Sefa Corporate Plan 2014/15 2018/19 Joint Portfolio Committee Meeting on Economic Development and Small Business Development Thakhani Makhuvha Chief Executive Officer The Small Enterprise Finance Agency 29th July 2014
Introduction The Small Enterprise Finance Agency (sefa) is a development finance institution established in 2012 with a mandate to provide access to finance to SMMEs sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC) and provides funding ranging from R500 to R5 million via the following product / channels: Direct lending (50k R5m) Wholesale SMME financing via retail financial intermediaries (RFIs) 50k R3m Wholesale micro finance loans via micro finance institutions (MFIs) ranging from R500 to R50k Dedicated targeted support and lending to cooperative enterprises and support to Financial Services Co-operatives. 2
Government Small Business Focus Within the context of NGP, IPAP and NDP, sefa and other development finance institutions are mandated to: Increase and expand the demand for goods and services produced by small businesses Continue to enhance efficiencies on support measures provided to SMMEs and cooperatives Ensure active participation of SMMEs in the industrial development programmes Reduce regulatory burden facing SMMEs and Co-ops Re-establish the Marketing Boards and Export Villages to facilitate linkages (both domestic and international) between suppliers and consumers Sector prioritization and promotion of SMME and Co-ops growth and development Upscale and fast-track the development of youth and women-owned enterprises Specifically sefa is tasked to: Improve its value proposition as the primary provider of financial support to SMMEs, in collaboration with other national agencies with small business activities (e.g. IDC, NEF, Land Bank, DBSA) to particularly address market failure. Increase the uptake of its products and services to improve access to finance for small businesses 3
Governance Structure Board Enterprise Risk Committee Audit Committee HC & Remuneration Committee Wholesale Investment Committee Direct Lending BOARD MEMBERS Dr Magwentshu-Rensburg (Chair) Mr TR Makhuvha (CEO) Mr M Ferreira Mr IAS Tayob Ms HN Lupuwana Mr SA Molepo Mr VG Mutshekwane Ms BP Calvin Mr GS Gouws Ms K Schumann Mr LB Mavundla 4
Management Structure sefa Board Company Secretariat CEO Head: Internal Audit Direct Lending EXECUTIVE WHOLESALE EXECUTIVE CHIEF FINANCIAL OFFICER CHIEF RISK OFFICER HR EXECUTIVE Executive in CEO Office 5
Group Ownership Structure Consolidated entities Consolidated Investment subsidiaries Associates Joint Ventures 100% sefa 100% Khula Emerging Contractors Fund 21% Business Partners 50% Anglo American Khula Mining Fund 100% Khula Credit Guarantee 75% Khula Akwandze Fund 49% Utho Capital SME Fund 50% Awethu 100% New Business Finance 100% Identity Development Fund 82% Small Business Growth Trust Fund 40% 65% Enablis Khula Loan Fund Izibulo 75% Khula- Enablis SME Acceleration Fund 7
Financial Position R 000 Group 2014 Group 2013 Total Assets R2,227,194 R2,179,684 Shareholders loan R1,175,521 R944,542 Other liabilities R158,353 R169,941 Equity R893,320 R1,065,201 Total Equity & Liabilities R2,227,194 R2,179,684 8
Portfolio of Assets Composition of total assets - group 100% 80% 2% 5% Other assets 36% 31% Investments 60% 40% 20% 0% 22% 14% 8% 8% 32% 42% 2014 2013 Loans and advances Investment properties Cash and cash equivalents 9
Approvals and Disbursements 2011/12 2012/13 Full Year ex- Khula and ex- samaf Full Year - Actual sefa Approvals R211.1m R439.6m Disbursements R143.0m R198.0m No. of Jobs created 50 103 19 853 No. of SMMEs financed 59 910 28 362 10
Target Market, Products and distribution channels
