SEFA 2020/21 Annual Performance Plan; with Deputy Minister

Meeting report

Mr Martin Mahosi , Chairperson: Small Enterprise Finance Agency (SEFA), said the entity was a wholly-owned subsidiary of the Industrial Development Corporation (IDC). It derived its legislative mandate from the IDC Act No. 22 of 1940 (as amended 2001), and reported to the Department of Small Business Development (DSBD).

SEFA’s  operating model made provision for financing and business support directly to small, Medium And Micro Enterprises (SMMEs) and co-operatives through its regional office network and indirectly through its partnership with intermediary financial institutions such as Retail Finance Intermediaries (RFIs), Microfinance Institutions Funds (MFIs), Joint Ventures (JVs) and Co-Operative Financial Institutions (CFIs). It had a property portfolio with 53 properties across the country. In these properties, small businesses had access to business premises at discounted rates. There were identified properties that were in the market for the entrepreneurs to buy, with the current occupants having the opportunity to buy.

During the 2019/20 financial year, SEFA had implemented a number of strategic initiatives aimed at enhancing organisational efficiencies, improving its loan programme accessibility and outreach, as well as collaborating with other organisations to improve support services to SMMEs and co- operatives.

The SEFA management team recognised the need to balance the contradictory and sometimes competing priorities that came with meeting the unlimited demands of the organisation’s mandate while deploying limited fiscal resources. This implied that SEFA exercised critical care in taking key organisational and programme  decisions, making the necessary trade-offs and solving long-standing dilemma issues that would improve SEFA’s impact and sustainability over the medium Term Expenditure Framework (MTEF) period and beyond.

SEFA had also introduced a payment holiday plan in order to support spaza shops during the COVID-19 pandemic lockdown, because they were affected. This was to help with the cash flow of businesses and survival of the spaza shops.

The achievement of SEFA’s strategic objectives was directly dependent on various Information Technology (IT) services, without which its core and supporting functions would not be able to operate. These services were delivered fit-for-purpose by identifying and implementing technology that improved efficiency through the provision and maintenance of a sound network infrastructure, appropriate user IT innovations, and user-friendly Management Information Systems (MIS), as and when required. The division also strives to continuously improve access to professional services, technical support, Information Communication Technology (ICT) resources, tools and skills.

SEFA needed to intensify its brand presence and awareness in targeted customer segments across the townships and rural areas. This would be achieved through local brand building campaigns which would cross-sell SEFA products to the various customer segments. The campaigns would be focusing on generating awareness for the products by allowing the SMMEs and cooperatives to interact directly with brands in order for the existing and potential clients of SEFA products to touch and feel the brand. The below-the-line strategy would be deployed in order to achieve a high reach but cost-effective approach to reaching out to clients. This would be executed through various programmes including, but not limited to, sponsorships, exhibitions and brand activation.

SEFA was also looking at creating around 980 to 1 000 jobs in the five-year period as a way to reduce unemployment in the country. Every second year there was a human capital survey so as to maintain jobs. There was support for people with disabilities, women and those in rural areas.

Discussion

Mr H Kruger (DA) said that the footprint of SEFA in the rural areas needed to be worked on, and people with disabilities needed to be assisted. Feedback to SMMEs applying for relief funds had been a general one, and more information was required. Were they sending a generic response to the SMMEs that had applied for relief?

Ms K Tlhomelang (ANC) asked how many spaza shops had received assistance from SEFA, and if there was a provincial breakdown of the statistics. Did it have alternative methods to generate revenue, because they were giving payment holiday to SMMEs? Were there categories of SMMEs which benefited from the payment holiday plan, because not all SMMEs would require assistance?

Mr H April (ANC) said it was good to see that SEFA had been working during this lockdown. He asked about the direct lending, which was pegged at a minimum of R50 000, while for indirect lending it was R500. He asked if the people who had made applications to SEFA for financial assistance before the outbreak of COVID-19 pandemic were still in a position to receive assistance. Lastly, he asked if there were any SEFA programmes that had been affected by the pandemic.

Mr E Myeni (ANC) asked how far SEFA had gone in establishing district offices in all the provinces, and what its plan was to assist informal businesses.

Ms M Lubengo (ANC) asked about the loan programme strategy, especially SEFA’s reference to micro lending. What special measures did it have for people in the rural areas?

