Progress to address North West Oversight Report recommendations; National Small Enterprise A/B Update (with Deputy Minister)

Meeting report

Opening remarks

The Chairperson welcomed everyone in attendance. She said that the meeting was for the Department on Small Business Development (DSBD) to brief the Committee on the plans and progress made in addressing the recommendations of the North West oversight report.

Mr King Kunene, Committee Secretary, noted apologies from Mr Zungula and the Minister of Small Business Development.

Deputy Minister’s introductory remarks

Ms Dipuo Peters, Deputy Minister of Small Business Development, said that she was part of the Committee’s oversight visit to North West. This meeting was to inform the Committee of what is being done by the Department and the Small Enterprise Finance Agency (SEFA) to rectify the findings of that oversight visit.

The Department has been entrusted to deal with the challenges of poverty, unemployment, and inequality. 

Micro-entrepreneurs and those who own spaza shops or work in the informal sector make it possible for the statistics of unemployment to decrease because they create jobs for themselves and for others who seek jobs from them. The Department believed that this was an important intervention that needed support.

The findings emanating from the North West oversight visit will assist the Department in looking into its own policies and application of programmes. She hoped that people would realise that the Department had identified the mistakes and will rectify them through SEFA.

SEFA’s action plan on issues raised by the Committee during North West oversight visit

Ms Thulisile Manzini, Acting Director-General (DG), DSBD, gave a brief outline of the presentation.

Mr Thembinkosi Bonakele, Chairperson, SEFA, said that he had recently joined the board of SEFA as Chairperson on 1 September 2023. He confirmed that the board had internal discussions on the issues raised.

Mr Mxolisi Matshamba, Chief Executive Officer (CEO), SEFA, said that the presentation would provide an update on progress made in addressing the concerns raised by the Committee and measures taken by the organisation to strengthen governance over the loan management processes. The presentation addressed some of the following concerns:

Spaza Shop Support Programme (SSSP)

• The SSSP was a scheme that was set up to support the spaza shops that were affected by the Covid-19 lockdown, to assist them in restocking their businesses. It is not a perpetual programme that is funded over the Medium-Term Expenditure Framework (MTEF).

• As at 30 June 2023, 6 654 (nationally) spaza shops clients received their grants.

• 75 clients nationally are still to receive the R7 000 top-ups. These are clients who are being migrated from the Standard Bank to the Nedbank disbursement platform.

Interest Rates charged by Intermediaries

• The interest rate charged by intermediaries for sampled clients is not in accordance with National Credit Act (NCA), it is beyond the required limit thus increasing the cost of lending i.e., 29% was charged to one client that was sampled in North West

• SEFA management will be presenting to the board a proposal to reduce the cost of lending to end-users and expand the footprint of microfinance lending during quarter 3 of the 2024 financial year.

Compliance with NCA / NCR by all retail finance intermediaries (RFIs) and microfinance institutions (MFIs)

• Some SEFA-funded clients are without a National Credit Regulator Certificate

• After approval of the SEFA Credit Policy in February 2022, all intermediaries that were on-boarded thereafter are required to comply with NCR. SEFA is negotiating with existing intermediaries who were on-boarded prior to the implementation of the new credit policy to comply with NCR.

BEE conditions on RFIs and MFIs

• SEFA’s Credit Policy approved in February 2022, makes provision that preference will be given to Wholesale Intermediary partners that have black ownership of 51% or more

Post-investment monitoring

• The post-investment monitoring of SEFA is seriously challenged by human resources capacity constraints

• SEFA is continuously strengthening its collaboration with the Small Enterprise Development Agency (SEDA) to leverage SEDA’s footprint.

• SEFA mentors have been identified to strengthen post-investment monitoring processes.

(See presentation for further details)

Discussion

Mr M Mabika (DA) asked if SEFA had a clear plan on what it intends to do about Kings and Queen Hut. The Committee had discovered the discrepancies with regard to the reported information by Intellimatch Financial Services to SEFA via its quarterly reports on funded clients, particularly the existence and verification of their funded clients, Kings and Queen Hut. The Committee was also told that the clients were last seen a year ago. He asked how many Kings and Queen Hut establishments were in South Africa, besides the one in North West.

