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  1. PRESENTATION TO THE PORTFOLIO COMMITTEE Thakhani Makhuvha Chief Executive Officer 5 March 2013

  2. Presentation Outline Overview and Background Cost Effectiveness Board Overview Management and Staffing Staff Complement Human Capital Short Term Initiatives Organisational Framework Mandate Vision, Mission and Values Target Market Targeted Group funding Strategic Objectives Products and Services Financial Management Performance Overview Operations: Wholesale Lending Operations: Direct Lending Funding and Pricing Strategy Strategic Considerations Delivery Network

  3. Overview and Background Motivation for the establishment of sefa • The New Growth Path outlines the need to achieve alignment of small business finance entities in order to improve impact on job creation and responding to inequality • Previous agencies were fragmented and had limited success in fostering a strong and large SMME sector • Challenges faced by small businesses in accessing finance from the banking sector • Poor uptake of Khula and samaf products as wholesale entities and the need to take forward direct lending as a new product • Poor visibility of government finance entities among small businesses • Duplication of services between Khula and samaf • Cost of delivering financial services to SMMEs

  4. Overview and Background (cont) Establishment of sefa • Cabinet support for an integrated approach • sefa was established on 1st April 2012 as a wholly owned subsidiary of IDC (merger of samaf, Khula and the small business activities of the IDC) • Established in terms of IDC Act • Shareholder compact between IDC and EDD incorporates sefa • sefa’s Corporate Plan informed and guided by a number of Legislative and Policy Prescripts (e.gNew Growth Path, Outcome 4 and other National Imperatives and legislation)

  5. Cost Effectiveness • The merger will result in cost savings in terms of overheads such as office space both at head office and regional level • Efficiency improvements as a result of the relationship with the IDC for e.gsavings on Internal Audit costs, centralized procurement and sharing of regional office space • Maximization of Interest received on surplus funds as no management fees are paid to the IDC • Cost containment measures such as restrictions on venue hire for meetings, strict rules on travel etc. • Scaling up of disbursements • The above measures will, amongst other things, result in the decrease of cost to disburse as well as the decrease in the cost to income ratio • At the end of the 3rd Quarter 2012/13 it cost sefaR1.50 to disburse one Rand. This is an improvement when compared to the 1st quarter cost of disbursement of R2.00

  6. Organisational and operational issues since the merger • Organisational redesign to support direct lending and ensure continuity of the merger of the work of samaf and Khula • Structure and staff appointments were delayed due to protracted union negotiations • CEO appointed in November 2012 • Support for change management in the organisation and settling down of the institution and focus on delivery • Support from the board to develop a coherent and long-term vision to sustainably provide access to finance to SMMEs • Recognition of the important role of the institution in addressing the financing gap for SMMEs • Focus on improvement of systems to provide reliable data • Inadequate attention to marketing of the entity being addressed • Establishment of partnerships with key business communities

  7. Board Enterprise Risk Committee Audit Committee HC & Remuneration Committee Wholesale Investment Committee Direct Lending Committee Board Overview • Board • Ms SM Rensburg (Chairperson) • Mr TR Makhuvha (CEO) • Mr M Ferreira • Mr IAS Tayob • Ms HN Lupuwana • Members • Mr VG Mutshekwane • Ms BP Calvin • Mr GS Gouws • Ms K Schumann • Mr LB Mavundla • S A Molepo

  8. Management & Staffing Executive Manager: Direct Lending Executive Manager: Wholesale Lending CFO CEO Chief Risk Officer Executive Manager: Human Capital sefa Board Company Secretariat Head Internal Audit Head HR Head Risk Management Head of Direct lending (South) Head Financial Accounting Head Stakeholder relations & Communication Head : Micro Finance Wholesale Senior IR Specialist Head Legal Services Head of Direct lending (North) Head Management Accounting Head of Retail (South) Head : SME Wholesale Head IT Senior L & D Specialist Head Workout & Restructuring Head Supply Chain Management Head : Post Investment Monitoring Head : Post Investment Monitoring Business Planning & Strategy Manager Facilities Specialist Product Specialist Co-operative Specialist Property Co-ordinator/ Specialist Capacity Support Specialist Total Headcount – 6 Headcount : 22

