PRESENTATION TO THE SELECT COMMITTEE

PRESENTATION TO THE PRESENTATION TO THE SELECT COMMITTEESELECT COMMITTEE

Thakhani Makhuvha

Chief Executive Officer

19 FEBRUARY 2013

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).

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

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MissionOur 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

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Valuessefa’s guiding principles for decisions, activities and behaviour are:

1.Kuya sheshwa! Speed and urgency2.Passion for development: Solution-driven attitude, commitment to serve3.Integrity: Dealing with clients and stakeholders in an honest and ethical manner 4.Transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all stakeholders5.Innovation: Continuously looking at new and better ways to serve our customers

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Board Overview

Board

Enterprise Risk

Committee

Audit Committee

HC & Remuneration

Committee

WholesaleInvestment Committee

Direct Lending

Committee

Total Headcount – 6Headcount : 22

Head Financial

Accounting

Head Management Accounting

Head Supply Chain Management

Head RiskManagement

Head Legal Services

Head HR Head

Stakeholder relations &

Communication

HeadIT Head

Workout & Restructuring

Head of Retail (South)

Capacity Support

Specialist

Senior IR Specialist

Head of Direct lending (North)

Head Internal Audit

Company Secretariat

Head of Direct lending (South)

Head : Post Investment Monitoring

Head : Micro Finance

Wholesale

Head : SME Wholesale

Head : Post Investment Monitoring

Facilities Specialist

Management & Staffing

Senior L & D Specialist

Co-operative Specialist

Property Co-ordinator/

Specialist

Product Specialist

Business Planning &

Strategy Manager

Staff Complement

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Staff Complement as at 31 December 2012Male Female

Africans 40 91Coloureds 4 6

Indians 1 4Whites 5 8Totals 50 109

GRAND TOTAL 159

Level NumberExecutive 6

Management 31

Professional 110

Administration 36

Semi Skilled 6

TOTAL 189

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

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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.

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Overall Strategic Objectives

The strategic objectives of sefa are to:

1.Increase access and provision of finance to small businesses and thereby

contribute towards job creation.

2.Develop and implement a national footprint for effective product and

service delivery.

3.Build an effective and efficient sefa that is a sustainable performance

driven organisation.

4.Build a learning organisation .

5.Build a sefa that meets all legislative, regulatory and good governance

requirements.

6.Build a strong and effective sefa brand emphasizing accessibility to SMMEs 11

Strategic Objective 1Increase 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)

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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.

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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 (NW and WC)•Capacitate all offices for direct lending through staff training and strengthening lending systems•Use our partnership network to extend market reachMedium 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)

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Build an effective and efficient sefa that is a sustainable performance driven organisationImmediate 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 serviceMedium to Long Term Priorities:•Analyse the cost driving activities and improve operational efficiencies

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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

Medium to Long Term Priorities:•Establish R&D capacity and capability to service market needs•Talent management and succession planning

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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 proceduresMedium to Long Term Priorities:•Maintenance and the monitoring of corporate governance and compliance through the Chief Risk Officer

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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 servicesMedium to Long Term Priorities:•To build a strong and prominent brand

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Products & Services - Wholesale

Product Description

Business Loans Partnership with Non Bank Financial Intermediaries for on-lending to SMMEs (eg sefa provides loan to WDB, who lends money to micro enterprises)

Funds/ Joint Ventures Partnership with mainly private sector entities for on-lending to SMMEs (eg sefa’s partnership with Anglo to provide finance to small mining contractors)

Credit Indemnity Scheme sefa provides guarantees to banks, enabling loans to small businesses that do not otherwise have sufficient collateral/security to support facilities.

Land Reform Empowerment Fund (LREF)

Facility through which sefa lends money to commercial banks and other reputable agricultural lenders for on-lending to land reform beneficiaries

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Products & Services - Retail

Product Description

Revolving/Bridging Loans

To facilitate short term capital requirements or bridging finance for delivery of contracts or orders (eg a small business gets a contract to supply stationery, but needs finance to buy the stock)

Asset Finance For acquisition of fixed assets (eg a small business needs a new machine. sefa provides a loan, repayable over 5 years)

Term Loans To finance longer term business expansion requirements and specific capital acquisitions (similar to asset finance, but not necessarily linked to a specific machine)

Working Capital To finance purchase of stock, overheads, etc (eg sefa provides a shorter term loan (3 years) to a small shop to buy stock needed to expand)