He recalled that the Committee received a report that Enable Capital had lent R2.1 million to Mfuneko Technologies (Pty) Ltd, but the client informed the Committee that they only received R1.5 million. He asked why the client received a lesser amount of what was said to be given. 

He noted that SEFA had plans to recover funds that had gone missing. He said that it was not clear how SEFA intended to deal with the officials who may have been implicated by not conducting post-investment monitoring. He asked if there would be consequence management against the officials who have been negligent in their duties.

He said that the Committee struggled to locate some SEFA-funded clients during its oversight visit to the North West. The reasons were not clear as to why the clients were not available at the time of the oversight visit.

Mr H April (ANC) welcomed SEFA’s report. He said that the report showed that there was indeed some progress made since the Committee’s oversight visit. However, he was not happy that some of the most vulnerable members of society have not yet received the R7 000 top-ups. It was worrisome to hear that the spaza shop clients have still not received the money that was due to them.

He concurred with Mr Mabika’s remarks about the discrepancies that were discovered. He said that it brought unease when looking at how state money is being managed, especially the money that is supposed to reach the poor who want to do business and create jobs. The backbone of the economy is vested in the creation of small businesses. He believed that a forensic investigation should be done to identify those who were implicated in the failure to verify the existence of Kings and Queens Hut. It is not correct to be silent about this or to merely issue suspension notices, because there are many small businesses that depend on funding. He was pleased to hear that there were officials who were bearing the brunt of the consequences. He said that the officials should know that the plight of the people rests upon them to implement what has been promised.

He said that he recently visited KwaZulu-Natal where he learnt that a young person had applied to SEDA for assistance to open a butchery. He was disheartened to hear that the person had not even received a response letter from SEDA.

He thanked SEFA for addressing the concerns that the Committee had raised. He said that SEFA should look into how it can speed up its services.

Mr F Jacobs (ANC) said that the Committee decided to do its oversight visit to North West because it is predominantly rural and there was no previous parliamentary oversight visit to North West in this regard. The Committee tried to cover the informal sector, the spaza shops, rural-based women, and youth cooperatives.

The oversight visit to the North West clearly indicated that there were systemic problems and there were officials doing the wrong things. Greed and corruption were evident, particularly collusion between state actors and the private sector. He noted that SEFA had appointed Ernst & Young to perform a forensic investigation on the funding activities of Intellimatch Financial Services. He asked the CEO of SEFA to ensure that the final report by Ernst & Young is shared with the Committee.

He recalled that the Committee visited a rural township that was about 30km outside of Mahikeng. He was impressed with the entrepreneurial spirit of the youngster who was running his mother's tuck shop, but the Committee was informed that he was one of the SSSP beneficiaries who did not receive the R7000 top-up. He said that some of the beneficiaries had to take several taxis and travel long distances to get a hold of the funds.

He believed that the Department’s policies had good intentions, but he was concerned that the Department did not have the implementation capacity or the operational mechanism to ensure that it gets implemented.

He said that there were lessons learnt following the SSSP. He asked if there was consequence management for the failure to ensure that some beneficiaries did not receive their R7000 top-up.

He noticed that Ezemali Afrika disbursed funds to a beneficiary with a Department of Home Affairs (DHA) email address. He asked how it was possible for a SEFA-funded intermediary to lend funds to a government official. He questioned how this was overlooked and what was the consequence management. It seemed as if the Department was only reactive in dealing with greed and corruption when people were caught, but it failed at ensuring systemic accountability.

He believed that the Committee should strengthen its oversight capacity, especially in addressing the systemic issues. He said that the intention is to get the people of South Africa off the welfare system and to create an entrepreneurial society where people want a hand up and not a handout. The country needs a caring and responsive government that can allow that to happen. This can only be done if there are committed government officials that do what they are entrusted to do, and if the scourge of corruption and greed is dealt with.