Target market sefa s target market consists of survivalist, micro, small and medium businesses as defined in Schedule 1 of the National Small Business Act of 1996 (as amended in 2004) with specific focus on: Services (including retailing, wholesaling and tourism); Manufacturing (including agro-processing); Agriculture (specifically land reform beneficiaries and micro-farming activities); Construction (small construction contractors); Mining (specifically small miners). Survivalists and microenterprises loans of between R500 and R50 000 Small enterprises loans between R50 000 and R1 000 000 Medium enterprises loans between R1 000 000 and R5 000 000 12
Products and Services DIRECT LENDING Working capital facilities Revolving loans Bridging Finance Term loans Asset finance WHOLESALE LENDING On-lending Facilities Credit Indemnity Schemes Land Reform Empowerment Loan Equity/Specialised Funds NEW PRODUCTS UNDER CONSIDERATION Performance Guarantees Supplier Guarantees Loan payment facility guarantees INSTITUTIONAL SUPPORT Institutional Strengthening Technical Support Rental Property 13
16 Micro-Finance Intermediaries 6 Retail Finance Intermediaries 3 Partnerships * 9 sefa Regional Offices 3 sefa Branch Offices 10 Cooperative Offices Our Footprint * * * * * 8 Specialised Funds * * * 14
Co-operatives Products & Services PRODUCTS AND SERVICES Financial Products sefa offers the following products and services: Business Loans/On-lending funds Institutional strengthening to Financial Co-operatives Mentoring to co-operatives funded through direct lending. Direct Lending Business loans up to R5 million to all types of co-operatives except Financial Co-operatives. ( Financing products: bridging loan, term loan, project loan) Non-Financial support sefa does not offer these services but are offered by the following government agencies: CIPC- responsible for registration of co-operatives CBDA- responsible for regulating and supervising Financial Cooperatives including Co-operatives Banks SEDA-responsible for business support and training of co-operatives( this function to be taken over by CDA when it becomes operational) FUNDING MODEL- CHANNELS Wholesale Lending On-lending loans to Financial Co-operatives (FC) subject to 15% cap on external credit but the FC may apply for exemption from CBDA supervisor. R500,000 capacity-grant to start-up Financial Co-operatives to acquire systems,equipment,software and training. The following are not provided for under this scheme: Stipend/ Salaries, Office Furniture and Rental. CIPC Companies and Intellectual Properties Commission, CBDA Co-operative Bank Development Agency, SEDA Small Enterprise Development Agency; CDA Co-operative Development Agency; BOD Board of Directors
We do business with: South African citizens and permanent residents owned enterprises Legally registered entities including sole traders with a fixed physical address Applicants must be within the required contractual capacity All business operations must be operated within RSA; The enterprise must be compliant with generally accepted corporate governance practices appropriate to the client s legal status Have a written proposal or business plan that meets the requirements of sefa s loan application criteria Demonstrate the character and ability to repay the loan Have provided personal and/or credit references (if available) Majority shareholder must be owner manager of the business Where available, client provides relevant securities/collateral Businesses with a valid tax clearance certificate 16
What makes sefa different Provision of capital and/or interest moratorium (Payment Holiday) up to 12 Months High appetite for risk in exchange for high development impact Financing SMMEs including start up businesses that are often perceived as high risk Addressing the financing gap for loans below R500k Provision of pre and post loan business support Provision of funding to entrepreneurs with adverse credit records provided they can demonstrate active remedy of their indebtedness Lending not solely based on security backing long term sustainability potential Specific focus on youth owned businesses 17
What we need when applying 18