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Products and Services - Non Financial Services

Product Description

Post-loan Business Support Programme

This service is only provided to SMMEs that have benefitted from facilities provided by sefa and its financing partners as a risk mitigating intervention (eg sefa provides a mentor to a small business to assist with specific aspects of running the business)

Institutional Strengthening Grants

Aimed at providing institutional strengthening and technical assistance to Financial Intermediaries (eg grant funding provided to an intermediary to assist it in improving its systems)

Wholesale short term initiatives

• Partner with stronger financial intermediaries and recapitalise• Sign agreements with financial institutions and increase utilization of the Credit

Indemnity Scheme• Continue with the review of the wholesale lending portfolio, including the

consolidation of intermediaries• Expand wholesale offering through partnerships targeting specific sectors and/or

markets• Introduce new products that are aligned to intermediary needs that meets sefa’s

developmental objectives• Influence interest rate charged by intermediaries to SMMEs to meet sefa’s

developmental objectives• Institutional strengthening of intermediaries through targeted capacity building grants

and technical support• Target specific co-operative markets• Finalise the wholesale lending division’s structure and placements• Review the financial modeling for the wholesale lending division

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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.

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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

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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

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Funding and pricing strategy

• sefa’s pricing strategy will be developmental in nature (affordable to small

businesses, incorporating an appropriate discount for developmental

impact) whilst ensuring the sustainability of the institution.

• The Business Plan assumes moving towards an average interest rate of

• 8.5% for Secured lending (market rates* are on average 20%)

• 19% for Unsecured lending (market rates* are on average 32%)

• The maximum rate allowable by the National Credit Act is 32%

• Risk is mitigated by post-loan business support.

* sefa conducted a survey of market rates charged by other financial institutions for similar sized business with similar risk profiles. sefa was found to be considerably more affordable

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Funding and pricing strategy

• The budget assumes a pricing range of between 8.5% and 19%

• And an impairment levels of between 15% and 25%

• As we cannot price above 19% to cover higher levels of impairment, grant

funding will be required to cover impairment levels above 25%

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2013-2017 Performance Targets –Approvals

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Product 2012/2013R’m

2013/2014R’m

2014/2015R’m

2015/2016R’m

2016/2017R’m

Total

R’mSME Direct

Lending 185 222 266 319 383 1 375

Micro Wholesale 80 120 170 280 350 1 000

SME Wholesale 115 138 196 229 268 946Capacity Building 40 60 80 80 80 340

Credit Indemnity 90 90 90 90 90 450Land Reform

Empowerment Facility

50 55 60 65 70 300

Approvals Total 560 833 1 081 1 307 1 488 5 269

2013-2017 Impact Targets -SMMEs Financed & Jobs Created/Sustained

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Product Indicator 2012/2013

2013/2014

2014/2015

2015/2016

2016/2017

Total

SME Direct Lending

No. of SME’s Financed 292 634 718 813 920 4 097

No. of Jobs Created 1 462 3 171 3 590 4 064 4 601

16 888

Micro Wholesale

No. of Micro Enterprises

Financed10 667 16 000 22 667 37 333 46 667 133 333

No. of Jobs Created 7 467 11 200 15 867 26 133 32 667 93 333

SME Wholesale (includes RFI’s,

Credit Indemnity and LREF)

No. of SME’s Financed 853 842 934 1 003 1 107 4 739


Totals

No. of SME’s Financed 11 812 17 793 24 767 39 792 49 386 143 549


Approvals per Business Area

Annual Target

Achieved Q1

Achieved Q2

Achieved Q3 YTD

Wholesale SMEs

Business Loans 115 000 000 0 30 000 000 80 000 000 110 000 000

Credit Indemnity 90 000 000 4 564 328 6 758 030 6 459 599 17 781 957

LREF 50 000 000 0 20 000 000 0 20 000 000

Total Wholesale SMEs 255 000 000 4 564 328 56 758 030 86 459 599 147 781 957

Wholesale Microfinance

Survivalists & M/enterprises: on-lending 80 000 000 10 000 000 5 000 000 0 15 000 000

