Challenges and Opportunities in Funding SMEs
Setlakalane MolepoManaging Director
15 October 2009
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Table of Contents
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• Khula’s mandate• Target market• SMME financing landscape• Why focus on SMEs• Needs of SMEs • General challenges facing SMEs• Challenges - access to finance• Opportunities for SMEs• Accelerating SME funding• Concluding remarks
Khula’s Mandate
Purpose:To act as a complementary development financial institution that bridges financing gaps that are not addressed by other financial institutions.
The three key focus areas of our mandate as a wholesale financier are:
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Promote access to finance
Maximisefinancing for
SMEs
Jobs, BEE, rural development,
women empowerment
Development impact
Long-term objective
Financial sustainability
Target Market
• Underserved segments of the SME market;
• Primarily Black-owned, owner-managed formal SMEs;
• Start-up and development/expansion capital;
• Bias towards underserved provinces/rural/townships; and
• Loan sizes in the range of R10,000-R3m, with particular emphasis on facilities less than R1m, especially <R250,000.
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No.
Total 1,6 – 3,0m
0,1 – 0,3m
0,2 – 0,5m
0,6 – 1,0m
0,7 – 1,2m
• Less than 200 employees• Turnover > R25m p.a.• Developed technical & business skills
• Less than 50 employees• Turnover < R25m p.a.• Developed technical /limited business
skills• Less than 5 employees• Turnover < R150k p.a.• Some technical /limited business
skills• Individual self employment• Turnover < R50k p.a.• Limited technical and business skills
Opportunity-driven/Entrepreneurial
Necessity-driven/Survival
Mediumenterpris
es
Small enterprises
Micro enterprises
Survivalist enterprises
Characteristics
SMME Financing Landscape…Characteristics
Small enterprises
Micro enterprises
Mediumenterpris
es
Survivalist enterprises
Financing Needs – Nature of demand
SMME Financing Landscape … Demand side
• Short to medium term debt• Asset based & working capital• Up to R250k
• Short term loans• Up to R10k• Working capital
• Short term loans• Up to R3k• Stock purchases
• Medium to long term debt & equity• Over R250k• Asset based, working capital, property
finance etc.
Small enterprises
Micro enterprises
• Corporates• Banks/Financial Institutions• Private Equity/Venture Capitalists• Khula, IDC, NEF
• Own resources• Banks & Corporates• Khula & PDCs• Own & family resources• Microlenders & Banks• SAMAF & PDCs
• Own & family resources• Microlenders• SAMAF
Mediumenterpris
es
Survivalist enterprises
Financing Needs – Supply Side
SMME Financing Landscape … Supply side
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Why Focus on SMEs
• Economic reality and opportunity;
• Social necessity;
• To overcome lack of capital;
• To overcome lack of assets or security; and
• To participate in growing South Africa’s prosperity.
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Needs of SMEs• Access to market opportunities;
• Direct participation in the broader South African economy to
enhance job creation and economic activity;
• Access to finance;
• Access to general banking facilities;
• Access to innovation and incubator facilities, and hubs;
• Aftercare through coaching and mentoring;
• Ongoing guidance and support on implementing the business plan;
• Acquisition and upgrading of knowledge & skills.
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General Challenges Facing SMEs
• Access to finance;
• Access to information such as research, technology;
• Barriers to markets;
• Lack of recognition by big companies (as suppliers to those markets);
• Capacity – expertise and resources;
• Closing the “income gap”; and
• Redistribution of business opportunities and wealth.
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• Perceived risk profile of SMEs;
• Smaller loan size and cost of funding at the lower level;
• Insufficient understanding of the SME landscape by lenders;
• Lack of collateral in SMEs;
• Information gaps in accessing other finance (other than banks);
• Inadequate skills of SMEs; and
• Quality of business propositions.
Challenges Related to Access to Finance
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Opportunities for SMEs
• Government specific policies (IPAP (NIPF));
o R787bn public sector Capex & Procurement programme
o Procurement space (10 Key products by Government);
• Broad Based Black Empowerment;
• Other government’s initiatives to increase SME participation in the economy (APDP, CSDP).
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Accelerating SME Funding - Recommendations
• Deepen and integrate the financial services sector’s systems,
services and infrastructure;
• Monitor to ensure that the reviewed legal and regulatory framework
supports SME development fully;
• Build institutional capacity for supervision and monitoring and
enforcement of SME regulations and general business-related laws;
• Invest in rural infrastructure such as communication technology and
transport which would attract funders to locate to remote areas; and
• Embrace and adapt new information technologies in order to reduce
transaction costs.
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• SMEs are still facing challenges due to slow recovery;
• Scaling-up of interventions by the DFIs and commercial banks;
• Renewed focus on SMEs by the public sector;
• Broadening and differentiation of product offering;
• Better co-operation amongst DFIs; and
• Increase awareness of official programmes (banks, DFIs, and other
stakeholders that support).
Concluding Remarks
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