Khula Enterprise Finance Ltd2012-14 Strategy Presentation

Economic Development Parliamentary Portfolio Committee

Venue: Parliament: Cape Town

30th March 2011

1

Khula’s Mandate; Vision & Mission

Overall Strategic Goals

Process of Achieving Goals

Khula’s Strategic Priorities

Khula’s Strategic Priorities and Activities

Key Deliverables

2

Presentation Outline

Mission

Khula’s mission is to provide finance, mentorship services and small business through a network of partnerships and to encourage the sustpremises to SMEs

ainable development of SMEs whilst ensuring that Khula remains financially viable.

Vision

To be the development finance partner of first choice in the field SME development

Mandate

To Address gaps in the SME financing by leveraging private secotr and other development funding for the creation of vibrant SME sector

Khula’s Mandate; Vision & Mission

Overall strategic goals of Khula

To achieve efficiency in delivering products & services - reducing the costs; quicker turnaround times; integrating provision of services; e.g. Non-financial support; etc.

Have higher development impact. – introduction of Khula Direct; effectively utilising the existing capacity of current products & services & delivery platform.

Increase Khula’s outreach: increase in scale – reach out to more SMEs and entrepreneurs (spatial/geographic spread); diversify the source of funding; partnerships with potential funders.

Government’s Priorities in the NGP

Khula will focus its funding on the following sectors as prioritized in the NGP:

Agro-processingMinerals & beneficiationKnowledge economyTourism & creative sectorsThe green economyManufacturingCo-operatives & Social Economy

Key Deliverables

1. Increasing of Funds under Khula’s management in order to increase access

to finance to by SMEs.

2. Integrating the wholesale business model with KD – one Khula.

3. To improve the functioning and effectiveness of the Credit Indemnity Scheme.

4. On-going product & service review to improve performance.

5. Increase Khula’s products & services to black entrepreneurs; people in rural areas; women; and to youth. (designated groups & spatial outreach).

6. Restructure the property portfolio to improve its performance.

7. Restructuring of Operations to realign the products and focus on key growth areas

Key Deliverables (cont...)

8. Implement and roll out KD business model by launching a pilot in two provinces in 2012.

9. Improve credit risk management of the investment lending activities.

10. Investigate and design processes & mechanisms to facilitate deposit-taking as another measure of limiting credit risk.

11. Strengthening Khula’s staff capacity in order to deliver at a high level under the new operating environment.

12. Implementation of policies; procedures; processes; and systems to improve turnaround times; reduce cost of delivery and enhance our credit and risk management.

13. Participate in the merger led by EDD between Khula, Samaf and the IDC’s SME portfolio.

High level performance Targets 2012-141. Increase access to finance to SMEs owned by blacks; women; youth & people in rural areas.2. Focus financing in specific sectors; specific target groups & in specific spatial/geographic areas.3. Improving the IT systems; processes ;policies &operational efficiencies.4. Reducing risk in all lending activities (M&E); strengthen risk management framework5. Position Khula as the cutting edge lender & Premier Player in SME finance.6. Improve staff capacity through training; improve morale & performance.7. Implement Khula Direct.8. Merger of Khula, Samaf and IDC’s SME portfolio

1. R235m approvals & R316m disbursements; create 7214 jobs of which 30% go to Youth.2. 1031 investment loans to SMEs in specific sectors (i.e . green Economy; agro-processing; minerals & beneficiation;; tourism;Etc).3. Reduction in the cost of doing business; quicker; turnaround times; & effective business processes.4. Credit risk managed – reduce clients handed over to loss Control by 5%; explore the possibility of taking deposits through Post bank as a risk reduction mechanism; strategy on risk Management framework & risk register.5. 20% improved rating in media and 90% customer satisfaction6. Capacitate staff through media training – PDPs; 10% LTO; 7 IIPStandard.7. Launch out of Khula Direct pilot project in 2012 FY.8. Complete merger by end of 2012.

Inputs/GoalInputs/Goal2012 - 2014

Outputs/TargetsOutputs/Targets 2011/12

High level performance Targets 2012-14

1. 3126 jobs created – improved quality of life.2. SMEs/Entrepreneurs and employment – Development impact amongst the youth; women; disabled; black-owned SMEs and SMEs in rural areas.3. Improved business processes; efficiencies in costs;

reporting increasing service value to our clients.4. Reduced risk both internally & externally.5. Improved perception of Khula as an SME financier.6. Maximum performance with competent staff that Enables Khula to deliver on its mandate.7. Roll out Khula Direct additional capacity.8. One effective institution that services the SME market

Outcomes/ImpactOutcomes/Impact2012 - 2014

Increasing Access to finance

Increasing Access to finance (Cont..)

Designated Groups & Spatial Outreach

Improving the Credit Indemnity Scheme

Improve efficiencies by offering a portfolio indemnity product linked to specific SME programmes.

Review the rules to support changes aimed at improving efficiency and better risk-sharing.

Khula will increase the product uptake of the scheme by reviewing contracts & pricing matrix – to ascertain that all parties involved benefit.

Extend the scheme to other financiers who are not necessarily commercial banks.

Also invite all other registered commercial banks to participate in the scheme and not only the big four banks.

Fund Manager

Khula’s Partners

1996 -2011 2012 - onwards

Fund Manager

•Khula

•Khula’s Partners & intermediaries Outreach

2011

Increased outreach& impact

2012

Sustainability & increased access

On-going product & service review: Joint Ventures & Funds

Capacity will be built to manage funds internally. Khula will position itself as a preferred SME Fund Manager for both public & private sector organizations.

