up that there was fraudulent activity in the funding within intermediaries.

On the over achievement of the approvals target, the funds were moved to finance investments that were higher than the Q4 target since in the previous quarters this target was not achieved. The funds were just sitting around and waiting to be used. Therefore in Q4 the Q3 savings were used to finance the deals that came in Q4. R30 million of that money came from their very own investment income, R56 million was underspent and there were other savings from the Township and Rural Empowerment Programme (TREP) as they are funding microfinance through TREP.

On financial technology, there was an instruction to partner with black-owned start-up fintech so that it is easy for SMMEs to access lending because there was a loss in the online loaning system. So a partnership was needed. They are looking to upgrading their own fintech, especially for programs like TREP and speed up access. The World Bank is developing a system for KCG at a cost of R60 million, and this is at their cost.

Performance was 65% and they wanted to achieve 100% so everything was set up to achieve those targets but in certain instances we just missed the target by a small percentage. They do put these targets in the performance agreement of various managers who run those units so it does have consequences when there is a performance assessment – these things do count. There are certain instances where they can carry over certain targets to the following year, which they can do if a budget is available to ensure that it still achieves. The IT system was not achieved in 2022/23 but it is part of the operational plans for 2023/24 so it is still going to be achieved by this year.

On the municipalities, there was an interaction in the King Sabata Dalinyebo Municipality which is one of the five municipalities covered in the Eastern Cape. They do have the Nyandeni which makes up the 5 municipalities. Areas that mostly always complain about access and opportunities have already been identified, and a complaint system is being developed because some areas do not have proper channels to do so.

Minister Stella Ndabeni-Abrahams, who arrived late in the meeting, read the resignation email from the SEFA Board Chairperson.

The Deputy Minister corrected Mr Mabika about the green spinach market event that was held after the DSBD budget vote. DSBD and its entities should market the services and programmes and interventions that can help businesses to grow to the level such as the dry-cleaning and laundry service in Cape Town. The Minister had stated that they should be alive to the fact that there will be an influx of applications after that and they need to be ready and geared to respond that. There is no way DSBD will not be marketing because it cannot manage such an influx.

When it comes to the Portfolio Committee becoming involved with board appointments, the prescripts of the board appointment process as per the legislation, there is no room for the Committee to appoint the board members. However, the Committee has oversight on all DSBD entities.

She agreed that the target for PWD who are in business needed to be amended. What DSBD needs to do is to work together with PWD associations, organizations and business chambers.

The Chairperson noted that the Committee Report on the DSBD Budget Vote would add to its recommendations to plead that Treasury add more resources for DSBD because expectations are high but with very few outcomes and that is because DSBD is underfunded and under-resourced.

The meeting was adjourned.