sefa: Bringing financing to SMMEs & Cooperatives

sefa CEO Thakhani Makhuvha sees huge potential for job creation through supporting SMMEs and Cooperatives


Small Enterprise Finance Agency (SOC) Ltd, commonly known as sefa, was established three years ago following the merger of the South African Micro-Finance Apex Fund, Khula Enterprise Finance Ltd and the small business activities of the IDC.

sefa’s mandate is to foster the establishment, survival and growth of SMMEs and Cooperatives and to contribute towards poverty alleviation and job creation. Their vision is to be the leading catalyst for the development of sustainable Survivalist, Micro, Small and Medium enterprises through the provision of finance. “In addition to being a loan financier, we also collaborate with other institutions to create an enabling environment that is conducive to provide finance and support to small businesses,” explains sefa CEO Thakhani Makhuvha.

Anyone with an interest in small business who drives down Jules Street in Joburg, for instance, will be heartened to see that practically every
building has a number of small businesses operating from it. Clearly the entrepreneurial spirit is flourishing in Joburg and South Africa as a whole.

“Entrepreneurship is huge in South Africa—it is vibrant and very active,” agrees Makhuvha. Surprisingly, South African SMMEs and Cooperatives
are bigger job creators than big business itself, with over 61% of jobs being created through the operations of small business and cooperatives.
Sufficient access to finance naturally plays a large role in maintaining this rate of employment opportunities, but there are numerous other challenges that SMMEs and Cooperatives face.

For a start, small businesses need to identify where they are able to sell their products or get exposure for their businesses, then they still need to be visible to their potential buyers. Such access to markets is one of the challenges that sefa has identified, although the agency has
already played a key role in establishing industrial parks and retail parks for SMMEs using properties they inherited from the Small Business
Development Corporation (SBDC). However, if you look at the informal businesses in Joburg, Tshwane, Cape Town and so on, the key challenges they face are the inadequate infrastructure available to them as well as the environment in which they must sell their products.

“If you look at the street vendors operating on our city streets, for instance, many of them don’t have adequate shading or storage space for their goods, cash or personal belongings. Access to quality business infrastructure—particularly in the poor areas—is a major challenge for
small businesses,” says Makhuvha.

Taking it to the people

sefa has a regional footprint of nine offices around the country, with certain provinces having multiple offices. The agency has also opened co-location offices with other agencies such as the Small Enterprise sefa CEO Thakhani Makhuvha sees huge potential for job
creation through supporting SMMEs and Cooperatives Development Agency (SEDA) and the Industrial Development Corporation (IDC).

“As sefa, we cannot achieve all of our stated goals on our own, so it is through partnerships that we have identified, from a strategic point of view, that we are able to really collaborate and find synergies. Through these dynamic and focussed partnerships we are able to ensure that small businesses out there get the help they need,” says Makhuvha.

Although they have a substantial national footprint, sefa realised it was essential to take their message to the people face-to-face.

“We have done many stakeholder engagements—we call them roadshows—across all nine provinces. Often we hold an event at town halls
and invite aspiring entrepreneurs as well as existing entrepreneurs to come and hear about the funding and general business assistance that is on offer from us and our roadshow partners, such as the IDC and the National Youth Development Agency (NYDA),” says Makhuvha.

These roadshows have proved crucial in terms of spreading the news to rural areas in particular, where access to the internet is scarcer than for urban entrepreneurs. sefa has rolled out these roadshows across all the provinces, and has also collaborated with local Chambers of Commerce as well as the South African Youth Chambers.

They also prioritise attending any youthrelated events, as the high rate of unemployment nationally makes it essential that young people are aware of the prevailing business opportunities for them to consider, as well as the available support that is out there to assist them to start or grow their own business operations.

“We engage a lot with local chambers of commerce and the likes of NAFCOC, the Black Business Council and even local government. When they invite us to their events, it gives us a valuable platform for sharing with the people of the region what we do and to offer them additional business support,” adds Makhuvha.

Who gets the funding?

sefa provides funding to small businesses, SMMEs and Cooperatives who need assistance ranging from R500 up to R5-million through Direct and Wholesale finance options. The first step is for the business owner to submit a business plan or a business profile for sefa to examine.

“We need to be able to see clearly from the business plan what the business will be doing, its income and expenditure projections and the
methods outlined to achieve these goals. It is essential to see where the business is coming from and it is our responsibility to ensure that the business is sustainable. We need to ask questions such as ‘Is there a market for this?’ and ‘Is their business idea unique?’” explains Makhuvha.

As sefa is registered with the National Credit Regulator, the agency bears the full responsibility in terms of all their lending activities. This means it is essential that a business plan demonstrates an ability to repay the loan. They also have to analyse the market to ensure that the market isn’t saturated or over-traded.

“It is our responsibility to be aware if somebody next door is operating a similar business or offering a similar service, as this is one of the fundamental problem areas that small businesses have to overcome,” says Makhuvha.

Invariably most of the business plans they receive are not watertight, even if they have been put together with the help of a business consultant. The crucial factor is that the applicant displays a solid understanding of their business plan and an objective view of the market potential for their business.

“We are willing to operate at a far higher level of risk by providing funding to clients that most banks would not normally support, or who have
already been declined,” says Makhuvha.

sefa works hand-in-glove with Cooperative Financial Institutions to assist their cooperative members. Under wholesale lending, sefa has a further funding instrument through their insurance subsidiary, Khula Credit Guarantee, which enables sefa to provide indemnity to banks. “If an applicant fails to meet their obligation in terms of a loan through a commercial bank then we might be able to indemnify the financial institution,” says Makhuvha.

Their target market is based on addressing economic imbalances in the country in order to create a more balanced society, with around 70%
of their funding being directed towards black -owned businesses.

Other key areas that sefa focuses on are businesses owned and managed by young people (30%), businesses based in rural areas, poor
communities and townships (45%), womenowned businesses (45%) and people with disabilities (2%).

Appraising their performance

As of the end of March 2015, sefa had disbursed over R2.1-billion into the economy during their three years of operation. Those figures are in
line with the expectations of their mandate from the stakeholders to whom they are accountable—Parliament, shareholders of the IDC as well as
the Department of Small Business Development.

The agency measures its success rate in terms of its developmental impact, and crucial to this assessment is keeping track of the success of the businesses that have received funding and other assistance.

“Most of our funding has been to assist businesses with contract financing, such as building roads or houses. They fulfil their contract, repay
the money and move on to the next contract,” says Makhuvha. However, the agency has identified numerous areas for evaluating the ongoing
success of the entities they have funded, and the road ahead is filled with promise and potential.

“We are open for business, funding is available and we will do everything to the best of our ability to assist South Africans to create sustainable businesses, thus creating jobs.”

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