MAXIMISING ACCESS TO FINANCE FOR SMMES PRESENTATION

09 June 2004

Xola Sithole

Outline

Turning the Tide

Concluding Remarks

Khula is mandated to promote SMME financing, primarily to HDPs, in order to boost job creation and transformation

WHO (target customer)

HOW (channel , product )

WHY (end goals )

Entrepreneurs launching Small / mid size business

Provide wholesale funding through partnerships

  • Financial institutions ( banks, RFIs )
  • Corporations (procurement programmes )
  • Promote entrepreneurship and asset accumulation among HDPs
  • Promote job creation
  • Promote transformation and rural development

Predominantly HDP candidates

A variety of financial products and non- financial services

  • Equity, loan funding
  • Mentorship
  • Property

Predominantly candidates lacking collateral

 
   

Khula's mandate from its shareholder is focused on three key areas...

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The Khula Offering...

- Credit Guarantees

- Loans

- Equity Funds and Joint Ventures

- Land Reform Empowerment Facility

- Mentorship Services

- Property Portfolio

Annual disbursement growth has remained at R200 million pa, after strong growth from 1998 to 2000...

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Declines in credit guarantee and RFIs have more than exceeded the new growth in LREF and PE, JV funds...

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Disbursements have been flat, even as head count has doubled.

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Operating expenses have grown significantly faster than operating income (21% vs 1% CAGR)

[ PMG Note : Graph not included]

Khula has been highly successful in job creation and BEE, and moderately successful in rural

development

BEE

Rural upliftment

CGs :

Good – Funding primarily to HDPs

Poor –Most funds to urban clients

RFIs :

Good – Funding primarily to HDPs

Good –A lot of RFIs based in rural areas

LREF :

Excellent – All funding must be to HDPs

Excellent –Rural areas only

PE, JVs :

Excellent – 90% of funding for HDP - owned businesses

Poor - 95% of funding to urban clients

 

Highly effective

Moderately effective

 

 

PERFORMANCE OF THE CREDIT GUARANTEES

 

 

Inception to 31 March 2004

 

FY 2003

FY 2004

Guarantees –Value

 

R1 100m

R133m

R180m

Guarantees – Number

 

6 245

532

628

Women Owned Businesses

 

42%

70%

57%

Black Owned Businesses

 

47%

56%

53%

Rural Based Businesses

 

15%

15%

15%

Direct Jobs Credit

 

64 706

7 824

10 588

PERFORMANCE OF THE RFI PORTFOLIO

 

 

Inception to 31 March 2004

 

FY 2003

FY 2004

Disbursements –Value

 

R477m

R 75m

R 57m

No of loans to clients

 

260 000

10 150

94 000

Women Owned Businesses

 

70%

80%

55%

Black Owned Businesses

 

 

 

96%

97%

97%

Rural Based Businesses

 

30%

30%

35%

First time borrowers

 

55%

65%

49%

Direct Jobs Credit

 

79 500

12 500

9 500

PERFORMANCE OF THE KHULA START PORTFOLIO

 

 

Inception to 31 March 2003

 

FY 2003

FY 2004

On Lending Funds

 

R 11m

R 2m

R 5m

Opex Funding

 

R 23m

R 7m

R 9m

No of loans to clients

59 972

26 233

13 679

Women Owned Businesses

 

87%

88%

87%

Black Owned Businesses

 

100%

100%

100%

Rural Based Businesses

 

95%

95%

95%

Direct Jobs Created

 

1 833

333

833

PERFORMANCE OF EQUITY FUNDS

 

 

Inception to 3 March 2004

 

FY 2003

FY 2004

Approved Deals-Number

 

18

8

7

Approved Deals-Value

 

R 28m

R 15m

R 10m

Women Owned Businesses

 

9%

13%

8%

Black Owned Businesses

 

91%

87%

92%

Rural Owned Businesses

 

18%

25%

25%

Direct Jobs Created

 

1 217

652

435

 

 

 

 

 

