Advancing the development of vibrantsmall businesses and co-operatives.

sefa’s 2019/20 Corporate Plan

4 July 2019

ACEO

Presentation Outline

2

• Introduction

• Vision, Mission, Objectives and Values

• Policies and Legislation that guides sefa’s Operations

• Main Business and Funding Activities

• Lending Model

• Organisational Footprint

• sefa’s Strategic Focus for 2019/20

• Organisational Assessment - SWOT

• Strategy Map for 2019/20

• Corporate Plan Implementation

• Organisational Measurement – BSC

• Loan Book Outcomes

• Financial Results

Introduction

3

• sefa was incorporated on 1 April 2012 under Section 3(d) of the Industrial Development

Act as a development finance institution with a mandate to provide financial support to

SMMEs and Co-operatives.

• sefa targets high-risk market segments that are not traditionally served by the commercial

banking sector. sefa’s operational model has been designed to address this market failure

by providing finance directly through its regional branch network as well as indirectly

through wholesale finance and credit guarantee products.

• Since inception upto 2019 FY, sefa disbursed funds to the value of R6.8 billion to 359 572

SMMEs and Co-operatives and facilitated the creation and maintenance of 401 160 job

opportunities.

• The 2019/20 Corporate Plan assumes a strategic posture that seeks to strike a balance

between the delivery of its mandate, the pressing need to be financially sustainable and the

priorities identified in the Medium Term Strategic Framework (2019 -2024) of the sixth

administration.

Vision, Mission, Objectives & Values

4

Valu

es

Vis

ion To be the leading catalyst for the development of sustainable Small Medium and Micro Enterprises and

Co-operative Enterprises through the provision of finance.

Mis

sio

n

To provide simple access to finance in an efficient and sustainable manner to SMMEs and Co-operatives

throughout South Africa by:

• providing loan and credit facilities to SMMEs and Co-operative enterprises;

• providing credit guarantees to SMMEs and Co-operative Enterprises;

• creating strategic partnerships with a range of institutions for sustainable SMME and Co-operative

enterprise development and support;

• developing, through partnerships, innovative finance products, tools and channels to catalyse increased

market participation in the provision of affordable finance.

Ob

jecti

ves

• Increase access and provision of finance to SMMEs & Co-operatives and contribute towards job

creation

• Build an effective and efficient sefa that is sustainable and performance driven

Kuyasheshwa!Passion for

developmentIntegrity Transparency Innovation

Policies & legislation that guide sefa’s Operations

5

Foundational Policies Sector-Based Policies Legislation

The National Strategy on the Development and

Promotion of Small Business in South Africa (1995)

Co-operatives Development Policy (2004) National Small Business Act (1996;

revised 2004)

Integrated Small Business Development Strategy

(2004 – 2014)

Integrated Strategy on the Development

and Promotion of Co-operatives (2012)

National Credit Act

The Integrated Strategy on the Promotion of

Entrepreneurship and Small Enterprises (2005)

National Informal Business Upliftment

Strategy (2013)

Industrial Development Act

Youth Enterprise Development Strategy

2013-2023 (2014)

Financial Intelligence Centre Act (FICA)

Consumer Protection Act, 2008

Companies Act of 2011

Co-operatives Act (No. 14 of 2005)

Short Term Insurance Act

Promotion of Access to Information Act,

2000

Public Finance Management Act (1999 as

amended)

Main Business and Funding Activities

6

• Direct Loans (asset finance, Term

Loans, Revolving loans & Bridging

loans, Purchase Order Product,

Invoice Discounting Product &

Amavulandlela & Inyamazani

Schemes for entrepreneurs with

disabilities & Military Veterans

respectively)

• Wholesale Loans and Equity

(on-lending facilities, Funds & joint

ventures, Micro-finance, Structured

Finance Solutions)

• Business Support (Institutional

strengthening, technical support &

mentorship)

• Credit Guarantees (Credit

Indemnity guarantees & Supplier

guarantees)

• Rental Property

• SMMEs & co-operatives that

are unserved and

underserved by commercial

lenders

− women,

− black people,

− youth,

− Township-based

enterprises,

− rural communities and

− people with disabilities.