Mr F Jacobs (ANC) asked about fraud in the system, and how SEFA would ensure that the relief fund would benefit the intended beneficiaries. He asked SEFA to elaborate on the partnership with Nedbank on the spaza grant fund and the conditions of the partnership. Did it have measures in place to avoid double-dipping in the coffers of the entity?

Mr Z Mbhele (DA) asked about the loan guarantee scheme which was announced by the President, and if SEFA had any role in that scheme because many small businesses would be depending on them for funding, and there had been some problems when it came to extending credit to small businesses.

SEFA’s response

Mr Mahosi acknowledged that there were shortfalls, particularly around service areas. It was a work in progress and they were making sure that they responded to the township market. They were confident that going forward they would have positive feedback.

There were three areas that they needed to work on, which included making sure that the product was properly packaged and promoted. There was a matter at court about how to handle the entity’s black economic empowerment (BEE) status, adding that there was confusion that once one cites BEE, it meant the exclusion of those who were not BEE compliant. Mr Mahosi clarified that there was no way, in respect of applications, that SEFA could tell people they were not BEE compliant, and that they must operate in line with the government framework.

COVID-19 was not only about the general impact on businesses, but it had reversed the gains that had been achieved through transformation and it would be irresponsible for policy makers to continue as usual and act like nothing had been affected. The reality was that the same funding was going to benefit historically-affected businesses, and SEFA goes out with the mindset that South Africans share a different history and privileges, yet they are all enterprises suffering from COVID-19.

He said there were issues that had to do with location and infrastructure, which continue to be barriers to those with small businesses.

Responding to the question of the generic responses, Mr Mahosi said that the automated response was to show that the message had been received and they would respond as soon as possible. Since they processed applications every day, they were not in a position to provide the Committee with the exact number of how many applications had been processed to date, but staff would provide detailed feedback.

The issue around the holiday payment plan was difficult, but SEFA had been able to calculate the impact that would be caused by COVID-19. Not everyone qualified for the holiday payment plan --for instance, businesses that had been running well without any effects did not qualify.

SEFA was aware of what was supposed to be done about the disposal of properties. Unfortunately, the board had gone to inspect the property portfolios, but they still had to visit Gauteng, the Free State, the Northern Cape and Mpumalanga. The board believes that there could be an opportunity for a creative intervention that would strengthen the position of SEFA, although there would still be disposals.

When it came to informal businesses, SEFA’s understanding of its formalisation was that it was partly about registration -- but not registration that impeded the ability of a micro enterprise to operate.

On the question about SEFA’s presence, the Small Enterprise Development Agency (SEDA) already had more offices than SEFA. It was looking at ways to use technology in order to reach out to the youths of the country, as they were more conversant with issues around technology. SEFA was positive that the challenge could be tackled.

It had been engaging with the major wholesalers in remote areas so that they could be loaded on to the system in order to make it easier to service spaza shops. SEFA was open to receiving information from Members on how to assist in the outreach programmes.

He said that SEFA had not picked up any fraud issues to date.

Mr Setlakalane Molepo, Chief Executive Officer (CEO), SEFA said that there were measures in place to check that funds were not fraudulently obtained. The entity checks the directors, bank accounts and identity document (ID) numbers to ensure everything is valid, and does not to give funds to people who do not deserve financial assistance.

The spaza support programme was not a grant programme. The spaza shops would access credit through the participating banks so that they could purchase stock from participating wholesalers. Nedbank was the first bank to come with a product that suited the intended purpose of the programme. In order to avoid the misuse of funds, there were no cash withdrawals that could be carried out from a bank card. SEFA was on course to have Standard Bank on board, and had advised ABSA and FNB that once they had a suitable product, they would be able to join the programme. There were ongoing efforts to make sure that there were more wholesalers on board.

The National Credit Act regulated the cost of loans, which meant SEFA was limited to the fees they could charge, and the method used by SEFA was highly manual which made it more expensive. The cost to deliver loans was too high.

Ms Shoki Ralebepa, Chief Financial Officer (CFO): SEFA, responded on the issue regarding the entity’s financial stability. She said it was likely to lose approximately R140 million in terms of their cash flow. Payroll and staff costs were going to increase in the next five years, and there was going to be a need to hire more staff -- the spaza programme, for instance, as it was going to run for a period of five years.

Ms Rosemary Capa, Deputy Minister, Small Business Development, said she was satisfied with how the questions had been answered by SEFA. The issue of BEE could not be an issue of one department only -- there was a need for all departments to work together.

The meeting was adjourned.