Towards streamlining of investment & lending Activities

The name Operations will hence change to Investment division in order to reflect the activities of the division.

Improvements in risk management & provision of capacity building support.

Partnership funds e.g.

Khula – Akwandze SOE Fund as part of NGP.

Some products & programmes will be restructured in order to address specific needs in the market – e.g. the credit indemnity scheme.

Restructuring of the Operations Division

Khula will put in place robust; secure; stable and scalable IT applications that are user-friendly - that also reduce the cost of doing business.

These applications will also reduce the turnaround time in producing reports; responding to clients; etc.

Installing good IT infrastructure will also enhance Khula’s credit & risk management.

Improve the IT System & other Operational Efficiencies

Strengthening Risk Management & Compliance

Put effective and strong risk management controls.

Update the risk management framework

Divisional risk workshops will be conducted and divisional risk registers completed.

Risk division is expanded and capacitated to accommodate KD.

Integrate Risk; Finance and Internal Audit (IA) to be involved in monitoring loans & performing reviews with clients

5

Improving Operational Efficiencies

Improve Credit Risk & Management

• Strong risk Management controls.• Updated risk management framework.

• Strategic & divisional risk workshops.

• Divisional Risk register will be completed • and

submitted to the enterprise credit risk committee.

• Capacitating the division with personnel with specialist skills

• Restructured to include Credit approvaland loan monitoring functions.

• Risk; Finance and Internal Audit divisions will monitor loans by performing reviews with clients through the credit committee.

• Reduce loss control hand over clients by 5%

WORKING IN PARTNERSHIP TO MANAGE ORGANIZATIONAL RISK

Risk & Compliance Division Investments Division

Improving & Positioning the Khula Brand

Outreach programme and workshops for SMEs and relevant stakeholders. Primary role of the workshops is raise the image and brand of Khula.

Khula wants to ensure that its rating media coverage improves by 20% and 90% customer satisfaction index.

Khula has set itself a target of reaching out to 3500 SMEs through product launches; SME business sessions and exhibitions.

Position Khula as an SME financier of first choice by implementing a customer relationship management system

Regional Offices

Management of agencies

Front line appraisal

Monitoring

Business Support

Head Office

Strategy, Contracts & SLAs

Credit management

Portfolio Management

Data Management

Agencies

Market intelligence

Deal origination

Client visits

Collections

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Roll out and Implementation of Khula Direct

Khula must be seen as a front runner in the development of SMEs in South Africa

Business plan finalised after a number of iterations Funding approved by National Treasury Head of retail division recruited Credit division created to vet all applications Credit manager secured with over 20 years experience Lending –field staff recruited and undergoing training Call centre staff to assist with volume and directing applications trained IT system for lending in place and functional Credit Policy in place – to be tested and reviewed during pilot 2 branches identified for pilot and the Pretoria branch intimately involved with

planning. Then East London Marketing material in development (e.g. application forms, etc)– ready before

pilot starts Lending process, policies and procedures have been completed Collections capacity in place

Implementation of Khula Direct

deliver simple products that are accessible, easy to execute and structured with realistic pricing that is not prohibitive with fast turnaround times.

grow the retail business through the optimal use of existing infrastructure and partnerships with other institutions. Will gradually expand by establishing a Lending Window in partner’s offices. SEDA and the Post Office could offer such an opportunity.

branding to include the retail business. Direct lending enhances brand visibility for Khula and positions the organisation as a lender that is specifically geared to the SME market; Khula will positively affect market perceptions regarding the true contribution that government is making towards developmental impact;

Implementation of Khula Direct

Direct Lending Products

Term loans

Asset Based Finance

Working Capital / Bridging Finance

Revolving Credit

Critical Success Factors

For Khula to achieve its strategic priorities; it has to take into

consideration the three critical success factors

KEF: Khula Enterprise Finance

(including Property Portfolio)

KDL: Khula Direct Lending

KIS: Khula Institutional Support

KCG: Khula Guarantee Fund

KLR: Khula Land Reform

Khula Group Budget

R’m KEF KDL KCG KIS KLR TOTAL

Income *31.8 2.7 11.0 33.9 7.7 87.2

Op.Exp 70.0 4.8 0.9 37.7 2.7 116.3

• Staff 45.4 3.5 - 16.2 0.9 66.2

• Premises 3.7 - - 4.0 0.2 7.9

• Depr’n 1.4 - - 0.9 - 2.3

• Marketing 5.1 - - 1.1 0.2 6.4

• Admin 14.8 1.3 0.9 6.1 1.4 24.2

Progr Costs

- - - 9.3 - 9.3

Net Income (38.2) (2.2) 10.1 (3.8) 5.0 (29.2)

Provisions (4.9) (4.3) (32.0) - - (41.2)

Interest 16.7 1.7 5.7 3.2 12.4 39.6

Net Profit (37.3) (4.8) (16.3) (0.6) 17.4 (41.7)

Budget Overview: Income Statements

R’m KEF KDL KCG KIS KLR TOTAL

ASSETS

Non Current Assets

1,061.9 39.9 (31.0) 5.0 91.7 1,166.5

Current Assets

202.4 11.1 92.3 47.9 241.6 595.3

1,264.3 50.2 61.3 52.9 333.3 1,761.8

EQUITY AND LIABILITIES

Equity and Reserves

1,256.1 50.2 0.5 49.2 333.2 1,689.2

Non Current Liabilities

- - 36.7 - - 36.7

Current Liabilities

8.2 - 24.1 3.7 0.0 36.0

1,264.3 50.2 61.3 52.9 333.3 1,761.8

Budget Overview: Balance Sheets

THANK YOU