SME DEVELOPMENT PRESENTATION TO INDEPENDENT BANKS (Doc. #72018) “UNLOCKING SME CREDIT AND UNLEASHING SME POTENTIAL” SURVEY ON HURDLES TO SME FINANCING 11 August 2010 Fikile Kuhlase Senior General Manager Socio-Economic Growth and Development Division SOCIO-ECONOMIC GROWTH AND DEVELOPMENT DIVISION 2 ■ Socio-Economic Growth and Development Division – catalyst for change; does “business unusual” and facilitates the institutionalisation of transformation. ■ FOCUS AREAS: ■ Financial Inclusion ■ SME DEVELOPMENT including nonfinancial support ■ Financial Literacy ■ Division’s Functional Strategy: ■ Empowerment ■ Transformation ■ Inclusion □ (refer to Division’s z-folder) CONTEXT – Why SME Development? South Africa’s financial sector has not met demand for SME financing especially the lower end of the SME market and previously disadvantaged SMEs as they are considered to be of greater credit risk and lack collateral and financial business expertise. “Missing Middle”, gap in capital : above microfinance and below traditional institutional financing where SMEs are located and underserved SME development is a priority area of the SA government. Banking industry to align. Thus a strategic objective of the Association. 3 SME Initiatives 4 ■ Financial Sector Charter and BBBEE ■ Finance and Investment Committee - Credit Extension to distressed SMEs (global crisis response) – NEDLAC ■ Financial Sector Program (FSP)– USAID ■ SME Financial Literacy – BANKSETA and FSP ■ Risk Capital Facility (RCF) – EU fund admin. by the IDC ■ Stakeholder engagement – Gauteng Dept. of Economic Dev’t, IDC, Khula, SEDA, SAMAF, DFIs, dti, donors etc. ■ Research and Knowledge Management ■ “Downscaling”, inclusive banking & financial inclusion – micro-finance, co-ops & coop. banks. Kenya study tour Financial Sector Program 5 ■ Objective is to expand access to financial services and lower financing cost for small and medium enterprises (SMEs) ■ Improve financial intermediaries capacity to serve SMEs ■ Improve bankability of SMEs ■ Legal and regulatory framework reform financial sector and business environment ■ Strengthen the SME finance knowledge management system ■ The Banking Association SA is a prime partner of FSP FSP PARTNERSHIP 6 ■ The Banking Association and USAID partnership on Financial Sector Program (FSP) ■ To expand access to high-quality, affordable financial products and services for SMEs. ■ Key Areas of Focus: i. ii. iii. iv. Financial services SME bankability Enabling environment Knowledge sharing FI Survey on Hurdles to SME Financing 8 ■ 18 Financial Institutions – banks, DFIs and private equity funds participated in the online survey ■ 9 banks - ABSA, African Bank, Albaraka, Bank of Athens, FNB, Mercantile, Nedbank, Sasfin, Standard Bank and Wizzit ■ Top 5 Hurdles Identified: ■ Financial status / cash-flow ■ Accurate financial records or statements ■ Collateral ■ Over-indebtedness ■ Business plans and business skills ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ MAJOR FINDINGS OF FSP SURVEY 9 Review of evaluation criteria for SMEs necessary Inaccessibility – language, attitude and responsiveness Inappropriate SME products – lack of diversity Complex application process Lack of quality business development support (grading and accreditation of BAs) SME business skills to be developed SME bankability – understanding of FI req.’s Limited understanding of regulation – company & VAT reg., FICA compliance, NCA… Ineffective advocacy for SME sector – KM Lack of access to IT infrastructure WORK IN PROGRESS 10 ■ Business Development Support provision – grading, accreditation and professionalisation of Business Advisors ■ Regulatory reform – New Companies Act, Basel II and III, NCA etc. ■ SME Product Development & SME Fin. Literacy ■ Knowledge Management – SME portal ■ Research on Micro-Finance, Cooperatives and Cooperative Banking ■ Stakeholder engagement PROPOSED INTERVENTIONS 11 ■ Products and Services – review guarantee funds, ■ ■ ■ ability to call on collateral, review credit assessment tool/approach, develop SME specialists, designate SME champion, reconstitute credit committees, minimise approval turn-around time, provide mentoring, develop a “real” SME product… Business Development Support – establish accreditation and grading institute, create panel of BDS experts, set industry-wide BDS standards, professionalise sector, develop generic SME financial literacy course, develop online, open-source and interactive learning, training needs assessment… Policy and Regulation – identify inhibiting regulations and laws, RIA, promote “one-stop” reporting on SME statistics, lobby to prevent regulation ‘overload’, support the creation of SME Ministry… Knowledge Management – unify existing advocacy groups est. BUSA SME policy committee, facilitate set-up of SME forum, SME bank, design and develop SME portal and data repository, research and knowledge sharing… CONCLUSION 12 ■ SME Development is a catalyst for change, economic growth and job creation ■ FSC achievement on black SME financing as at end of 2008 is R11.4 billion by the sector (R10.6bn by banks) The target for 2003 – 2008 was R5 billion. ■ Final FSP Report on the “Hurdles to SME Financing” will be published ■ Stakeholder engagement critical ■ SME Development is a major strategic thrust of the Association and we encourage members that operate in the SME space to be involved in the SME Committee and industry SME initiatives. □ THANK YOU!