Products Targeted ownership

groups

• Services (including retail,

wholesale, IT and tourism,

transport logistics);

• Manufacturing (including

agro-processing);

• Agriculture (specifically land

reform beneficiaries and small-

farming activities).

• Construction (small

construction contractors);

• Mining (specifically small

miners) and

• Green industries (renewable

energy, waste and recycling

management).

Sectoral involvement

Lending Model

7

Operational Footprint

8

• sefa has around 82 access points throughout South Africa.

• The 24 specialised access points (via our strategic funding

partners) have not been included on the map.

Johannesburg

Polokwane

Nelspruit

Soweto

DurbanPietermaritzburg

Mthatha

Cape Town

George

Upington

Kimberley

Mahikeng

Bloemfontein

Beaufort West

East London

CenturionRustenburg

Saldanha

Tshwane

Ekurhuleni

c

c

c

c

c

cc

cc

c

sefa offices

sefa co-locations

Klerksdorp

cVryburg

c

Khayelitsha

Wynberg

cStellenbosch

c

Vredenburg

c

Worcester

c

Thohoyandou

c

Mokopane

c

Jane Furse

c

Tzaneen

c

Kuruman

c

De Aar

cSpringbok

c

Bushbuckridge

c

Secunda

c

Emalahleni

cMalelane

c

Diepsloot

Queenstown

Mount Ayliff

Aliwal North

cTrompsburg

c

Welkon

cPhuthaditjhaba

cSasolburg

c

Port Shepstone

cRichards Bay

c

Ladysmith

cc

c

c

c

Kokstad

cOudshoorn

Knysna

c

c

Port Elizabeth

cHermanus

cMosselbay

Uthungulu

Newcastle

sefa’s Key Focus Areas – 2019/20

9

• Scale up the development impact amongst SMMEs and Co-operatives using innovation and leverage while at the same time contributing to the sustainability of funded clients. To this extent sefa will introduce a blended financing model in partnership with government and the private sector;

• Introduce target lending programmes in economic sectors identified in the June 2019 State of Nation Address for youth owned enterprises and enterprises located in townships and rural communities/villages;

• Scale up and deepen the post-investment support by reducing impairments, improving collections and client sustainability;

• The repositioning of the Direct Lending program and the disposal of the Property portfolio;

• Reduce operating costs, improve efficiencies, build skills and capabilities;

• The development of agile business and management information systems for decision-making and improving customer interaction; and

• Deepening the collaboration with Small Enterprise Development Agency, in particular by providing seamless online services to SMMEs and Co-operative Enterprises and pre- and post-investment support services

Organisational Assessment - SWOT

10

Strengths Weaknesses• Uniqueness and relevance of sefa’s mandate

• National presence of sefa – Regional office

network and its partner institutions

• Capacity to convene and mobilise strategic

partners and alliances

• Ability to facilitate innovation (new product

development)

• Good governance (unqualified clean audit with

no findings)

• In-house loan administration system (sefaLAS).

• Business development support through Khula

Institutional Support

• Complementary relationship with Seda.

• IDC institutional and financial support

• Legacy issues resulting from the merger

o human capital

o properties

o certain old partnerships

• The high cost of lending to SMMEs & Co-

operatives

• Quality of the Loan Book deteriorated resulting in

high impairments

• Organisational capabilities & culture

• Non-integrated product design, offering,

processes and accessibility

• Low uptake of the Credit Indemnity Scheme

• Socio-economic responsibility that creates a cost

structure that requires subsidisation.

Organisational Assessment – SWOT (cont.)