  9. Staff Complement

  10. Human Capital Short Term Initiatives • Fill all key vacancies • Develop and implement a robust performance management system • Develop and institutionalise Human Capital policies, processes and procedures • Establish compliance forums (Employment Equity, Training, Health and Safety committee etc.) • Develop and implement a change management programme targeted at creating a customer centric and performance driven culture • Develop and implement employee engagement strategy • Negotiate the new conditions of employment • Sign recognition agreement with labour • Develop and implement a training plan for improved performance • Enhance the Human Resource Information System e.g. VIP • Implement head office security measures in accordance with the risk security assessment

  11. Customers SMMEs and Co-operatives Organisational Framework R500 R5m sefa’s Regional Offices, RFIs, MFIs, FSCs, Commercial Banks, Specialised Funds, Provincial Development Corporations (PDCs), Post Office, & Post Bank DistributionChannels • Direct Lending Products • Working Capital loan • Asset finance • Term loans • Revolving loan • Bridging loan • Short-term trade finance • Wholesale Financing • Business Loans – (RFIs/MFIs/FSCs/FIs) • Joint Ventures/Equity Funds • Credit Guarantee Scheme • Land Reform Empowerment Fund • Capacity Building Services • (RFIs/MFIs/FSCs/FI’s)- Institutional Strengthening • Pre and Post loan mentoring Product Portfolio Corporate Governance Board of Directors, sefa Management, Risk & Compliance, Credit Controls, Audit & fraud prevention and Legal Enabling/Support Human Capital Management, IT Systems, Stakeholder Relations & Communications, Finance and Procurement sefa’s values: Kuyasheshwa, Passion for development, Integrity, Transparency, Innovation Mission: to provide simple access to finance in an efficient and sustainable manner to survivalist, micro, small and medium enterprises throughout South Africa. Vision: To be the leading catalyst for the development of sustainable Survivalist, Micro, Small and Medium enterprises through the provision of finance.

  12. Mandate Overarching Mandate To promote the establishment, survival and growth of SMMEs and thus contribute towards poverty alleviation and job creation. Legislative Mandate “To foster the development of Small and Medium Enterprises and Cooperatives;” as stipulated by the IDC Act s(3)(d).

  13. Vision, Mission and Values Vision To be the leading catalyst for the development of sustainable Survivalist, Micro, Small and Medium enterprises through the provision of finance

  14. Vision, Mission and Values Mission Our mission is to provide simple access to finance with support, in an efficient and sustainable manner to survivalist, micro, small and medium enterprise across the country: • Providing finance to small businesses on a wholesale and direct basis • Providing credit indemnity and guarantee facilities • Supporting the institutional strengthening of financial intermediaries so that they can be effective in assisting small businesses • Creating strategic partnerships for sustainable small business development and support • Monitoring the effectiveness and impact of finance provision, credit guarantees and capacity development in the small business sector • Developing (through partnerships) innovative finance products, tools and channels to catalyse increased market participation in the provision of affordable finance to small businesses

  15. Vision, Mission and Values Values sefa’s guiding principles for decisions, activities and behaviour are: • Kuya sheshwa! Speed and urgency • Passion for development: Solution-driven attitude, commitment to serve • Integrity: Dealing with clients and stakeholders in an honest and ethical manner • Transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all stakeholders • Innovation: Continuously looking at new and better ways to serve our customers

  16. Target Market sefa’s target market consists of small businesses that have been failed by the existing formal banking and finance sector. These include: • Survivalists and microenterprises – those requiring loans of anything between R500 and R50 000 • Small enterprises – loans between R50 000 and R1 000 000 • Medium enterprises – loan between R1 000 000 and R5 000 000

  17. Targeted Group Funding • 30% of funding disbursed targeted towards youth-owned enterprises. • 45% of funding disbursed targeted towards priority rural provinces. • 40% of funding disbursed targeted towards women-owned businesses, progressively increasing in subsequent years. • 70% of funding disbursed targeted towards black-owned businesses.