Ms Manzini said that the Department has noted the questions that relate to the issues of oversight.  She agreed that the oversight needs to be strengthened. She handed over to the CEO of SEFA to respond to the specific questions.

Mr Matshamba thanked the Committee for the constructive inputs. He informed the Committee that some of the questions raised were addressed in a report that SEFA had submitted to the Committee on 12 May 2023. The report will be re-shared with the Committee, as it responds to some of the issues in detail.

He referred to Mr Mabika’s questions. He replied that SEFA is pursuing legal proceedings, and it believes that there is clear collusion between the directors of Intellimatch Financial Services and the owners of the ghost companies because there is no way that they can plead ignorance that their names were used without their knowledge. The lady who supposedly owns Kings and Queens Hut confirmed in a virtual meeting with SEFA’s board that she received the money from Intellimatch Financial Services. All implicated persons will be bound together in the legal proceedings.

Immediately after SEFA had discovered the discrepancies with Intellimatch Financial Services, it hired mentors to verify the existence of all wholesale-funded clients. There are also plans to utilise SEDA’s graduates to support SEFA’s post-investment monitoring. SEFA’s post-investment monitoring is under-capacitated, which was worsened by the suspensions. The mentors and SEDA graduates will assist in this regard. The work is in progress and is being done in the most cost-effective way.

SEDA had also experienced challenges during the Covid-19 lockdown, as its employees could not conduct site visits. SEDA has since implemented interventions to ensure that its employees conduct site visits before any deal comes to the credit committee.

He noted that the transaction between Enable Capital and Mfuneko Technologies (Pty) Ltd is clearly articulated in the report that was submitted to the Committee.

On the question of how SEFA intended to deal with the officials who may have been implicated in the funds that went missing, he said that was easy to identify the directors of Intellimatch Financial Services and their fake identities because the information indicated clear fraud. SEFA requires the report of Ernst & Young to further identify the employees that were negligent and whether there was collusion by SEFA employees. SEFA will initiate labour relation actions against those that may be implicated, whether it is for negligence or collusion.

On the delays with dispersing some of the SSSP grant payments, he said that SEFA works through the banks. SEFA has been urging the banks to disperse the money. Nedbank has been making progress, but Standard Bank has not been playing ball. Hence, SEFA decided to terminate the relationship with Standard Bank and migrate the funds to Nedbank, because Nedbank is willing to execute this exercise with speed. By the end of quarter 3, the money will be dispersed and there will be no further funding available.

In response to Mr April’s question about avoiding similar instances of Intellimatch Financial Services, he said that SEFA had therefore ensured that it verifies all clients of intermediaries. He agreed that there should be further investigation to identify employees who may have been implicated. He reiterated that the report by Ernst & Young will identify if there has been collusion by employees. It will force SEFA to investigate whether there have been discrepancies in other deals that the implicated employees have processed. As soon as the report is released, it will be forwarded to the Committee.

He referred to Mr Jacobs’s question about the Ezemali Afrika client with a DHA email address. He replied that SEFA would investigate whether it was a client or an employee of Ezemali Afrika who has a DHA email address because SEFA is clear about providing funding to government employees.

He thanked the Committee for assisting in the lessons learnt, and the gaps that were identified in the oversight visit to the North West. He said that SEFA would want to establish the root cause if there had been any system or process failure, especially to prevent the recurrence of those failures. The challenges with SEFA’s capacity are one of the root causes because SEFA needs people on the ground to verify the clients. SEFA needs skilled people at the port of entry of the applications and for post-investment monitoring.

Deputy Minister Peters asked that the Chairperson of SEFA make a few remarks because he is the accounting authority.

The Chairperson agreed.

Mr Bonakele informed the Committee that SEFA had appointed new members to its board, around the same time that he was appointed as Chairperson. The board has gone through the report that was submitted to the Committee, and he would like to highlight a few issues.

