Department of Small Business Development, Small Enterprise Finance Agency, Small Enterprise Development Agency briefings on mandates and work

Meeting report

Department of Small Business Development: General briefing on mandate and programmes, Lindokuhle Mkhumane, Director General, Department of Small Business Development, briefed the Committee on the mandate and programmes of that Department (also referred to as DSBD). He explained that the Department aims to lead an integrated approach to the promotion and development of small business and cooperatives through a focus on the economic and legislative drivers that stimulate entrepreneurship to contribute to radical economic transformation. The Department worked under three programmes.

1. Administration: Providing strategic leadership, management and support services to the  Department (DSBD Ministry, Office of the Director General, Corporate Services).
2. Cooperatives development: Implementation of new support model for cooperatives, including the implementation of the Cooperatives Act and the establishment of a Cooperatives Development Agency and Tribunal. Work within this programme includes support, develop and financial incentives for the mining, manufacturing, agro processing and services sectors.
3. Enterprise development and entrepreneurship: The programme offers centres for entrepreneurship, support for business development to women, youth and people with disabilities. It also facilitates informal business and chamber support, public procurement, co-location and capacity building and red tape reduction.

Mr Mkhumane noted that the DSBD programmes are unlocking the potential of SMMEs, cooperatives, township and rural enterprises. Some of the key actions that are being undertaken include public sector procurement, building access to private sector value chain, access to finance, support to township and rural enterprises, and dealing with the policy and regulatory environment. In terms of the Department's financial support instruments, the DSBD offers the following:
- Black Business Supplier Development programme (BBSDP) for the youth and women
- Cooperative Incentive programme (CIS)
- Share Economic Infrastructure Facility (SEIF)
- Informal and Micro Enterprise Development programme (IMEDP)
- Emerging Enterprise Development programme (EEDP)

Small Enterprise Finance Agency (SEFA) briefing
Mr Thakhani Makhuvha, Chief Executive Officer, Small Enterprise Finance Agency, presented the Committee with the SEFA strategic plan. He explained that SEFA aims to help fund all start-up business activities, particularly in sectors of ICT, mining, manufacturing, agriculture and tourism. The way in which SEFA differed from other institutions was in its appetite for risk, in exchange for high developmental impact in the community and the country. It provided a capital and/or interest moratorium for up to 12 months, and specifically concentrated on the funding of Small Medium and Micro Enterprises (SMMEs), the provision of pre and post loan for business support, funding for entrepreneurs with adverse credit records, and the programmes had a specific focus on youth-owned business support. As a result, SEFA has created different models to help cover the different needs of the start-up businesses:

SEFA financial instruments included: 
1) Direct Lending: by way of the following:
- Bridging Loan: for short term loans for contracts with either the public or private sector.
- Term Loan: for long term contracts, mostly for executive business activities.
- Asset-based finance: for contracts that could be secured by accounts receivable, inventory, machinery, equipment and/or real estate.
- Revolving Credit: available for past approved clients with new contracts.
2)  Wholesale Lending: SEFA provided
- facilities ( debt/equity) to intermediaries
- joint venture
- partnerships ( Specialised Funds )
- a credit indemnity scheme (insurance that SEFA offered to banks in order for them to lend money to small business development) 
- other collaborative relationships to extend SEFA’s reach of making funding available to small businesses across South Africa.

The SEFA funding model was designed to meet the needs of start-up businesses. It would finance the following:
- Survivalists and micro-enterprises – loans between R500 and R50 000
- Small Enterprises - loans between R50 000 and R1 million
- Medium enterprises – loans between R1 million and R5 million

He explained that therefore SEFA strives to be a leading catalyst for the development of sustainable micro, small and medium sized businesses, through the provision of finance, geared towards correcting market failure and crowding-in the private sector. In addition, SEFA seeks to redress funding gaps for SMMEs ranging from R500 to R5 million, expand partnerships and consolidate existing efforts, and ensure that SMMEs across all the provinces would have access to finance.

Small Enterprise Development Agency (SEDA) briefing
Mr Sipho Zikode, Chief Executive Officer, Small Enterprise Development Agency, presented the strategic plan of the Agency (SEDA) to the Committee. SEDA’s mission is to develop, support and promote small enterprises throughout the country, ensuring their growth and sustainability, in co–ordination and partnership with various role players, including global partners, who would make international best practices available to local entrepreneurs. Some of the programmes that are offered at the moment include:
- The Gazelles Enterprise Accelerator Programme
- Basic Entrepreneurial Skills Development
- Access to Markets, Mentorship and Coaching
- Supplier development
- Cooperatives Support
- One-Municipality One Product
- Training on National and International Standards
- Manufacturing Support Programme.

SEDA programmes tried to cover the major points that were needed by the micro enterprises, very small enterprises, small enterprises and medium enterprises. Most of the time, the micro enterprises were barely surviving in the system, as they tended to have very limited technical and business skills and no more than five employees. The idea is to help these micro enterprises evolve into a medium enterprise, by providing them with the chance to gain more technical and business skills, so that more people could benefit from the enterprises creating job opportunities.

Discussion
Mr W Faber (DA, Northern Cape) commented on the necessity for the Agencies to present percentage figures to the Committee in respect of the loans that were/are being granted to small business, and the percentage success they had in getting loan money back.