11

Opportunities Threats

• Political support to grow sefa’s loan book

• Massive demand for SMME & Co-operative finance

• Public sector 30% procurement set aside

• Private sector enterprise development (ED) activities and

BEE code alignment

• Leveraging of R15,5 billion allocation to SMMEs & Co-

operatives across government departments

• Grant funding opportunities & Fund Management

• Relationship with public sector and DFIs

• Local Economic Development opportunities through

relationships with municipalities & traditional authorities.

• Co-locating with other DFI partners will have an impact on the

sefa operating model.

• Use big data and analysis to understand customer needs.

• Increased appetite for SMME development

• Partnering with other NPC’s to creating a viable ecosystem for

SMMEs.

• Low levels of capitalisation resulting in an

unfunded mandate

• The high-risk target market

• Lacklustre recovery in macro-economic

conditions

• Sub-optimal entrepreneurial eco-system

• Fiscal constraints and reduced MTEF

allocation

• The unwillingness of certain entities to

provide cessions of payments

• sefa financial sustainability

• Declining state public finances due to poor

fiscal management by SOEs

• private sector players may consume sefa's

mandate in providing access to inclusive

finance

sefa Strategy Map 2019/20

12

DEVELOPMENT IMPACT SUSTAINABLE ORGANISATION

A. Upscale and deepen its development

impact

B. Support client sustainability

C. Turnaround of under-performing portfolios to

reduce leakage

D. Move towards financial sustainability

1. Intensify leverage (financial & non-financial) through eco-system partnerships & donors

2. Extend our geographic reach and impact in under-served provinces

3. New innovative product development (blended financing)

4. Strategic market outreach

1. Implement integrated service delivery model with Seda & IDC

2. Implement Small Business online service (call Centre, online SMME portal, Small Business App, One Stop Shop SMME Centre)

3. Improve intermediary sustainability through capitalization and business support

1. Work towards attaining a 100% cost-to-income ratio

2. Income enhancement through review of pricing model, new income generating products & fund management (such as SME Innovation Fund)

3. Cost containment measures (staff, shared services, new regional delivery model and reduced lease costs)

4. Differentiated approach to funding

1. Reduce Loan impairments through post loan mentorship support and other post loan support strategies.

2. Improved investment quality through risk-based portfolio construction & cession of payments

3. Enhanced collections & pro-active monitoring

4. Phased sale of the property portfolio

5. Redevelopment of properties with potential and ultimate exit

E. Improved efficiency & effectiveness

1. Programme reviews & improved product design through EU technical assistance & IFC support

2. IT system automation

3. Human capital development

Corporate Plan Implementation

13

• Enterprise risk

management

• Credit Risk Management

• Compliance Management

• Internal Audit

• Company Secretariat

1.

Access to finance for

SMMEs & Co-operatives

2.

Post Investment

Monitoring / Workout &

Restructuring

Management

3.

Build an efficient &

effective sefa that is

performance driven &

sustainable

4.

Build a strong and

effective brand

emphasizing accessibility

to funding

5.

Compliance, governance

& Enterprise Risk

Management

6.

Property Management

• Informal Sector & Micro-

Enterprise Finance

• Direct Lending

• Wholesale SME Lending

• Co-operative Enterprise

Lending

• Credit Indemnity Scheme

• Financial & Supply Chain

management

• Human Resource

Management

• Information &

Communication

Technology

• Corporate Strategy &

Reporting

DEVELOPMENT IMPACT SUSTAINABLE ORGANISATION

• Implementation of Corporate Plan through six Programmes

Organisational Measurement - BSC

14

Perspective Objective Measure

Target

Indicator

2019/20

Weight

Approvals 929 784 10%

Cu

sto

me

r P

ers

pe

cti

ve

Access to finance

by SMMEs and

development

Impact

Total disbursements to SMMEs and Co-operatives (R'000) 793 930 10%

Number of SMMEs and Co-operatives financed 90 178 5%

Number of jobs facilitated 91 997 5%

Facilities disbursed to youth-owned (18-35 years old) enterprises (R’000) 239 229 5%

