Annual Report Name and Registration Number: Small Enterprise Finance Agency (SOC) Limited with registration Number 1995/01/1258/06 - PDF

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Name and Registration Number: Small Enterprise Finance Agency (SOC) Limited with registration Number 1995/01/1258/06 Holding Company: Industrial Development Corporation of South Africa Limited (IDC) Country
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Name and Registration Number: Small Enterprise Finance Agency (SOC) Limited with registration Number 1995/01/1258/06 Holding Company: Industrial Development Corporation of South Africa Limited (IDC) Country of Incorporation and Domicile: South Africa Physical Business Address: EcoFusion 5 Block D Cnr 1004 Teak Close & Witch-Hazel Avenue Eco Park Centurion Postal Address: P.O. Box Zwartkop 0051 Contact: Telephone: Call Centre: Fax: Website: External Auditors: Bankers: Company Board Secretary: KPMG Inc Standard Bank of South Africa Limited Ms Nthabiseng Mongali Reporting Period: The Annual Report of The Small Enterprise Finance Agency (sefa) is presented For the period 1 April to 31 March. Scope and boundary This scope covers the operating environment, the organisational achievements and results for the declared period. The report is prepared for sefa s shareholder, the Industrial Development Corporation (IDC), The Economic Development Department (EDD) and the broader SMME stakeholder community. Table of contents 1. sefa Company Profile Introduction sefa Mandate, Mission and Values sefa Strategic Objectives sefa Target Market sefa Loan Criteria sefa Products and Service Distribution Model sefa Footprint sefa Group Structure sefa Governing Structure sefa Organisational Framework 9 2. Board of Directors Chairperson's Statement Chief Executive Officer s Statement Executive Management Corporate Performance Overview Financial Performance Overview Risk and Compliance Management Performance Overview Direct Lending Performance Overview Wholesale Lending Performance Overview Human Capital Management Performance Overview Performance Against Predetermined Objectives Corporate Governance Statement Group and Company Annual Financial Statements 52 1 1 COMPANY PROFILE 1.1 Introduction Following a Cabinet decision and the State of the Nation address of 2011, the Small Enterprise Finance Agency (SOC) Limited (sefa), was established on 1 April 2012 in terms of section 3 (d) of the Industrial Development Corporation Act, No. 22 of 1940 (IDC Act). sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC) and brings together the activities of the three previous structures (Khula, samaf and the IDC small business activities). sefa operates as a Development Finance Institution (DFI) to foster the establishment, development and growth of Small, Micro and Medium Enterprises (SMMEs) and contributes towards poverty alleviation, job creation and economic growth. sefa provides products and services to qualifying SMMEs as defined in the National Small Business Act of 1996, as amended in 2004, through a hybrid of wholesale and direct lending channels. 1.2 sefa Mandate, Mission and Values Mandate To be the leading catalyst for the development of sustainable SMMEs through the provision of finance. Our mission is to provide simple access to finance in an efficient and sustainable manner to SMMEs throughout South Africa by: Mission delivering Wholesale and Direct Lending credit facilities or products; providing credit guarantees to SMMEs; supporting the institutional strengthening of Financial Intermediaries so that they can effectively assist SMMEs; creating strategic partnerships with a range of institutions for sustainable SMME development and support; monitoring the effectiveness and impact of our financing, credit guarantee and capacity development activities; and developing (through partnerships) innovative finance products, tools and channels to speed up increased market participation in the provision of affordable finance. sefa s values and guiding principles to deepen institutional culture and organisational cohesion are: Values kuyasheshwa! We act with speed and urgency; passion for development: Solution-driven attitude, commitment to serve; integrity: Dealing with clients and stakeholders in an honest and ethical manner; transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all stakeholders and innovation: Continuously looking for new and better ways to serve our customers. 