He said that he had an opportunity to go on an outreach programme with the Minister last week, one of the issues that had arisen was the speed at which the Department’s entities run its processes and the responsiveness to applicants. He noted the comment by Mr April, regarding someone who had applied for assistance and had not received a response. He said that the Minister had also noted this concern from some of the participants in the outreach programme. SEFA will work closely with its management to improve its service delivery to small, micro, and medium enterprises (SMMEs).

SEFA’s board also had deliberations on the spaza shops. It was very important to understand the impact of the SSSP intervention. Not all spaza shops received these grants – some were not reached, some did not apply, and some were not registered. So, there is a bigger population of spaza shops than the ones that did not receive their full grants. SEFA had tasked its management to do a comprehensive study and analysis on the impact of the SSSP, as well as lessons learnt in how to create more sustainable policy interventions for spaza shops.

He said that there was a fair amount of confusion about the interest rates. There is an issue of compliance with the National Credit Act, but there is also the issue of the sustainability of the intermediaries and the impact on end-users. This is also an area that needs to be studied and understood, especially when people feel that interest rates are oppressive or unfair. SEFA must be able to answer in terms of how it compares with other Development Finance Institutions (DFIs), as well as the impact it would like to have.

He confirmed that the report by Ernst & Young will be shared with the Committee, and there will be consequence management against implicated employees.

Deputy Minister Peters said that she wanted to take the opportunity to advise the Acting DG and the Chairperson of SEFA to use the remedial actions of the report to the North West, as well as the issues that the Committee have raised as a template to look at the situation on a national level, particularly how prevalent the issues are in all nine provinces. The Department relies on SEFA to deliver on its behalf.

Chairperson’s remarks

The Chairperson thanked the Deputy Minister, the Acting DG, and the team from SEFA for updating the Committee on the action plans following the North West oversight visit. She said that this would be an ongoing process that the Committee would deliberate on from time to time.

The Committee will look at SEFA’s report and develop some recommendations. The Committee will assist the Department through its oversight role.

Progress on the National Small Enterprise Amendment Bill, 2023

Mr Sibusiso Gumede, Committee Content Adviser, reminded the Committee that in November 2022, the Committee had decided to pursue a Committee Bill, wherein it sought to review the National Small Enterprise Act. He said that the administrative team had put that resolution into effect by initiating the process according to National Assembly Rule 273.

A memorandum had been submitted to the Speaker of the National Assembly, requesting permission to review the Act. The Speaker had referred the request to the National Assembly, which was overwhelmingly assented to. A policy document should be drafted within 60 days, and the legal team will draft the actual Bill. However, the Department tabled the Executive Bill and referred it to the Speaker, which had subsequently been referred to the Committee. The Committee is faced with two positions, one is already a Bill and the other is a framework. The Committee should decide if it will rescind the Committee Bill and go ahead with the Executive Bill, or if it will continue with the Committee Bill instead of the Executive Bill.

Ms Telana Halley-Starkey, Parliamentary Legal Advisor, Constitutional and Legal Services Office (CLSO), agreed that a decision needs to be taken regarding the Committee Bill. She clarified that the Executive Bill is before the Committee. The Department had already introduced the Executive Bill and presented it to the Committee.

The Chairperson said that the Committee had previously discussed this. The Committee would need guidance on the legality of proceeding with the Executive Bill.

Mr H Kruger (DA) said that he did not have a problem with whatever the Committee decided on, but he was worried about the precedence that would occur when a Committee or Private Members’ Bill is tabled in Parliament and then the Executive suddenly wakes up and slips in a Bill, which will be used in the future to get rid of the oppositions Committee or Private Members’ Bill. The Committee must be careful when it makes a decision like this. It is not to say that the same ruling party is going to be the ruling party after 2024. He asked for clarity on whether the decision to rescind the Committee Bill would be referred back to Parliament for a vote.