Facilities disbursed to rural and village communities (R’000) 448 055 5%

Facilities disbursed to women-owned businesses (R’000) 448 055 5%

Facilities disbursed to black-owned businesses (R’000) 665 255 5%

Disbursements to township-based enterprises (R'000) 324 254 5%

Facilities less than R500K disbursed to end-users 89 952 5%

Facilities to people with disabilities (R’000) 15 949 5%

Level of customer satisfaction 85% 5%

Sub-Total 70%

Fin

an

cia

l

Pe

rsp

ecti

ve

Building sefa

financial

sustainability

Cost-to-income ratio before impairments 83% 10%

Accumulated Impairment provision as a percentage of total loans and advances (excluding Direct

Lending disbursement prior to 1 April 2016)33% 7.50%

Collection Rate (All in cash) 85% 7.50%

Sub-Total 25%

PE

OP

LE

LE

AR

NI

NG

AN

D

GR

OW

T

H

Labour turnover rate of critical strategic positions 10% 2.50%

Percentage of staff (P – Band and above) that scores 3.1 or more in the annual performance

assessment.80% 2.50%

Sub-Total 5%

Total 100%

Loan Book Outcomes

15

Approvals and Disbursements

Enterprise Financed and Jobs

Approvals and

Disbursements2019/2020 2020/2021 2021/2022 MTEF 5 Years

Value of Approvals: small &

medium enterprises (R'000)929 784 1 179 040 1 348 989 3 457 813 6 559 920

Value of disbursements: small &

medium enterprises (R'000)793 930 937 121 1 021 738 2 752 789 4 818 560

Enterprises Financed and

Jobs Facilitated2019/2020 2020/2021 2021/2022 MTEF 5 Years

No of SMMEs and Co-operatives

Financed 90 178 93 371 96 751 280 300 480 861

No of Jobs Facilitated (created

and sustained)91 997 95 363 98 586 285 946 490 019

Loan Book Outcomes (cont.)

16

Targeted groups

Support to Targeted Groups 2019/2020 2020/2021 2021/2022 MTEF 5 Years

Disbursements to black-owned

Enterprises (R'000)665 255 769 382 832 885 2 267 522 3 957 612

Disbursements to women-

owned Enterprises (R'000)448 055 515 719 557 339 1 521 113 2 653 040

Disbursements to youth-owned

Enterprises (R'000)239 229 282 224 307 645 829 098 1 451 181

Disbursements to township-

owned Enterprises (R'000)324 254 364 523 390 591 1 079 368 1 876 094

Disbursements to enterprises

owned by entrepreneurs with

Disability (R'000)

15 949 18 815 20 510 55 274 96 745

Disbursements to enterprises

located in rural and village

communities (R'000)

448 055 515 719 557 339 1 521 113 2 653 040

Disbursements to enterprises -

number less than R500k89 952 93 092 96 440 279 484 479 426

Programmes 1: Access to Finance

17

• Grow a quality loan

book: Promote the

growth of developmental

MFI market in

collaboration with the

European Union.

• Develop strategic

partnerships with like-

minded organisations

to enhance integrated

eco-system: Build and

expand corporate

partnerships like Coca

Cola Beverages SA, DPW

and enterprise

development hubs

• Develop new

products: Leverage on

the EU funding to

develop risk sharing

mechanisms to support

MFIs.

Informal Sector &

Micro Finance

• Implementation of

the Employment

Promotion through

SMME Support

Programme: sefa will

operationalise the ‘Access

to Finance’ component of

the Employment

Promotion through

SMME Support

Programme, funded by

the EU through the

provision of Wholesale

lending through financial

intermediaries. Funding to

SMMEs will be channelled

through two (2) funds,

namely the Enterprise

and Supplier

Development (ESD) Fund

(€10 million) and the

Innovation fund (€20

million), through various

funding windows.