2 1.3 sefa Strategic Objectives Strategic Objective 1 Increase access and provision of finance to SMME s thereby contribute towards job creation Expand direct lending through partnerships in all provinces; Expand partnerships with microfinance institutions; Establish stronger partnerships with Retail Finance Intermediaries (RFIs) in SME wholesale finance; Increase the utilisation of Credit Guarantee Indemnity Scheme by commercial banks. Strategic Objective 2 Develop and implement a national footprint for effective product and service delivery Implement a robust sefa delivery network through branches and Financial Intermediaries. Strategic Objective 3 Build an effective and efficient sefa that is a sustainable performance driven organisation Create, develop and retain a dynamic human capital with values and culture aligned to sefa s mandate; Build an effective sefa with robust and efficient business processes, systems and infrastructure; Build a financially sustainable and viable sefa. Strategic Objective 4 Build a learning organisation Develop and implement a dynamic research and development capacity; Develop effective sefa monitoring and evaluation, and knowledge management systems and practices. Strategic Objective 5 Build a sefa that meets all legislative, regulatory and good governance requirements Ensure an effectively governed and compliant organisation. Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs Develop and implement an effective marketing and promotion programme to communicate sefa s product offering to SMMEs. 3 1.4 sefa Target Market sefa funds qualifying business ventures within the following SMME sectors: services (including retailing, wholesaling and tourism); manufacturing (including agro-processing); agriculture (specifically land reform beneficiaries and micro-farming activities); construction (small construction contractors); mining (specifically small miners); and green industries (renewable energy, waste and recycling management). 1.5 sefa Loan Criteria In granting loan financing to qualifying businesses, the applicant must: be a South African citizen or a permanent resident; be registered entity including, sole traders with a fixed physical address; be within the required contractual capacity; be registered within South Africa; be compliant with generally accepted corporate governance practices appropriate to the client s legal status; have a written proposal or business plan that meets the requirements of sefa s loan application criteria; demonstrate the character and ability to repay the loan; have provided personal and/or credit references (if available); be the majority shareholder and the owner manager of the business; where available, provide relevant securities/collateral; and have a valid Tax Clearance Certificate. 4 1.6 sefa Products and Service Distribution Model sefa Funding Model sefa Wholesale Lending sefa Direct Lending Credit Guarantee Scheme FINANCE INTERMEDIARIES: (Co-operative Financial Institutions, Micro Finance Institutions, Joint Ventures & Funds, Retail Finance Intermediaries) sefa Regional Offices and seda co-locations Formal Registered Financial Institutions R500 to R5m R50k to R5m Up to R5m SMMEs can access sefa funding solutions through any of the above channels 5 1.7 sefa Footprint 9 sefa Regional Offices 2 sefa Branch Offices 10 Co-operative Financial Institutions 16 Micro-Finance Intermediaries 6 Retail Finance Intermediaries 25 seda Co-location Referral Offices 8 Specialised Funds * Limpopo North West Gauteng * * * ** * Mpumalanga Free State KwaZulu-Natal * Northern Cape Eastern Cape Western Cape 6 1.8 sefa Group Structure Wholly owned subsidiaries not consolidated: Khula Land Reform and Empowerment Facility NPC Khula Institutional Support Services NPC Dormant Subsidiaries: Consolidated Entities sefa 100% Consolidated Investment Subsidiaries Khula Emerging Contractors Fund 21% Associates Business Partners 50% Joint Ventures Anglo American Khula Mining Fund Khula Business Premises (Pty) Ltd New Cape Equity Fund (Pty) Ltd MKN Equity Fund (Pty) Ltd 100% Khula Credit Guarantee 75% Khula Akwandze Fund 49% Utho Capital SME Fund 50% sefa Awethu Youth Fund 100% New Business Finance 100% Identity Development Fund 40% Enablis Khula Loan Fund 82% 65% Small Business Growth Trust Fund Izibulo 75% Khula - Enablis SME Acceleration Fund 7 1.9 sefa Governing Structure Board Enterprise Risk Committee Audit Committee Human Capital & Remuneration Committee Wholesale Investment Committee Direct Lending Committee Board Company Secretariat CEO Internal Audit Executive Manager: Direct Lending Executive Manager: Wholesale Lending Chief Financial Officer Chief Risk Officer Executive Manager: Human Capital Management 8 1.10 sefa Organisational Framework CORPORATE GOVERNANCE Board of Directors, sefa Management, Risk & Compliance, Internal Controls, Audit & Fraud Prevention and Legal Clients Distribution Channels R500 SMMEs and Co-operatives sefa s Regional Offices, RFIs, MFIs, Co-operatives Financial Institutions, Commercial Banks, Specialised Funds, Provincial Development Corporations (PDCs) Product Portfolio Direct Lending Wholesale Financing Working Capital Loan; Asset Finance; Term Loans; Revolving Loan; Bridging Loan; Short-term Trade Finance. Business Loans (RFIs/MFIs/ Co-operatives/ FIs); Joint Ventures Specialised Funds; Credit Guarantee Scheme; Land Reform Empowerment Fund. R5 million Capacity Building Pre and Post Loan Mentoring Institutional Strengthening Board Representation; Management and Technical Support. ENABLING/ SUPPORT Human Capital Management, IT Systems, Stakeholder Relations & Communications, Finance and Procurement 9 2 BOARD OF DIRECTORS Dr Sizeka