Mr Jacobs said that the ANC would formally like to rescind the Committee Bill, given that an Executive Bill is before the Committee and a process for it has been gazetted. It is Parliament’s role to draft the laws and legislation, but the Committee would never want to have an adversarial relationship with the Executive. He suggested that the Committee develop a process plan and that the Parliamentary Legal Advisor provide guidance.

He said that some of the main issues were with regard to the ombudsman process and the township economy revitalisation aspects of the Bill. He encouraged Members to not play politics and to acknowledge the delays with this piece of legislation. He formally proposed that the Committee rescind the Committee Bill and proceed with the Executive Bill.

Mr April and Ms M Lubengo (ANC) seconded Mr Jacobs’s proposal.

The Chairperson noted that the Committee will proceed with the Executive Bill. She asked the Parliamentary Legal Adviser to assist with the way forward.

Ms Halley-Starkey said that the tagging of the Bill has taken place. It was originally tagged as a section 75 Bill by the Office of the Chief State Law Adviser (OCSLA), but the CLSO had proposed that it should be tagged as a section 76 Bill as it affects provinces. This was purely based on the fact that section 17(y) of chapter 3(A) of the Executive Bill deals with trade, and this is an overlapping proficiency for both provinces and national government. The Joint Tagging Mechanism then agreed with the CLSO’s recommendation to classify the Bill as a section 76.

At this point, the Bill has been introduced. It is now the duty of the Committee Secretary, the Committee Content Adviser, and parliamentary staff, with the assistance of the Executive, to advertise the Bill and then proceed with public participation. The Committee would then receive public comments and may decide to host public hearings. Thereafter, the Committee’s support staff would present a matrix of all the various comments, and the Department and legal services would respond to those comments. The Committee will then deliberate on the Bill and consider whether the Bill is desirable.

The Chairperson thanked Ms Halley-Starkey for outlining the way forward. She noted that it is now the responsibility of the Committee Secretary, the Committee Content Advisor, and parliamentary staff to ensure that the Bill is urgently advertised. She asked if Members had any further questions.

Mr Kruger agreed on the way forward. He asked about the process of rescinding the Committee Bill.

Mr Jacobs asked that the Parliamentary Legal Advisor inform the Committee of the timeframes. He said that it would be key for the Committee to adopt a process plan because there was a sense of urgency in processing the Bill.

The Chairperson recalled that the Committee’s Content Adviser had previously advised the Committee to submit a memorandum to the House, to indicate the Committee’s position.

Mr Gumede said that he had a discussion with Ms Halley-Starkey to identify potential bottlenecks, which might delay the processing of the Bill. In particular, he had concerns about the possible consequential amendments to the Co-operative Banks Act and the Industrial Development Act. He agreed that the Committee must officially inform the Speaker of its decision. He asked Ms Halley-Starkey to provide further clarity.

Ms Halley-Starkey agreed that the Committee would have to submit a memorandum to the Speaker explaining the reasons why the Committee Bill will not be proceeded with. The Committee's Content Advisor had drafted a policy document, but there has not been a Bill presented to the Committee in the form of a Committee Bill. She will assist the Committee’s Content Advisor in drafting the memorandum.

She advised that Mr Gumede’s concerns about the consequential amendments are a technical aspect that will be dealt with when deliberations on the Bill take place. At this point, the Committee had not yet immersed itself in the content of the Bill and had not yet engaged with civil society.

The Chairperson agreed with Ms Halley-Starkey that the consequential amendments would be dealt with during deliberations on the Bill.

Mr Gumede said that the Committee’s Secretary could provide guidance on the process plan which will be presented to the Committee next week, as per Mr Jacobs’s suggestion.

Mr Kunene said that a process plan will be drafted given that the Committee decided to proceed with the Executive Bill and will advertise the Bill for comment. The duration for advertising the Bill is 30 days. The progress plan will specify the timeframes of what should happen after the Bill is published for comment.

Consideration of minutes

The Committee considered and adopted its minutes of 30 August and 6 September 2023.

The meeting was adjourned.