Minutes of the BDS - Finance Forum

Date: Wednesday, May 20, 2009

Time: 8:30 - 13:30

Venue: Graduate School of Business, Breakwater Lodge, Waterfront, Cape Town

Agenda

1.     Registration 2.     Introduction and Project Overview 3.     Feedback on 2008 Forum 4.     BDS perspective on access to finance in recession 5.     Financial Institution perspective on access to finance in recession 6.     Government support agency perspective on access to finance in recession 7.     Comments and concerns raised 8.     Outcomes and Recommendations

1. Registration and Attendance

On Wednesday 20^th May 2009, Swisscontact organized the second BDS - Finance Forum with the aim to discuss ‘ Access to Finance for SMEs in times of economic recession’ and how it affects BDS providers and Financial Institutions.

The event was facilitated by Professor Wolfgang Thomas of the University of Stellenbosch. Around 40 participants, among which representatives from BDS providers, Financial Institutions, SME support programs, academics and SMEs, were present in the room.

2. Introduction and objective

Deputy Country Representative of Swisscontact South Africa, Ms Marianne Sulzer welcomed all the participants and introduced the objective of the day: how can the partnership between financial institutions, BDS providers and small businesses be improved in order to increase the lending to SMEs?

3. Feedback on 2008 Forum

This year’s forum was a follow up on the one held during the Small Business Week in August 2008. Among other conclusions derived from the previous and first ever Forum, the need was identified by Business Development Service Providers (BDSP) as well as small business owners in the Western Cape for financial institutions and BDSP to improve their communication channels, specifically relating to information regarding requirements for access to finance for small businesses.

The first forum also gave Swisscontact a mandate to host a follow up Forum where progress will be measured and a sustainable work plan developed. Some participants expressed their satisfaction about the improved communication they now have with Financial Institutions since the first Forum was held.

4. BDS perspective on access to finance in recession

The perspective of BDS providers regarding challenges they experience with Access to finance for small businesses, were echoed by Mr. Solly Fazel-Ellahi from Hlumisa Small Business Solutions CC as well as by Mr. Jayant Gajjar of Ascend Business Solutions.

From the two presentations, the following similarities in some of the diverse challenges faced by BDS providers were highlighted:

• On the supply side of access to finance, a challenge was pointed out with regard to the lack of tailor-made credit products available to SMEs. Lack of funding alternatives to the Khula guarantee scheme; banks not understanding the SME market well enough to develop loan products that are suitable to small and micro enterprises; stringent bank internal systems that do not allow for cash flow challenges of small businesses.
• Loan processing obstacles - such as long turnaround times, stringent requirements, less flexibility, administration costs and high interest rates - make it difficult to facilitate access to finance for SMEs.
• On the demand side, small businesses have adverse credit records, limited or no security and often lack the necessary technical and business skills to make their businesses a success.

5. Financial Institution perspective on access to finance in recession

From the Financial Institutions’ point of view, the presentation was done by Ms. Funeka Ntombela, CFO Retail Banking, Standard Bank, and her focus was on how Standard Bank operates, its reaction to the current financial crisis as well at the effects it has on small business lending. Other Financial Institutions present were Absa, Nedbank, and Samaf.

According to Ms Ntombela’s presentation, the following points were critical, namely:

• Banks have now become more stringent in their lending assessment as a result of the global financial crisis. Nevertheless, the lending portfolio has increased by 13% in the first quarter of 2009, so the bank is lending out.
• More and more bank clients are also beginning to take a strain financially and this is evident in the clients’ escalating default rates.
• The informal business sector is still under-served by commercial banks and Standard Bank is currently conducting a market research in order to complement their Community Banking Solutions Initiative to respond to the needs of that unbanked market. This initiative will be launched in about one year from now.
• The most common reasons why some SMEs’ loan applications get declined are:

ü  Mismatch between the loan and purpose for which it was meant for

ü  Incomplete business plans submitted

ü  Insufficient security

6. Government agency perspective on access to finance in recession

Seda (Small Enterprise Development Agency) represented by the Provincial Manager Mr. Chabalala gave an overall picture of the role that Seda plays in SME development where they provide non-financial support services to SMEs. A need for all stakeholders in the SME development sector to work together was cited as a critical factor. Information dissemination needs to be given priority were the public can be mobilized and informed about the various products available in the market where SMEs can benefit from. Seda can play a role of improving the skills level of the entrepreneurs and in so doing helping to minimise the chances of failure.

7. Comments and Concerns raised

During interactive discussions, many concerns and some critical questions were raised some of which were answered in the proposed actions and some really being just comments to be taken into consideration when planning for another event. They are as follows:

Ø  Khula’s plan to lend directly to SMEs. What impact will it have on banks’ commitment to lend to SMEs especially under the trying times they find themselves under?

Ø  Future forums must have a broader representation of participants including all banks and more Development Finance Institutions as well as other government programs.

Ø  What is the total potential demand that SME programs are serving relative to the actual population?

Ø  How do we ensure that we obtain optimum outreach (including start ups and microenterprises) in the services we provide?

8. Outcomes and Recommendations

ü  A more coordinated approach is needed between BDSPs, FIs and government-funded programs with regard to SME development. This will ensure that all stakeholders compliment each other’s work and that communication becomes even more effective than it is at present.

ü  Broaden the participation of stakeholders in the next forum in order to get more buy-in and ownership in the solutions that need to be auctioned.

ü  Increase awareness of issues raised in the Forum by making the minutes and presentations available to all participants and interested parties.

ü  Form a steering committee with representatives from FIs, BDSPs and government agencies to coordinate and oversee the implementation of recommendations made at the last two Forums. Assign different tasks to sub-committees where the membership is voluntary. Two members publicly volunteered to be involved in the steering committee, they are Solly Faizel-Ellahi and Jayant Gajjar.

ü  Improve communication and product knowledge of all stakeholders about each other’s offerings by compiling a factsheet and disseminating it to all members of the Forum.

ü  Other sub-committees can be tasked with:

o    Collection of information to promote alternative finance schemes such as microfinance and stokvels

o    Development of a roadmap for increased access to information of small businesses (what role can chambers, community centres, universities, etc. play to bring the services and information to the people?)

o    Collection of information of banks’ and other FIs’ offering and requirements for funding

o    Develop and share case studies

ü  To ensure long term sustainability of the Forum, the steering committee will have to play a leading role with Swisscontact only playing a supporting role.

Pretoria, May 25, 2009/ Neo Seleke