ENTERPRISE FINANCE L TD PRESS RELEASE
01 November 2006
KHULA'S GROWTH STRATEGY ON TRACK
At a presentation to the Portfolio Committee on Trade and Industry, Khula revealed today that its growth strategy adopted in 2004 was on track and continues to show positive results. Total disbursements were marginally up at R329 million over the previous year, affected in part by the transfer of a portion of Khula's business to the newly formed South African Microfinance Apex Fund (SAMAF). Growth in guarantees taken up was robust at 24% over the previous year, while loan advances to intermediaries increased by 13%. In the previous financial year, the company notably also launched the Business Partners Khula Start-up Fund which was capitalised at R 150 million and is dedicated to the financing of start-up and early stage businesses.
Over the last two years Khula has focused its energies on (i) re-organising its internal operations to better serve the SME market, (ii) seeking better strategic alignment with its channel partners and intermediaries and (Hi) introducing new products and distribution channels. The announcement today on progress in relation to the execution of its growth strategy is a positive indication that the organisation is taking strides in bridging the SME financing gap and delivering on its mandate.
"Weare determined to see the vision of a robust, relevant and effective Khula through to fruition", says Xola Sithole, Khula's Managing Director. "The institution is now a lot more focused and our partners are aware that we are serious about achieving our objectives of maximising access to finance to SMEs in a financially sustainable manner.
We recognise that a lot of work still needs to be done. Whilst it's commendable that the financial sector is talking more and more about the provision of finance to SMEs, huge challenges still remain, especially in respect of start-up businesses and entrepreneurs with limited or no collateral. This is the space that Khula will continue to occupy without "crowding out" the private sector. We are constantly looking for partners that understand the nuance and dynamics of this market segment and are serious about making investments in the SME financing landscape", he says.
While Khula has grown disbursements by 60% since 2003, this growth has not been at the expense of quality. The provision for bad debts as a percentage of the loan book has come down from 38% in 2002 to 2% in 2006. The organisation is also focusing on growing the proportion of income from its core business, with interest revenue from lending operations increasing by 49% in 2006 compared to the previous year.
"All of this has been achieved within the constraints of the wholesale business model, which has been a feature of Khula since inception in 1996. The model is restrictive and creates a distance between us and the entrepreneurs we serve. It limits our ability to control our destiny which is currently in the hands of our channel partners and intermediaries", says Xola Sithole. He also announced that Khula is preparing a business case for presentation to its shareholder the government to change its mandate so it can lend directly to a select segment within the broader SME market. "I firmly believe that to take the organisation to the next level of delivery, such a change is of utmost necessity", Sithole said.