Wholesale SME

Lending

• One Hundred

Thousand Youth Fund:

sefa will partner with

financial intermediaries

through the SBIF to fund

one hundred thousand

entrepreneurs over 4

years. Funding will be

targeted to youth-owned

enterprises that create

and sustain at least 10

jobs each.

• Restructuring of

underperforming co-

operative loans:

• Increase collaboration

with Seda and DSBD:

sefa to refer Enterprising

Co-operatives that are in

early stages of business

cycle to Seda and DSBD

to provide non-financial

support. Once done, they

will be referred back to

sefa for funding.

Wholesale SME

Lending cont.• Build Strategic

Partnerships: Build

partnerships with like-

minded organisation to

enhance the ecosystem

(i.e. commercial banks,

NBFI, corporates and

retailers)

• Grow and improve the

quality of investments:

Enhance market and

product development to

better serve the needs of

SMMEs across industries

and increase

attractiveness of the

scheme subject to

acceptable risk

exposures.

KCG

Programmes 1: Access to Finance (cont.)

18

Small Business and Innovation Fund: The February 2019 Appropriation Bill established and

allocated R3.2 billion over the MTEF period to sefa as the implementor of the Small Business and

Innovation Fund (SBIF).

• The Fund targets underserved SMMEs in the early stages of the business development cycle.

• It provides a range of financial instruments beyond what sefa can offer, including grant and quasi-

equity funding which is more suitable to this sector which carries a higher risk.

Strategic objectives of the fund:

• Increase access to finance to SMMEs and Co-operatives with specific emphasis on those in the early

stage the business cycle;

• Increase the number and diversity of financial intermediaries that serve the SMMEs and co-

operatives;

• Promote and facilitate funding of innovation in key industry sectors aligned to the government’s

industrial policy and science and technology innovation strategy;

• Enhance financial inclusion by increasing access to finance for enterprises owned by targeted groups

(women, youth, township and rural communities); and

• Leverage private sector investment to small businesses

Small Business and Innovation Fund (SBIF)

Programmes 1: Access to Finance (cont.)

19

SBIF will be made up of four funding windows:

• Innovation: Intermediaries such as Venture Capital firms, Research Institutions and

technology Incubators will be able to access funding for ideation, proof of concept, start-

up and growth enterprises;

• SMME Kickstart – Retail Financial Intermediaries: sefa will partner with SMME financiers

in the private and public sectors for on-lending to start-up and growth enterprises;

• SMME Kickstart – Incubators: sefa will partner with mainly seda incubators for the

purposes of funding SMMEs in the start-up phase; and

• SMME Kickstart – Blended Funding: sefa will access a portion of the SBIF funding to

implement blended funding through the wholesale and direct lending channels.

• The fund will become operational in the second quarter of the financial year.

Small Business and Innovation Fund (SBIF)

Programmes 1: Access to Finance (cont.)

20

• Grow the quality of investments through a sector driven investment strategy:

1. Contract Finance

2. Franchise

3. Small Scale Manufacturing

4. Commercial – refers to commercially viable opportunities that do not fit into the contract

finance, franchise or manufacturing sectors.

• Leverage public & private sector partnerships in the SMMEs ecosystem

1. Build quality transaction pipeline for DL to execute

2. Ring-fence support to SMMEs that are linked to specific strategic partners to enhance SMME

sustainability

3. Roll out invoice discounting product

4. Implement Inyamazani Funding Scheme and enhance Amavulandlela Disability Scheme

• Develop and implement technology solutions to enhance customer experience and

operational efficiency:

1. Direct Lending has identified technology is a crucial enabler to operational efficiency and

enhancement of the customer experience

• Improve collaboration between Post Investment and Direct Lending to facilitate

proactive management and reduce impairments.

