SMALL-scale enterprises could now enjoy better access to financial services and low financing costs following the signing of a co-operation agreement between state-owned developmental funding agency Khula Enterprise Finance and the Banking Association of SA (Basa).
Small businesses in the country are regarded as the main contributors to job creation, something that SA — with an unemployment rate of 25% by some measures — is working hard to encourage.
Khula and Basa said they would endeavour to facilitate the formation of a credit bureau for small and medium enterprises, the first of its kind in Africa, and would provide access to an information portal for small businesses.
They would also conduct research, facilitate skills transfer, assist in the development of a national mentorship programme and promote financial literacy.
In April, Economic Development Minister Ebrahim Patel told Parliament Khula was to become a wholly owned subsidiary of the Industrial Development Corporation (IDC) with a budget of R2,8bn this year. It would incorporate the South African Micro Finance Apex Fund as well as the IDC’s small business loan book.
Khula is SA’s main small business financing vehicle but has been hampered by underfunding and, until recently, its restriction to wholesale financing. Its agreement with Basa comes at a time when banks are often seen as doing too little to finance small business development.
Basa MD Cas Coovadia, however, said statistics showed that the sector provided 95% of funding for small businesses. The proposed credit bureau could change how the banks look at risk in the market, he said.
“The (small business) credit bureau initiative will assist banks to access reliable information on the day-to-day transactions of the business and not just the individual.”
The role and mandate of the publicly funded Khula should be to develop markets, allowing the private sector to come in with funding, Mr Coovadia said.
He said there was a need to develop more risk-appropriate evaluation models and products tailored to small business development.
“Here we are talking about a very focused, on-the-ground, issues-based collaboration. The first thing we need to do is to sit down and have an assessment of what we have been doing independently and agree on what we see as each other’s role,” Mr Coovadia said.