CAPE TOWN — Small business development agency Khula Enterprise Finance was to seek a R1,6bn capitalisation from the Treasury to enable it to finance its new direct lending operation and expand its loan book, currently sitting at R1bn, the agency said yesterday.
Small business development is widely acknowledged as the engine of economic growth and job creation, so an injection of funds into Khula is part of the government’s strategic objectives.
The agency, which does not get an annual allocation from the fiscus, ploughs its surpluses back into its operations. In the past, these operations were limited to providing loans indirectly as a wholesaler to small, medium and micro businesses through credit providers.
As a wholesaler, Khula has disbursed R1,7bn in loans since 2004- 05 and is now moving into the direct retail end of the lending business, in accordance with a Cabinet decision made in December 2008. MD Setlakalane Molepo told MPs in Parliament yesterday that he expected the first loans to be advanced towards the end of the financial year.
Business and implementation plans for the new venture, Khula Direct, had been finalised and approved by the government and it was now a question of recapitalisation, he said. A request would be made to the Treasury as part of the three-year, medium-term expenditure framework, and the agency would also approach the Industrial Development Corporation (IDC) and the Public Investment Corporation.
Mr Molepo told members of the economic development committee that Khula Direct would need a R1,1bn loan from the government and R100m as a business support grant, while the wholesale operation required a R400m recapitalisation.
Khula Direct would target the market for loans between R50000 and R500000 and would have a much higher risk appetite than commercial financiers, who avoided small enterprises because they could not provide collateral. It would adjust its products to suit the level of risk and would also provide heavily subsidised nonfinancial support to clients.
Mr Molepo said the aim was to make Khula Direct easily accessible — to within 50km of most people. It would have a network of branches and local offices and would employ field staff to market its products.
“Even though 48% of all SMEs (small and medium enterprises) are in Gauteng, we will only have 23% to 40% of our portfolio there as Gauteng is already relatively well serviced,” he said.
ensorl@bdfm.co.za