Pricing Methodology & Model Included in the final price are: A margin to cover the fixed and variable operating costs of the sefa; An unexpected loss charge to provide cushion in the event of unexpected losses and to allow for minimum growth in capital; A loan risk premium to compensate for the risk of default A rebate for desired development Impact. Risk margin (Premium) Development discount Base Rate or Hurdle Rate, which includes the cost of funding and operating costs 19
Our Distribution channels sefa Funding Model sefa Direct Lending sefa Wholesale Lending Credit Guarantee Schemes R50k to R5m Finance Intermediaries: (Cooperatives, Joint Ventures & Funds, Retail Finance Intermediaries) SME Funding Formal registered financial institutions (e.g. FNB, ABSA, Standard Bank, Nedbank, etc) R500 to R50k R50k to R5m Up to R5m SMMEs can access sefa funding solutions through any of the above channels 20
Risk Management Strategy 21
2014/15 Strategic Focus STRATEGIC OBJECTIVE/ ENABLER Increase access & provision of finance to SMMEs through a national footprint & contribute to job creation STRATEGIC GOAL STATEMENT Expand Direct Lending through partnerships Expand access to Micro Enterprise Finance Stronger partnerships with RFIs in SMME wholesale finance Increase utilisation of guarantee indemnity scheme by commercial banks KEY PERFORMANCE AREA Enable SMMEs to access finance & development impact Improve & maintain turnaround times for approvals KEY PERFORMANCE INDICATOR Approvals Disbursements KEY PERFORMA NCE TARGET R974m R800m Development Impact: SMMEs financed 37 758 Overall jobs created 57 255 Disbursements to Youth owned 30% Rural provinces 45% Women 45% People with disabilities 2% Black-owned 70% businesses Facilities <R250k 40% Approval in productive 20% industrial Number of day: bridging 10 finance Number of days: term 20 loans 23
2014/15 Strategic Focus STRATEGIC OBJECTIVE/ ENABLER Build an effective & efficient sefa that is a sustainable performance drive organisation STRATEGIC GOAL STATEMENT Create, develop & retain a dynamic human capital with values and culture aligned to mandate Build an effective sefa with robust & efficient business processes, systems & infrastructure KEY PERFORMANCE AREA Inculcate a culture of high performance to achieve the mission of sefa Functional, innovative & robust IT infrastructure & reliable MIS to measure performance & development impact KEY PERFORMANCE INDICATOR Formal performance reviews conducted KEY PERFORMANCE TARGET 2 reviews/year Critical systems uptime 99% availability Adequate & reliable 99% compliance reporting Interactive website & Online mobile technology to applications clients e.g. sms alerts streamlined Build a financially sustainable & viable sefa Maintain cost efficiency & profitability FY end profitability ratio %: Cost to income ratio 164% (excl grants) Impairment provision through income statement 25% % of bad debts to book 30% Growth of loan book 122% Growth interest & admin fees 49% 24
2014/15 Strategic Focus STRATEGIC OBJECTIVE/ ENABLER STRATEGIC GOAL STATEMENT KEY PERFORMANCE AREA KEY PERFORMANCE INDICATOR KEY PERFORMA NCE TARGET Build a sefa that meets all legislative, regulatory & good governance requirements Ensure an effectively governed and compliant organisation Enterprise-wide Risk Management Risk framework & policies Annual review Quantifiable & defined risk appetite levels Approved by Board of Directors (BOD) Build a strong & effective sefa brand emphasizing accessibility to SMMEs Effective marketing & promotion programme to communicate product offering Improve customer experience Improve outreach to partners, stakeholders & SMMEs CRM system developed System developed % increase in customer satisfaction levels Number of events 3 Number of roadshows 6 60% 25
Corporate Targets 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 APPROVALS R815m R974m R1 229m R1 439m R1 708m R1 709m DISBURSEMENT R737.5m R642m R865m R1 011m R1 189m R1 327m NO. OF JOBS CREATED 18 311 57 255 79 255 92 420 114 085 118 566 NO. OF SMMES FINANCED 15 129 37 758 53 001 77 157 77 325 80 431 26