  18. Overall Strategic Objectives The strategic objectives of sefa are to: • Increase access and provision of finance to small businesses and thereby contribute towards job creation. • Develop and implement a national footprint for effective product and service delivery. • Build an effective and efficient sefa that is a sustainable performance driven organisation. • Build a learning organisation . • Build a sefa that meets all legislative, regulatory and good governance requirements. • Build a strong and effective sefa brand emphasizing accessibility to SMMEs

  19. Strategic Objective 1 Increase access and provision of finance to SMMEs and thereby contribute towards job creation Immediate Priorities: • Continuously identify small businesses that require funding • Conclude transactions in the pipeline to increase SMMEs accessing sefa funding • Design institutional strengthening and business support programmes • Pre-loan support (e.g. seda, Mpumalanga Economic Growth Agency , Gauteng Enterprise Propeller) • Business Support Centres (e.g. SAICA Business Hubs, Shanduka Black Umbrella) • More intensive training of staff (especially in direct lending) • Conclude and implement agreements with private and public sector partners • Funding of small business opportunities arising out of IDC projects • Procurement opportunities (e.g. SOEs, government departments)

  20. Strategic Objective 1 (cont) Increase access and provision of finance to SMMEs and thereby contribute towards job creation Medium to Long Term Priorities: • Extend footprint • Manage growth in the number of businesses financed • Extend partnerships to other provincial governments, government agencies, community based organisations and private sector.

  21. Strategic Objective 2 Develop and implement a national footprint for effective product and service delivery Immediate Priorities: • Complete merging of 2 regional offices by the end of March • Capacitate all offices for direct lending through staff training and strengthening lending systems • Use our partnership network to extend market reach Medium to Long Term Priorities: • Establish 48 Branch and Satellite offices in order to cover all districts leveraging on the Post Office/Post Bank network (roll-out over a 5 year period)

  22. Strategic Objective 3 Build an effective and efficient sefa that is a sustainable performance driven organisation Immediate Priorities: • Conclude corporate balanced scorecard aligned to the Corporate Plan • Signed performance contracts for all staff aligned to the Corporate Plan • Continue to build organisational culture geared to delivering on the Corporate Plan • Continue to up-skill staff • Develop the sustainability model of sefa • Continue to analyse the cost driving activities and increase efficiency • Improve customer service Medium to Long Term Priorities: • Analyse the cost driving activities and improve operational efficiencies

  23. Strategic Objective 4 Build a learning organisation Immediate Priorities: • Integrating systems and processes to build internal capability • Develop knowledge management resources • Consolidate the available local and international SMME research • Establish R&D capacity and capability to service market needs Medium to Long Term Priorities: • Enhance R&D capacity and capability to service market needs • Talent management and succession planning

  24. Strategic Objective 5 Build a sefa that meets all legislative, regulatory and good governance requirements Immediate Priorities: • Appointment of the Chief Risk Officer • Regularise the enterprise risk environment - all policies, systems and procedures Medium to Long Term Priorities: • Maintenance and the monitoring of corporate governance and compliance through the Chief Risk Officer

  25. Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs Immediate Priorities: • Sign off of the communication plan and media policy • Implement and roll out of brand awareness campaign • Media campaign of products and services Medium to Long Term Priorities: • To build a strong and prominent brand

