Although the Department of Small Business Development (DSBD) aims to use small businesses and cooperatives as vehicles to redistribute South Africa’s wealth, access to funding for small and medium-sized enterprises (SMEs) remains a concern. To strengthen its hand, the Small Enterprise Finance Agency (Sefa) migrated to the DSBD in April from the Economic Development Department to ensure a more integrated approach towards extending financial support to SMEs and cooperatives.

In her 2015/16 Budget Speech, delivered in May this year, Small Business Development Minister Lindiwe Zulu said small businesses continue to face problems in trying to access funding from the main commercial banks, as small-business owners often do not have adequate collateral and an established record of managing a formal business.

“Without access to capital, informal businesses will remain small and vulnerable, unable to develop the very record and asset base that banks require,” she stated in her speech.

However, Zulu pointed out that, since the inception of Sefa – a merger of the South African Micro Finance Apex Fund (Samaf), Khula Enterprise Finance (Khula) and small business activities of the Industrial Development Corporation (IDC) – in April 2012, the agency has approved loans of more than R2-billion for SMEs. These loans have been in line with the DSBD’s mandate to fund SMEs and cooperatives owned by the youth, women and people with disabilities.

Further, through the Youth Fund, launched in October 2013, where Sefa collaborated with the IDC and the National Youth Development Agency, R2.7-billion has been made available for young entrepreneurs in an SMEs and cooperatives environment for the next five years, Sefa CEO Thakhani Makhuvha tells Engineering News.

The fund comprises Sefa’s contribution of R1.7-billion and the IDC’s contribution of R1-billion.

Makhuvha indicates that, to date, R450-million of the fund has been used to support more than 25 000 SMEs and cooperatives run by young entrepreneurs.

However, he notes that Sefa can fund even more SMEs and cooperatives, as the agency believes that it has to make a difference through expanding its footprint into more provinces in South Africa to raise awareness of government funding available to SMEs and cooperatives.

“Sefa was established as a result of government believing that the impact of Khula and Samaf was not enough in terms of the challenges that the country was facing regarding unemployment and access to funding. Therefore, Sefa has aimed for a ‘quantum leap’ in terms of developmental impact, compared with its predecessor institutions,” Makhuvha explains.

Funding Model Sefa strongly believes that its strategic plans to support SMEs and cooperatives must remain aligned to the National Development Plan (NDP), which aims to stimulate economic growth and transformation by having SMEs and cooperatives creating 90% of 11-million jobs by 2030.

The DSBD notes that SMEs and cooperatives will have to contribute over 730 000 jobs each year until 2030 to reach its target.

Although Sefa has initiated ways in which to fund the youth for their businesses, Makhuvha points out that the same is yet to be done for people with disabilities who own a business. The agency is, therefore, focused on engaging with associations that work with people with disabilities to improve the agency’s activities in that aspect of funding.

Meanwhile, he believes that it still remains important for Sefa to provide funding in cases where jobs are likely to be created when assessing the business idea of an SME or cooperative enterprise.

“We cannot only consider that you are young, disabled or a woman when providing funding – we also have to be realistic in terms of assessing how the funding we provide will help us reach our job creation target,” Makhuvha explains.

Moreover, Sefa notes that funding needs to be provided across various sectors of the economy for SMEs and cooperatives to participate effectively – hence, the agency’s identification of priority sectors such as small-scale mining, agriculture, agroprocessing, manufacturing and the green economy.

Sefa is primarily assessing and encouraging economic activities in these sectors, based on their viability in different regions, says Makhuvha.

Also, since its migration to the DSBD, Sefa’s funding for SMEs and cooperatives in different sectors has been aligned with the DSBD’s objective to use SMEs and cooperatives as drivers of economic growth.

In light of this, Zulu mentioned in her Budget Speech that the DSBD had made significant progress in negotiating memoranda of understanding with the departments of Public Enterprises and of Agriculture, Forestry and Fisheries, with the DBSB envisioning the public procurement of 30% for SMEs and cooperatives.

“This will ensure increased participation by emerging enterprises in the maintstream economies,” she explained.

Therefore, the DSBD has allocated R30-million for women- and youth-owned enterprises in the current financial year.

Management Support
Makhuvha notes that Sefa has noticed a need to provide businesses that apply for funding with financial and business management support to increase sustainability.

As a result, Sefa has partnered with the Institute of Business Advisors and the South African Institute of Chartered Accountants, in which these organisations provide mentorship for successful funding applicants to ensure the success of their businesses.

“We realised that providing access to finance alone and not educating or mentoring those we have funded about the ways in which the funds should be used might lead to business failure.

“We have put business owners into mentorship programmes, with business advisers and accountants who will assist them in managing their businesses in a sustainable manner,” explains Makhuvha.

He adds that Sefa does not only provide access to finance for SMEs and cooperatives but also provides support regarding business management through its partners, such as the National Youth Development Agency and the Small Enterprise Development Agency (Seda).

Seda is mandated by government to implement a standard and common national delivery network for SMEs and cooperatives to integrate government-funded SMEs and cooperatives support agencies across all tiers of government. Driving the same mandate, the DSBD says Seda is progressing significantly with regard to incubation support.

“It is also encouraging to note that the sectoral profile of Seda clients is in the priority sectors of service, agriculture and manufacturing,” said Zulu.

With Gauteng, Limpopo and the Eastern Cape having topped the list of applications for funding, Sefa notes that there is a need to reach other provinces, particularly the agriculture sector in the Free State as there is potential to stimulate economic growth through it, Makhuvha points out.

The agency plans to penetrate into 37 additional areas across the country through the creation of partnerships with the three tiers of government – local, provincial and national – local business chambers and the private sector.

Makhuvha says Sefa has started to engage with traditional leaders in rural communities to create awareness of funding being available for SMEs and cooperatives.

Through such engagements with local municipalities, traditional leaders, organisations and different sectors, Sefa believes that it can foster radical transformation that will trigger economic growth.

Moreover, Zulu also pointed out in her speech that the DSBD would continue to assess the impact of expenditure to increase additional financial support for SMEs.

“The department is reviewing the guidelines for the Black Business Supplier Development Programme to ensure that it is aligned to our mandate. We will also develop a business rescue strategy aimed at supporting SMEs and cooperatives in financial distress,” she concluded.