Magwentshu-Rensburg Chairperson of the Board Mr Thakhani Makhuvha Chief Executive Officer Ms Hlonela Lupuwana Member: Human Capital & Remuneration Committee Qualifications: DPhil (Business Management) (University of Johannesburg) MBA (Webster University) BA (Management in Accounting and Business Administration (Webster University) Advanced Certificate in Purchasing Management (University of South Africa) Qualifications: MCom Financial Management (University of Johannesburg) BCompt (Hons) (University of South Africa) BCom Accounting (University of Venda) Leadership Development Programme (Gordon Institute of Business Studies) Qualifications: MBA (University of Pretoria) BSc (Social Sciences) (University of Cape Town) Associate in Management (AIM) (University of Cape Town) 10 Age: 54 Other Directorships: Director: Findevco (Pty) Ltd Director: IDC Director: Girl Guides South Africa Member: merseta Finance and Grants Committee Current Employment: Independent Consultant Age: 45 Other Directorships: Director: seda Current Employment: CEO: sefa Age: 45 Other Directorships: Director: Anglo American Zimele Member: International Women s Forum South Africa Current Employment MD: Anglo American Zimele Former CEO: seda BOARD OF DIRECTORS Mr Ismail Tayob Chairman: Audit Committee, Member: Enterprise Risk Committee, Member: Human Capital & Remuneration Committee Qualifications: CA (SA) BCom (Accounting)(University of Durban Westville) Post Graduate Diploma in Accounting (University of Durban Westville) Age: 49 Ms Katinka Schumann Member: Wholesale Investment Committee Member: Direct Lending Committee Qualifications: MBA (University of Stellenbosch) B Home Economics (University of Stellenbosch) Advanced Management Programme, (INSEAD, France) Age: 45 Mr Lawrence Mavundla Chairman: Direct Lending Committee Member: Wholesale Investment Committee Qualifications: Business Management, (Cranefield College, UK) Chamber Management (CIPE, USA) Business Management and Development (Swedish Chamber) Age: 49 Other Directorships: None Current Employment: Executive Director: CH Chartered Accountants (Pty) Ltd Other Directorships: Director: African Continental Resources Ventures (Pty) Ltd Director: Tourism Enterprise Partnership Director: Palabora Copper (Pty) Ltd Trustee: Women Private Equity Fund Current Employment: Divisional Executive: IDC Other Directorships: President: NAFCOC Chairman: Adiflash Investments Chairman: Silver Vanity Investments Chairman: Medi Card (Pty) Ltd Vice President: The Black Business Council Current Employment: Businessman 11 BOARD OF DIRECTORS Ms Barbara Calvin Member: Wholesale Investment Committee Member: Direct Lending Committee Mr Richard Mutshekwane Chairman: Human Capital & Remuneration Committee Member: Enterprise Risk Committee Member: Audit Committee Mr Gert Gouws Chairman: Enterprise Risk Committee Member: Audit Committee Qualifications: BCom (Hons) (Queen s University, Canada) Age: 54 Other Directorships: None Current Employment: Director: Vulindlela Development Finance Consultants (Pty) Ltd Qualifications: Advanced Executive Programme (UNISA Graduate School of Business Leadership) Credit Diploma (Institute of Bankers of South Africa) Certificate in Banking (Institute of Bankers of South Africa) Age: 64 Other Directorships: Vice Chairman: Midrand Child Welfare Current Employment: Shareholder and Director: Pennine Energy Innovation Qualifications: CA (SA) BCom (Law) (University of Johannesburg) BCom (Hons) (University of Johannesburg) FCMA, CGMA Advanced Management Programme (INSEAD, France) Age: 55 Other Directorships: Director: Kumba Iron Ore Ltd, Chairman: Herdmans SA (Pty) Ltd Chairman: Pebble Bed Modular Reactor SOC Ltd Director: Findevco (Pty) Ltd Current Employment: CFO: IDC 12 BOARD OF DIRECTORS Mr Setlakalane Molepo Member: Wholesale Investment Committee Member: Human Capital & Remuneration Committee Mr Marius Ferreira Chairman: Wholesale Investment Committee Member: Direct Lending Committee Qualifications: MBL (UNISA, SBL) Certificate in Financial Management (Rand Afrikaans University) BSc Engineering (Civil) University of Witwatersrand; National Diploma in Civil Engineering Northern Transvaal Technikon Age: 52 Other Directorships: BusaMed Holdings (Pty) Ltd South Africa Metals Equity (Pty) Ltd Zastrovect Investments (Pty) Ltd Current Employment: Divisional Executive: SME & Rural Development and National Empowerment Fund (NEF) Qualifications: BCom (Hons) (Rand Afrikaans University) Age: 59 Other Directorships: None Current Employment: Director: Imalivest (Pty) Ltd CFO: Imalivest Mineral Resources (Pty) Ltd 13 3 CHAIRPERSON'S STATEMENT facilitating increased access to finance for South Africa s small business sector The focus for /14 financial year was consolidation, following the merger, and reaching significantly higher numbers of SMMEs. I am happy to report that both these have been achieved. sefa experienced enormous growth in the direct lending loan programme with the loan book doubling from last financial year. We have expanded our footprint ensuring that more SMMEs can access our products