Capacity Building 40 000 000 1 750 000 600 000 0 2 350 000

Total Wholesale M/enterprises 120 000 000 11 750 000 5 600 000 0 17 350 000

Direct lending

Direct lending 185 000 000 10 547 288 15 979 793 18 540 522 45 067 603

sefa Total Approvals 560 000 000 26 861 616 78 337 823 105 000 121 210 199 560

Annual Target

Achieved Q1

Achieved Q2

Achieved Q3

YTD Achieved

Wholesale SMEsWholesale SMEs Business Loans 120 000 000 7 970 269 2 387 886 29 655 548 40 013 703 Credit Indemnity 72 000 000 3 695 304 2 465 000 6 358 030 12 518 334 LREF 68 000 000 2 900 000 0 0 2 900 000Total Wholesale SMEs 260 000 000 14 565 573 4 852 886 36 013 578 55 432 037

Wholesale Microfinance Wholesale MicrofinanceSurevivalisrs & M/enterprises: on-lending 48 000 000 0 12 000 000 5 000 000 17 000 000Capacity Building 24 000 000 0 5 340 000 834 185 6 174 185Total Wholesale M/enterprises 72 000 000 0 17 340 000 5 834 185 23 174 185

Direct lendingDirect lending 118 400 000 6 573 079 5 094 831 12 310 132 23 978 042

sefa Total Disbursements 450 400 000 21 138 652 27 287 717 54 157 895 102 584 264

Disbursements per Business Area

Performance Overview

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2011/123rd Quarter to date

Khula + samaf

2012/133Rd Quarter to date

sefa

Gauteng R6.8m R90.3m

Western cape R78.2m R31.3m

Eastern Cape R2.8m R7.1m

Northern Cape R1.6m R0.8m

KwaZulu Natal R8.6m R4.0m

Mpumalanga R2.2m R10.6m

Limpopo R22.1m R5.0m

Free State R0.2m R35.0m

North West R0m R26.2m

Total - Approvals R122.4m R210.2m

Total - Disbursements R86.0m R102.6m

Performance Overview

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2011/12Annual

Samaf+Khula

2012/133rd

Quarter

2012/13Annual target sefa

Number of SMEs Financed – Direct Lending 104 131 292

Number of SMEs Financed – Wholesale 49 498** 29 350 11 520**

Approvals – Direct Lending R23.0m R45.1m R185.0m

Approvals - Wholesale R184.0m R165.1m R335.0m

Jobs Created/Sustained 50 501** 40 589 13 196**

**The calculation method has been revised (2013 only relates to sefa funding)

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 eg savings 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 costed sefa R1.50 to disburse one

Rand. This is an improvement when compared to the 1st quarter cost of disbursement of R2.00

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Cost Effectiveness (Cont)

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Product 2012/2013

2013/2014

2014/2015

2015/2016

2016/2017

Disbursement R451m R748m R947m R1 135m R1 302m

Outstanding loan book at year end R1 366m R1 911m R2 566m R3 240m R4 136m

Operating expenditure R205m R243m R280m R297m R316m

Cost of disbursement

Per randR0.45 R0.32 R0.30 R0.26 R0.24

Cost to income ratio *

(Excl Grant)146% 129% 110% 86% 71%

* The Cost to income ratio includes the cost of disbursement as well as the cost of managing and monitoring the existing loan book

Delivery NetworkThe retail network consisting of regional, branch and satellite offices will span across the nine provinces and all districts of the country. Added to these will be Financial Intermediaries who will also distribute sefa products throughout the country to ensure access by qualifying SMMEs. Initially sefa will roll-out its retail products through the existing regional offices whilst the branch and satellite offices are being set up. The regional offices are:

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Province Regional Office Telephone Eastern Cape East London 043 726 0756

Free State Bloemfontein 051 444 1040

Gauteng Johannesburg 011 838 5482

KwaZulu Natal Durban 031 301 1922

Limpopo Polokwane 015 291 5428

Mpumalanga Nelspruit 013 755 2370

Northern Cape Kimberley 053 832 2275

North West Rustenburg 014592 6391

Western Cape Cape Town 021 425 6774

Head Office National Call Centre 08600 54852

Delivery Network

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Existing sefa offices

Existing Retail Financial Intermediaries

Existing Micro-finance intermediaries

Planned sefa branch/ satellite offices (branch office is a small staffed office. Satellite office is a desk in eg. seda/Post Office, manned at specific times.)

Cities/towns

THANK YOUTHANK YOU

Documents

PRESENTATION TO THE SELECT COMMITTEE