  26. Products & Services: Wholesale Lending

  27. Products & Services: Direct Lending

  28. Products and Services: Non Financial Services

  29. Performance Overview

  30. Statement of Comprehensive Income for the period ended 31 December 2012

  31. Statement of Financial Position as at 31 December 2012

  32. Performance Overview

  33. Performance Overview

  34. Performance Overview

  35. Performance Overview

  36. Current Approvals per Business Area

  37. Current Disbursements per Business Area

  38. Operations: Wholesale Lending

  39. Wholesale Division: Key Operational Activities • Finalisation of placements and appointments of key staff • Review of wholesale strategy • Joint Ventures: markets and sectors • Retail Financial Intermediaries: National reach • Micro Finance Institutions: New approach • Co-operatives: Develop to market needs • Stokvels: New development • Communication and engagement with wholesale client base • New initiatives – Local Enterprise Fund (Dti initiative) • Finalisation of ‘Product and Services Matrix’ • Review and consolidation of credit policy, procedure and process • Consolidated reporting – PIM • Target setting and monitoring • New Product Development • Working Capital Funding: Revolving Credit Facility • Credit Indemnity scheme

  40. Wholesale Division: Current Pipeline • Joint Ventures • Godisa Supply Chain Fund” R50m • Retail Intermediaries • Capital Harvest Emerging Farmer Finance (Pty) Ltd R100m • CapX (Pty) Ltd R30m • Microfinance Intermediaries • Mazwe Financial Services (Pty) Ltd R50m • Small Enterprise Foundation R30m

  41. Wholesale Division: SNF Enterprise Development Trust Fund • Creation of R1 billion rand fund • Three initial investors – sefa / NAFCOC / FABCOS • 50:25:25 • R120 m initial investment • R400 total commitment • Donations – Indonesian Government R400 m (MOU) • Trust Deed / Investment Guideline / Fund Management Agreement • Finalising of Business Plan and Economic Model • Obtaining approval of fund by Master of High Court • Appointment of Fund Manager – February 2013 • Roll-out planned – March 2013

  42. Wholesale Division: Challenges • Financial and economic model for wholesale division • Pricing and fees • Single IT platform • Loan management • Customer Management Relationship (CMR) • Institutional strengthening capacity • Research capability • Inculcate performance management culture • Credit Indemnity Scheme re-launch • Co-operatives • Stokvels • New development

  43. MFI Wholesale Portfolio

  44. SME Wholesale Division Portfolio

  45. Co-Operatives Support The following will be undertaken to support Co-operatives: • Set a target on the number of co-operatives to be supported and value to be disbursed • Set clear outcomes in terms of the support provided • Benchmark internationally including drawing on other African states • Provide capacity building support and mentorship to Co-operatives.

  46. Operations: Direct Lending

  47. Direct Lending: Short Term Initiatives • Appoint Executive Manager: Direct Lending • Fill all key vacancies • Improve customer service rating • Implement simpler loan and approval processes (e.g. forms, contracts) • Improve turnaround times with regard to processing of applications • Enhance the IT functionality to improve processes. • Introduce credit scoring to align the pricing of products • Co-locate regional offices with IDC and other DFI’s to enhance cost efficiencies • Training of employees to deal with retail lending and client services • Launch and roll out of business support (e.g. SEDA and SAICA) • Leverage off IDC’s mega projects to create spin offs for SMME funding • Launch of guarantee product

  48. Direct Lending: Product Take-Up and Activity Levels • Direct lending activities are dominated by short term bridging loans • The above mainly provide good liquidity but very minimal developmental impact and balance sheet strength • The programme is gradually making inroads into term loan facilities • Regional offices are recording a decent number of enquiries • The level of rejections can be attributed to lack of understanding of sefa’s role by the market • Direct lending model is a new business model within sefa • Currently no aggressive marketing is taking place • The merger process has an effect on staff morale • Post Quarter 3, approvals to date amount to R74m and disbursements amount to R25m • Management of disbursements remains a challenge

  49. Direct Lending: Product Take-Up and Activity Levels • Enterprise operating in rural areas need to be given some attention. • Currently negotiating with strategic partners who can add value in achieving desired impact • The relationship with the IDC will contribute in achieving the required development impact. • Direct Lending has potential to be used as a vehicle to deliver developmental impact for sefa • Development impact for people with disability is under consideration

  50. Direct Lending: Current Pipeline