and services with ease. We have also enhanced our capacity to better serve the SMMEs with innovative products and services. Through our strategic partnerships with financial intermediaries, sefa was enabled to extend sector focused loan financing products and services to sectors such as mining, agriculture, transport, automotive and microfinance. We recognise that by combining the industry-specific expertise of the intermediaries with the financial support expertise of sefa, we can increase the chances of survival and growth of SMMEs, thus contributing to job creation and economic growth of South Africa. Following the merger process, the integration of human resources, administrative and management systems have been finalised and improvements effected where necessary. A few challenges with regard to human resources still remain but these are being resolved. Developing and growing the SMME sector takes collective effort and as sefa we placed emphasis on building partnership with other SMME support institutions, the government and the private sector. To this extent we developed strategic partnerships with the National Empowerment Fund (NEF), the Small Enterprise Development Agency (seda), the South African Institute of Chartered Accountants (SAICA), National Youth Development Agency (NYDA) and National and Regional Chambers of Commerce and Industries. These partnerships contributed to greater awareness of our organisation s products and services, outreach to SMMEs, increase in our loan book and effective post investment support to funded enterprises. We have also identified some challenges that we have prioritised for the next financial year and these are: Impairments have increased and one of the main reason being non-payment of SMMEs by their clients and therefore being unable to service their loans with sefa; Some of our intermediary partners charge SMMEs very high interest rates. In addition to these, we will focus on the following for the next financial year: reaching more SMMEs, especially those located in rural communities, through continued expansion of our footprint and growing the loan book through innovative products and services; streamlining business processes to increase turn-around times on loan applications; use of information and communication technology to significantly improve efficiencies, thus reducing the cost of finance to SMMEs; increase collaboration with institutions that provide business support to SMMEs to reduce the default rates; enhance collaboration with commercial banks so that together we can reach more SMMEs with loan products; explore and build partnerships with Co-operative Financial Institutions (CFIs) to increase access to funding for small and micro enterprises and develop a strong financial co-operative sector; and developing targeted enterprise loan programmes for youth, women, people living with disabilities and rural communities. 14 As the Board of Directors and management of sefa, we would like to express our gratitude to the Honourable Minister of Economic Development Department, Minister Ebrahim Patel, for his guidance and continued support to sefa and the promotion of small business development in South Africa. I would also like to acknowledge the contribution made by our shareholder, the IDC in sefa s success. They have been exceptionally supportive in augmenting sefa s capacity during a very challenging period. I also thank the NEF for their assistance which directly contributed to enhanced loan processes and therefore the growth of our loan book. I also wish to thank my fellow board members for their commitment to the SMME sector and to making sefa a strong financier of SMMEs in South Africa. I also commend the CEO, executive management and staff of sefa for their dedication during the reporting period. Entrepreneurs are our pathfinders to growth and societal wellbeing, it is our collective responsibility to nurture and support them. Dr Sizeka Magwentshu-Rensburg Chairperson of the Board 15 4 CHIEF EXECUTIVE OFFICER S STATEMENT increasing access to finance to create jobs There is growing recognition of the important role that small businesses play as an efficient and prolific job creators, being seeds of big businesses and the fuel of economic engines. Small enterprises are sources of dynamism, innovation, competition, growth and job creation. Our role as sefa is to champion the development of small businesses in South Africa by creating enabling platforms and programmes for small businesses to access finance at the right cost. Dynamic Growth in Loan Book In the fiscal year /14, we continued to position ourselves as a leading catalyst for the development of small businesses and have approved R1.1 billion in loan facilities for small business development through our various loan programmes. This represents a 142% increase on the 2012/3 financial year approvals. Likewise, we were able to increase our disbursements by a 176%, to the value of R549 million to SMMEs and financial intermediaries. The growt
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