President Cyril Ramaphosa and Minister of Finance Tito Mboweni. Picture: Phando Jikelo/African News Agency (ANA) Archives
President Cyril Ramaphosa and Minister of Finance Tito Mboweni. Picture: Phando Jikelo/African News Agency (ANA) Archives

R200bn loan guarantee scheme attracts fewer-than-expected takers

By Mayibongwe Maqhina Time of article published Mar 23, 2021

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Cape Town - Finance Minister Tito Mboweni said the R200 billion loan guarantee scheme had not met its initial expectations, because fewer-than-expected loans were approved by the banks and taken up by qualifying small businesses.

Mboweni said that 13 173 beneficiaries were approved for the loan guarantee scheme.

He was responding to a question in Parliament from IFP MP Russell Cebekhulu, who asked for the full details of the shortfall in businesses that could receive 40% of the R500bn stimulus package as loans.

The scheme was introduced to help ease the pressure on qualifying businesses negatively affected by low economic activity following the global lockdown imposed to reduce the spread of Covid-19.

It was part of the R500bn package announced by President Cyril Ramaphosa in April last year.

Mboweni said there was no shortfall, or grant or loan, that any business was entitled to receive directly from the R200bn scheme.

“Any underutilised portion of the scheme cannot be regarded as a ’shortfall’, nor should there be any expectation that it can be used to fund other programmes, as it would effectively increase such debt-to-gross domestic product.”

The National Treasury entered into a partnership with the South African Reserve Bank (SARB) and the Banking Association South Africa, to launch the Covid-19 loan guarantee scheme to make it easier for banks to lend more than they normally would to small businesses during the lockdown, to assist them in their efforts to survive the pandemic.

“When the scheme launched, it applied to small businesses with a turnover below R300 million. On July 27, 2020, the scheme was improved, and this turnover limit was abolished and replaced with a maximum loan R100m per loan to qualifying businesses.”

He said that banks were to fund such loans from their own funds, using their own balance sheets.

The government was to pay only from the fiscus if the small businesses defaulted on their payments to their bank, and only after the bank had taken the initial losses.

“As of February 2021, banks had provided R17.8bn in relief to 13 173 approved beneficiaries.

“It should be noted that the actual take-up was lower than initially expected, as the demand for such loans was low, possibly because many small businesses were reluctant to take up additional debt, given the uncertainty around how long the pandemic would last,” Mboweni said.

He also said companies may not want to re-invest and borrow more until they felt more confident about the future of the economy.

The minister said that many banks took their own initiatives to assist their customers by allowing for payment holidays and other forms of forbearance, which provided significantly more relief than the loan guarantee scheme.

“It is important to note that the National Treasury and the SARB never intended for the guarantee to be called in full, and expected only a relatively small portion of the R200bn to be paid,” Mboweni said.

On January 16, R17.84bn in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme.

The scheme received 48 366 applications for loans, of which 27% were approved by banks and taken-up by the applicants.

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Political Bureau

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