KZN MEC for Economic Development, Tourism and Environmental Affairs Ravi Pillay. Picture: Doctor Ngcobo/African News Agency(ANA)
KZN MEC for Economic Development, Tourism and Environmental Affairs Ravi Pillay. Picture: Doctor Ngcobo/African News Agency(ANA)

MEC slams poor roll-out of relief funds

By Vernon Mchunu Time of article published Apr 14, 2021

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DURBAN - KWAZULU-Natal Economic Development, Tourism and Environmental Affairs (EDTEA) MEC Ravi Pillay has blamed the application criteria for the poor roll-out of the Loan Guaranteed Scheme (LGS).

The LGS was aimed at bringing relief to the small business sector.

Pillay was reacting to the announcement that the scheme – first introduced in April last year as part of an Economic Stimulus package to keep struggling businesses afloat in the wake of the Covid-19 economic crunch – would remain available for another three months.

The businesses whose resilience depended on securing a bank loan would continue to be guaranteed approval under favourable conditions until July 11, according to a joint statement issued by the National Treasury, the Reserve Bank and the Banking Association of South Africa (Basa).

At the beginning of the scheme, the Treasury provided a guarantee of R100 billion, with the option to increase it to R200bn if necessary and based on the success of the scheme.

However, by the end of last month, banks had paid out a relatively measly R18,16 billion in respect of 14 827 loans, the statement confirmed.

While welcoming the extension of the scheme, Pillay raised concern about poor implementation of the relief mechanism, saying it represented less than 10% of the projected R200bn budget.

“The EDTEA welcomes the announcement of the extension of the LGS set up to support small businesses facing financial distress as a result of Covid-19. However, we remain concerned about the outcomes of the implementation with less than 10% of the R200bn having been taken up.

“We have raised our concerns about the criteria used and we will continue to engage our national counterparts on this,” Pillay said, without spelling out details. According to the statement issued by Treasury on Monday, the low outcomes were due to the fact that in addition to the LGS, banks had also provided a significantly high number of loans to their small business customers via their own balance sheets, to the tune of at least R33bn between April and November 2020.

“Such support reduced demand for the scheme. Banks have also restructured loans and credit facilities worth billions more to their clients and corporate customers in financial distress,” read the statement.

“The Financial Sector Conduct Authority (FSCA) has also provided further support to businesses and individuals by adjusting regulations to support insurance premium relief for policyholders, allowing them to claim while minimising disruptions to the expected income of intermediaries.”

In addition, says the statement, the scheme had not been “as effective as originally envisaged”, owing to the fact that many distressed companies had been reluctant to assume more liabilities with little certainty of the length and severity of the economic impact of the Covid-19 pandemic.

Pillay hailed the announced extension as a much-needed injection into the small business sector in need of financial emergency support as a result of the pandemic.

“Small, medium and micro enterprises play a critical role in the growth and the transformation of our economy and all measures to support them are welcome,” he said

In addition, he said, the provincial government was in the process of accepting applications for the Tourism Relief Fund, which aimed to provide a once-off relief grant to small businesses involved in the tourism sector.

The small business sector would play a key role in the recovery of the economy, he said. The draw-down period for loans was to have ended at the weekend for most participating banks under the guarantee scheme.

“After further consultation, the National Treasury, the SA Reserve Bank and the Basa have agreed to extend the deadline by three months, and in the process to harmonise this deadline for all participating banks.

“The guarantee scheme will continue to service all loans advanced up to the extended date, for up to five years. The extension will enable an orderly winding down of the scheme and allow those businesses who have applications already lodged to be assessed,” says the statement.

The National Treasury said the impact of the Covid-19 pandemic on the economy and jobs would continue to be monitored as there were still challenges faced by both small and large businesses, particularly those in the hardest-hit sectors such as tourism.

THE MERCURY

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