The Small Enterprise Finance Agency (Sefa) is to axe some of the intermediaries it had retained to distribute funding to small businesses that are beyond its reach.
It is also looking to set the maximum interest rates that the remaining intermediaries can charge.
The agency is in discussions with fruit produce markets in various cities to distribute its funding for hawkers who need financial assistance, through these markets.
In addition, it wants to distribute funding for small construction businesses through warehouses, but it has not begun discussions in that industry yet.
Sefa chief executive Thakhani Makhuvha explained last week that entrepreneurs could use something like a bank card. When they went to buy their stock, Sefa could pre-approve loans for them. These loans would have the same interest rates as the ones that the agency lent directly.
The loans Sefa has been lending directly are priced at about prime plus 3 to 5 percentage points and the agency tries not to go beyond 17 percent, unless there is significant risk.
Sefa only lends directly when loan transactions are between R50 000 and R5 million. At present, businesses seeking funding below this get Sefa funds through micro-financing and retail intermediaries.
“We want to bypass the intermediaries, particularly on the challenges that the parliamentarians are always saying, these people are exploiting our people,” Makhuvha said.
Sefa aimed to start this direct mechanism before the end of its financial year.
He said interest rates on Sefa’s legacy loans disbursed by intermediaries had particularly been exorbitant, above what was permitted under the National Credit Act. These loans were funded by Khula Enterprise Finance and the South African Micro Apex Fund, the two agencies that merged to form Sefa last year.
This was because the agreements that the two funded through intermediaries did not stipulate how much interest intermediaries could charge.
“But now we are saying as you write new business, either to the same clients or a different loan, we will say we are not going to allow you to charge a certain percentage,” he said.
When Sefa submitted its annual corporate plan to Parliament last year, it said it would not allow intermediaries to charge interest rates above what the National Credit Act permitted, which is 32 percent.
Makhuvha said the agency wanted its intermediaries to charge below this – about 20 percent.
“They mustn’t charge higher because when we give them the facilities, we don’t only give them the loan. We also give them… institutional support, which is a grant. We are doing this for them not to charge exorbitant rates.”
But he said all these efforts remained works in progress. In the year to March, Sefa disbursed R157 million in loans to entrepreneurs through wholesale finance channels, most of which were intermediaries.
Its other wholesale finance channels include equity and specialised funds, credit guarantees and financial services co-operatives.
The agency said it was not yet capacitated enough to reach all small businesses, which was why it used intermediaries.