Corporate Targets - Approvals PRODUCT 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 DIRECT LENDING R370m R485m R563m R630m R690m R725m RFIS AND FUNDS R285m R330m R415m R470m R590m R698m CO-OPERATIVES R20m R6,4m R8,6m R10,8m R16m R21,2m MICROFINANCE R140m R153m R243m R329m R412m R265m TOTAL R815m R974m R1 229m R1 439m R1 708m R1 709m 27
Corporate Targets - Disbursements PRODUCT 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Direct Lending R348m R388m R450m R522m R586m R616m RFIs and Funds R293m R181m R299m R333m R421m R506m Co-operatives R12m R2,9m R4,3m R5,4 R8m R10,6m Microfinance R84m R71m R112m R151m R174m R195m Total R737m R642m R865m R1 011m R1 189m R1 327m 28
Development Impact AREA OF IMPACT Facilities disbursed to youth-owned businesses (Youth between ages of 18 & 35) ANNUAL TARGET 30% Facilities disbursed in priority rural provinces 45% Facilities disbursed to women-owned businesses 45% Facilities disbursed to black-owned businesses 70% Facilities less than R250K disbursed to end-users 40% People Living with Disabilities 2% 29
Financial Management 30
Budget base and philosophy Budget and projections are based on the Corporate Plan, mainly driven by the targeted disbursements; Business targets per Corporate Plan remain ambitious with an upward trajectory over the Corporate Plan period; Current organisational capability requires a significant investment in human resources for: Shift in Wholesale investment business strategy; Direct Lending business development, due diligence, credit assessment, post investment business support, collections and work out; Business process renewal focused review and enhancement of critical business systems and processes both from a compliance and efficient service delivery perspective Drive cost containment in line with instructions from National Treasury 31
Income statement R 000 2015 2016 2017 2018 2019 Revenue R165 092 R205 729 R277 397 R359 493 R460 260 Impairments and bad debts Operating expenses Loss for the year before taxation Grants capitalised to shareholders 'loan Surplus after subsidies (R47 648) (R101 365) (R92 805) (R160 464) (R137 382) (R343 825) (R340 134) (R362 172) (R388 890) (R418 393) (R226 381) (R235 770) (R177 580) (R189 861) (R95 515) 242 604 406 397 213 124 225 911 239 466 16 223 170 627 35 544 36 050 143 951 32
Financial Projections INVESTMENTS NET OF PROVISIONS AND IMPAIRMENTS - R'M 1400.0 1200.0 1000.0 800.0 600.0 400.0 200.0 - SME Retail SME Wholesale Micro Lending Equity related investments 2014 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Revenue related Interest from lending operations/ total revenue 48% 66% 75% 79% 83% Treasury investment income/ total revenue 24% 13% 9% 7% 5% Indemnity product Indemnity fees/ total revenue 1% 1% 0% 0% 0% Claims and reserve movement/ total expenses 5% 5% 5% 5% 6% Indemnity fees/ Claims and reserve movement 7% 6% 5% 4% 4% 33
Financial Projections (cont.) 2015 2016 2017 2018 2019 Personnel costs Personnel expenses/ total expenses 44% 44% 45% 40% 42% Personnel expenses/ investments at carrying value 16% 12% 10% 8% 7% Interest from lending operations/ personnel expenses 46% 71% 102% 131% 164% Bad debt provisions and impairments SME Retail bad debt provision % 24% 24% 25% 25% 25% SME Wholesale bad debt provision % 15% 15% 15% 15% 15% Micro Lending bad debt provision % 5% 5% 5% 5% 5% Equity investments bad debt provision % 63% 57% 52% 48% 44% Total bad debt provision % 25% 23% 22% 21% 21% Net loss Loss per year/total assets -18% -14% -8% -7% -3% Investment growth Growth in investments at cost % 23% 29% 21% 25% 18% Growth in investments at carrying value % 27% 30% 22% 25% 18% 34
sefa Contact Details sefa National Call Centre : 0860 007 332 E-mail: helpline@sefa.org.za www.sefa.org.za 35
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