JP Morgan is stumping up R340m to help black-owned and operated small and medium enterprises (SMEs) access the funding they need to play a more active role in SA’s economy.
After more than two years of engagement with the department of trade, industry & competition, JP Morgan has become the first global investment bank in SA to launch an equity equivalent investment programme (EEIP). The initiative is being championed by the department as a way for multinationals to comply with broad-based BEE (BB-BEE) legislation without ceding equity stakes.
The New York-headquartered bank and the department announced details of the new Abadali EEIP, which will comprise a black business growth fund and a grant facility, in a webinar on Tuesday. JP Morgan will deploy R300m into the Abadali Fund and R40m towards the Abadali Grant, which together are expected to create at least 1,000 jobs and spark R2bn in financing transactions between the US bank and the programme’s beneficiaries over its eight-year lifespan.
“The announcement today shines a light on the flexibility of our regulatory regime. It enables foreign companies to comply with the BEE scorecard through measures other than direct equity in the firm, whilst at the same time assisting our efforts to broaden ownership in the economy,” trade, industry & competition minister Ebrahim Patel told journalists via the webinar.
While the codes of good practice of BB-BEE legislation require all businesses operating in SA to contribute towards achieving a more equitable economy, multinationals can get recognition for their transformation efforts without selling equity stakes. These so-called equity equivalent contributions are measured against 25% of the value of a multinational firm’s SA operations or 4% of the total revenue of local operations over a given measurement period.
The Abadali EEIP aims to tackle the critical funding gap experienced by black-owned and operated SMEs, which often don’t meet the traditional underwriting criteria of commercial banks. It will also provide business and mentorship support to qualifying early-stage enterprises including business case development, legal advice and tender negotiation support with the goal of assisting at least 500 early-stage businesses.
JP Morgan has already committed funding for the Abadali EEIP and plans to start deploying the money from September. Debt funding will be provided on flexible terms that will include heavily subsidised interest rates and repayment holidays while little or no collateral will be required.
Kevin Latter, JP Morgan SA’s senior country officer, said about 50% of the Abadali Fund will be focused on the industrial sector, while 15% will go towards businesses involved in the green economy. The remaining 35% will be targeted at financial services (digital and fintech), health care and education.
“If you’re going to be a responsible multinational in SA you have to try and contribute towards building a successful, sustainable future for the country, and we think this is the right model to do that,” Latter told Business Day in an interview.
“We think we’ve come up with a programme that will be a very impactful way to promote broad transformation because not only will it create jobs, but it also will enable people to become owners of their own businesses.”
Short-term financing will be provided to businesses with a capital requirement of at least R250,000 over one to 12 months even if they have minimal or no initial revenue.
Businesses with no trading history, financials or collateral will also be considered, provided they are integrated into government supply chains or those of large corporates.
Businesses with medium- to long-term funding requirements over two to five years will be able to access finance at significantly subsidised rates provided they have at least R1m in revenue. Eligible businesses will have to be black-owned and managed enterprises with a track record of at least 12 months.
The Abadali Grant, which will be managed by JP Morgan, will extend grants of R40m to developing black enterprises with a focus on supporting entrepreneurship, advancing jobs and creating skills for high-demand sectors.
The Abadali Fund will be overseen by JP Morgan and administered by Masakhe Partners, a joint venture between fund manager Edge Ventures and ProfitShare Partners, a short-term capital provider to the fintech sector, both of which are majority black-owned.
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