Mr B Nthebe (ANC, North West) asked both SEFA and SEDA to be more specific with their level of impact,and wondered why they had not presented an actual progress report detailing the movement. He wondered if and to what extent people were getting access to markets. He would have liked to have heard individuals' testimonials in regard to the success or otherwise of the programmes. He also said that both SEFA and SEDA should have set out their challenges. He asked for more detail on how the One Product programme worked and who was in charge of identifying such products? Finally he would have liked, along with the challenges, to have heard about the success stories of these programmes.

The Chairperson commented that the Committee had high expectations  of the performance by the DSBD. He agreed with the questions raised by Honourable Nthebe and asked both SEFA and SEDA to clarify their level of impact, to explain the challenges that each was facing and to present real examples of the people that were benefiting from the programme.

Mr J Londt (DA, Western Cape) asked how the budget was being distributed among the different activities that both programmes were running.

Mr Makhuvha answered the questions on behalf of SEFA. The level of impairment (meaning non-performing loans) was 22%, when viewed as a percentage of the total loans and advances, in 2014. In the current year, 2015, the percentage of these non-recovered loans was at 33%. In terms of the success stories (real examples) he enumerated a long list of examples that included:
- In KZN, Rainbow Poultry Facility was given R45 million for primary agriculture purposes
- In KZN, Cubana Restaurant was given R4.5 million
- In KZN, the Renal Care Team was given R2.7 million for medical purposes
- In Eastern Cape, WP Timber Products was given R5 million for manufacture purposes
- In Eastern Cape, Amadwala Trading Supply & Delivery of Tools was given R5 million
- In Free State, Dog Food was given R1.3 million for agro-processing purposes
- In Free State, Gaaganwe Trading was given R1.8 million for manufacturing purposes
- In Free State, Bloem Organic was given R1.4 million for compost agriculture
- In Gauteng, BT Interior was given R4.3 million for plant vegetation purposes
- In North West, Petroleum Supply was given R5 million
- In North West, Namadox was given R4.5 million for mining purposes
- In Northern Cape, Construction Project was given R163 thousand
- In Northern Cape, Captain DoRegos was given R1.2 million for fast food purposes

These were just some of the examples from the first quarter of the year, in which R2.4 billion had already been invested.

Mr Zikode spoke for SEDA and said that the way SEDA measured impact was by counting the number of direct jobs created. For the last financial year 1 963 permanent jobs  were created. Currently, when considering the Branch Network programme, SEDA has seen an increase in the number of jobs that are being retained as a result of SEDA’s intervention. In terms of the One Product Programme, SEDA works towards identifying a market and then works with the people from the community in developing the product and making it attractive to both national and international markets.

The Chairperson asked SEFA to provide a copy of the e-book where all the success stories are listed, so that the Committee Members could evaluate them one by one and refer to them when necessary.

Mr Faber commented on the problem of the high percentages being paid to the intermediaries for helping small business development. He said that paying out 35% to 40% was too high for small businesses to survive, especially when considering other issues that may come along the way. He highlighted that this had already been raised as a problem in 2011 and that was why he raised the issues again. He asked SEFA how it could regulate the percentage, to keep it down, so that small businesses can create profit and jobs.

Mr S Mthimunye (ANC, Mpmumalanga) commented on the need for SEFA to have a monitoring tool in respect of all programmes and aspects. He wondered why Gauteng was getting a bigger percentage of the budget. He reiterated the need for officials to bring testimonials to the meetings. During the past oversight visits to the field, the Committee heard many stories of people struggling to find funding for their projects. Finally, he remarked that SEFA needed to develop a easier mechanism to choose people who were aiming to be entrepreneurs.  

Mr Londt added that getting through all the registration paperwork still could be an exhausting and hard process for most entrepreneurs, especially as they might have to travel from one place to another in order to fulfil all the requirements. He wanted to know what is being done to make such processes easier and more accessible. He commented on the need to recognise the importance of entrepreneur ideas- not only for business development but for job creation itself.  

Mr Nthebe asked if there was a need to identify the challenges that were being faced by provinces. He felt that the amount of R45 million for the Rainbow Poultry Facility in KZN was very high, especially when considering the project has only created 48 jobs. He added that another of the projects, to which only R1.5 million was invested, had been able to create more jobs that the Poultry Facility. He asked for specifics on why SEFA granted R45 million to the Rainbow Poultry Facility in KZN.

Mr Makhuvha replied that the use of intermediaries is essential to the funding of small business projects. He added that it is one of the few mechanisms that SEFA can implement to ensure development, and in addition to that, working with the intermediaries helped to expand SEFA’s platform. In relation to the question posed in relation to funding to Gauteng, he agreed that this province did get more funding, but this was because more activities are being developed there. In regard to the people that were identified as struggling for funding during the last oversight visit of the Committee, he asked that the Committee should on such visits collect information and pass it on, so that SEFA could implement assistance. Lastly, the reason why SEFA approved R45 million to the Rainbow Poultry Facility in KZN was that the project promised to train the current employees, so that after a time, they will be in a position to be independent and create their own business.

The Chairperson commented on the necessity to establish a mechanism by which Members of the Committee and the provincial structures of the DSBD could communicate more often, as the Committee could not afford more time for more frequent meetings with the DSBD. Judging from the strong points that were raised by the Members there are still a lot of issues that need to be discussed and clarified. He thanked the DSBD, SEFA and SEDA for their presentations, and asked them to ensure that lines of communications remain open.

Minute adoption
The minutes of 1 September 12015 were approved and adopted.

The meeting was adjourned.