PERFORMANCE OF THE LAND REFORM EMPOWERMENT FACILITY

 

 

 

 

Inception to 31 March 2003

FY 2003

FY 2004

Approved Loans - Value

 

R 86m

R 21m

R 31m

Approved Loans- Number

 

25

4

10

Beneficiaries- Number

 

1 567

538

774

Women Owned Businesses

 

53%

43%

63%

Black Owned Businesses

 

100%

100%

100%

Rural Based Businesses

 

100%

100%

100%

Direct Jobs Created

 

2 150

525

775

PERFORMANCE OF THE THUSO MENTORSHIP

 

 

 

 

Inception to 31 March 204

FY 2003

FY 2004

Approved Business Plans -Number

 

531

121

201

Approved Business Plans -Value

 

R 134m

R 30m

R 59m

Post-loan Mentoring Visits- Number

 

1 818

366

799

Women Owned Businesses

 

28%

30%

29%

Black Owned Businesses

 

84%

81%

75%

Rural Based Businesses

 

15%

35%

16%

 

GEOGRAPHIC COVERAGE

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Khula faces a number of strategic issues, which must be resolved to meet its mandate

 

ISSUES IMPACTING GROWTH

 

ISSUES IMPACTING FINANCIAL SUSTAINABILITY

  • Khula’s "product focus" is leading to missed opportunities
  • We don’t understand the needs of end users and channels
  • Deadline in core products and slow growth in new areas
  • Bad Department levels are unpredictable
  • Large potential exposure to credit guarantees
  • Current human resource capacity is also limiting
  • Needs more entrepreneurial team
  • Better performance management
  • Operating expense growth is running twice that of core revenues- unsustainable

 

  • Funds for distribution are tied up in investments
  • Investments are needed to fund operating costs and bad debts
  • Revenue growth is minimal; driven by investments- lack of operating income
  • Khula isn’t making money from its core business

Outline…

The vision for a New Khula…

A DFI committed to efficient and speedy delivery on its mandate

The following six initiatives will enable Khula to meet the challenges posed by these strategic issues:

Strategic Issues

  1. Develop ‘go to market’ strategy focused on customer needs
  2. Restructure organisation around ‘client based’ business units
  1. Conduct HR gap analysis and revise the performance management system
  1. Boost operating income through revised pricing structure
  1. Conduct zero based budgeting to achieve benchmark Opex- Income levels

6. Restructure credit guarantees to account for bad debt concerns

Action item 1- Develop customer- centric ‘go to market’ strategy

Focus on customer needs will increase support to SMMEs through improved products and services

Action item 2 – Restructuring organisation around ‘client based’ business units

A revised organisational structure, focused on unique customer segments, will more effectively meet Khula’s mandate

Needs based segmentation will create mutually exclusive and completely exhaustive (MECE) categories of customers

Market segments

 

Description

Channel

Product types

  • Mature Markets

 

 

  • Established entrepreneurs in formal businesses
  • Primarily urban

 

Banks

Private equity funds

 

Credit guarantees

Equity/ loan mix

  • Corporate Procurement

 

 

  • Partner with large and mid size Corporations to boost BEE procurement
  • Alliances
  • Equity/ loan mix
  • Bridging finances

 

  • Agri Business

 

  • Transfer ownership of economically viable farms to blacks
  • Finance value adding agri businesses
  • Banks
  • RFIs
  • Alliances (food companies)
  • Loans
  • Equity/ loan mix
  • Development Funding

 

  • Funding(smaller scale) to emerging entrepreneurs (semi- formal )
  • Primarily rural and peri-urban
  • RFIs
  • Loans
  • Seed funding
  • Franchising

 

  • Partner with large and mid size corporations to enable franchising of small businesses
  • Alliances
  • Equity/ loan mix
  • Bridging finance

A number of opportunities, in maximising access to finance to SMMMEs, are available for exploitation by Khula…

A customer –focused, entrepreneurial Khula will be able to take advantage of market opportunities to further its mandate

 

Concluding remarks…

Thank you