Direct Lending

Programmes 2: Post Investment / Workout and Restructuring Management

21

• Pro-active Monitoring of Portfolio Investments through regular site visits

and other electronic monitoring tools

• Proactive Workout and Restructuring of clients accounts whose business

are in distress

• Implement Mentorship and Business Support

• Delinquent Loan accounts and Collections

• Establish partnerships to provide value-added services to sefa clients

• Investment in IT Systems to enhance the relationship with clients and

improve the monitoring of clients business performance

Stra

tegi

c In

itia

tive

s

• Accumulated impairments 35%

• Collection rate 85%

Outp

uts

Programmes 3: Build an Efficient and Effective that is performing Driven and Sustainable

22

• Cost management

• Cash preservation & cash

management

• Raise additional funding

through external donors

• Improved financial integrity &

automation

• Compliance with policies

Stra

tegi

c In

itia

tive

s

• At least 2 reports on process

costs and savings due to

enhancements

• Implement automated system

for cash requirements

• At least 2 workshops held &

100% of processes well definedOutp

uts

Financial Management

• Invest in organizational development &

build corporate culture

• Improve organizational performance

through targeted employee skills

enhancements & improved process

management

• Enhance organizational sustainability

through increased compliance to

legislation

• Implement stage 1 of the investors in

People Standard to drive performance

• Implement skills audit to assess gaps

• Implement productivity measurement

process

• Compliance with 100% of Human

Capital, Occupational Health & Safety

related Legislation.

Human Capital

Programmes 3: Build an Efficient and Effective that is performing Driven and Sustainable

23

• IT Service Delivery &

Management

• Network/Infrastructure

Management

• Business Intelligence

• Customer Automation

• Business system automation

• SMMEs and Co-operatives

Online Services

Stra

tegi

c In

itia

tive

s

• At least 1 DR test on critical

hosted services

• Improve efficiencies or reduce

costs of at least 5 processes

through automation or re-

design

• 1 internal review & update per

yr, 1 external review

Outp

uts

ICT

• Corporate planning & reporting

• Research management and information

dissemination

• Strategic project management

• New product development

• Compile & submit quarterly reports

to Shareholder, Board and the

Executive Authority

Corporate Strategy

Programmes 4: Build a Strong and Effective sefa Brand Emphasizing Accessibility to SMMEs

24

• Enhance sefa Brand & accessibility of its products and services

• Customer relationship management

• Stakeholder engagement

• Build an effective internal communication platform

Stra

tegi

c In

itia

tive

s

• Production of the Annual Report

• Community media

• Sefa digital platform

• Create awareness of the CRM processes

• Conduct customer satisfaction survey

• Ongoing engagements with strategic stakeholders

Outp

uts

Marketing & Communication

Programmes 5: Compliance, Governance, Enterprise Risk Management and Internal Audit

25

Stra

tegi

c In

itia

tive

sO

utp

uts

• Capacity building of risk champions

• Implement effective risk monitoring & reporting

• Develop risk appetite framework

• Improve governance processes

• Review business policies for regulatory alighnment

• Liaise and report to regulators

• Review remainder of ORSA related policies

• Improve coverage of compliance

• Maintain and enhance SME scorecard

• Update the Credit and Investment Risk policy

• Review implementation of all existing SLAs

• Impairment model with IFRS 9

Compliance, Governance, Enterprise Risk Management & Internal Audit

Programmes 6: Property Management

26

Stra

tegi

c In

itia

tive

sO

utp

uts

• Improve the Cost to Income ratio

• Imcrease property occupancy ratio

• Improve collections

• Dispose of investment property portfolio

• Updated lease agreement – 100% of tenants

• Cost to income ratio of 163%

• Collections rate – 60% plan formulated and approved

sefa Group Annual Financial Results

27

Statement of Comprehensive Income

Statement of Financial Position

29

Cash Flow Statement

30

ThankYou

31