FSP forum

A map of Financial Inclusion in South Africa has been released by the Microfinance Information Exchange that offers users insight into financial access and inclusion within South Africa.

South Africa has a deep and diverse financial sector, but its inequality remains among the highest in the world. Some, but not all, organizations in South Africa have a developmental focus. The South Africa Map of Financial Inclusion investigates the landscape for financial services across South Africa and provides access to data on more than 40,000 points of service around the country. The data maps the entire financial sector, not just microfinance providers, at a town level, matched with data on demographics and from demand surveys.

On SouthAfrica.MIXMarket.org, you can find locations of bank branches and ATMs, post offices, microfinance institutions, salary-based microlenders, development programs and several thousand other credit providers, including pawn shops, retailers providing credit services, and lenders providing cash loans and vehicle finance. A comprehensive mapping of the sector helps make the ‘invisible’ market visible, an open question for financial inclusion. The launch of this map will increase transparency by making the data more accessible for practitioners to use and analyze.
Explore the map and data by visiting SouthAfrica.MIXMarket.org.

FSP commissioned a study of opportunities for the commercial banking sector to support expansion of energy efficiency and alternative energy markets, in support of the U.S. Government’s Economic Growth Objectives in South Africa. Evidence suggests the market is extremely large and fast growing and a few key elements are boosting this growth. Electricity prices have been rising steadily and are expected to continue to do so until new supply sources come on line later this decade. Given the capacity constraints, the national electrical utility, ESKOM has instituted a robust demand side energy management program, including significant subsidies, reaching upwards of 70% of project costs. Given these conducive conditions, investment in efficiency and alternative energy is expected to increase markedly.

With the rise in investment comes a commensurate need for financing, offering banks an opportunity to profitably expand lending. Models developed internationally offer some guidance on the potential mechanisms for expanding lending for efficiency and alternative energy by banks in South Africa. The most critical elements are efficiently finding borrowers that match each bank’s underwriting standards and developing a mechanism for aggregating projects effectively since most efficiency projects will be small, especially given the level of incentives being offered by ESKOM.

Potential Mechanisms:
Connect existing customers to proven energy savings technologies appropriate for their specific industry – banks can play an important marketing role for investments with attractive paybacks and thereby gain a competitive advantage.
• Banks have helped utilities market their incentives to bank customers with higher levels of energy intensity than industry benchmarks.
• Financial institutions canadvise customers on the benefits of upgrading to efficient options when they approach banks for loans for equipment or building renovations.
• In the US, one bank is piloting connecting customers that have home equity loans to utility programs offering robust incentives for efficiency upgrades.

Explore aggregation mechanisms that allow the institutions to efficiently and profitably service smaller loans – since efficiency projects tend to be small in size, banks must develop mechanisms to underwrite and service the loans efficiently.
• One financier works closely with franchisors to offer loans to franchisees needing to upgrade equipment, such as fryers, lighting, and refrigeration.
• Many financial institutions have provided financing to well established Energy Service Companies (ESCOs) for their use in supporting projects.
• Financial institutions and utility programs target customers with multiple locations and package a number of discreet projects into one loan.

Develop new loan products
• Banks have become increasingly comfortable providing short term loans that will be repaid by utility rebates once the equipment has been installed properly.
• Leasing is gaining traction globally, especially for lighting, since the returns can be quite attractive, once tax advantages are factored into the calculations.
• Some banks offer reduced rates for loans supporting efficiency or renewable projects as a means of attracting new customers.

For a copy of the report, contact Terry Wyer, FSP’s SME Finance Specialist, twyer@fsp.org.za

“ISBC 2012, FOSTERING SMALL BUSINESSES IN HIGH GROWTH SECTORS”

Exhibitors at the International Small Business Congress have always enjoyed and benefited by having the world at arm’s reach since its inception in 1974. If the successful history of this event is anything to go by, ISBC2012 will surely make huge footprint on our African soil.
The Sandton Convention Centre will be the venue for Africa’s first ISBC taking place from the 15th- 18th September 2012. SMMEs within high growth sectors are encouraged to be a part of this unique and exciting opportunity to share their knowledge, showcase and market their service and/or product offerings to an industry focused target audience.
As this is an established event, exhibitors can take comfort in the wide following of the event and expect masses of local and international visitors. Whether your organization is looking to expand its local market share or enter global circuits, this networking medium can assistance your business go where you need it to be.
With Partners like the DTI, SEDA, KHULA Enterprise Finance, FABCOS and international organizations like WASME and INSME and with endorsement from NSBAC, University of Johannesburg, SAIPA, IBA, JCI South Africa and RYCOB all of which are working to improve small business development, this promises to be the Africa’s business event of the year. www.isbc2012.org
ISBC 2012 Exhibitor factsheet v2

FSP’s handing over of the finfind tool to the Nelson Mandela Bay Consortium has reached an advanced stage with the second batch of training of finfind consultants. In late March, SME advisors packed the computer lab at Wits University’s Professional Development Hub which was used to orientate them in the use of finfind. Consultants came from both Pretoria and Johannesburg and neighboring areas, and represented the Black Business Supplier Development Programme (BBSDP), Institute of Business Advisors (IBA), Institute of Independent Business (IIB), Institute of Marketing Management (IMM), the Gauteng Enterprise Propeller (GEP), the National Youth Development Agency (NYDA), and the South African Institute of Professional Accountants (SAIPA) and the dti’s Small Enterprise Development Agency (SEDA).
At the beginning of March, finfind’s first orientation program was held in Nelson Mandela Bay, with 17 participants seeking to become registered finfind consultants. Participants came from East London, Uitenhage and Port Elizabeth, and had been carefully selected based on their application and an interview. BSO affiliations ranged from the Institute of Business Advisors, the Institute of Independent Business, the Small Enterprise Development Agency, the South African Institute of Professional Accountants, network facilitators from the dti’s Black Business Supplier Development Program, the Eastern Cape Development Corporation and National Youth Development Agency. Described by one participant as “a long awaited for concept”, the average score in response to the question “to what extent will you use finfind in your business consultancy?” was 4.5 where 5 was the maximum indication of likelihood of use. Mapping of current practice of facilitating access to finance with SME clients confirmed how well finfind is designed to complement and integrate with what these consultants are already doing. Feedback from the morning indicated a strong likelihood that these newly registered finfind consultants will use finfind in their businesses. Other positive comments from participants included: “(this represents a) great change of access to finance mindset in our country,” and “A great opportunity to service providers”, and another “better than any other mentorship tool … well researched”. This brings to 42 the number of finfind consultants registered to date and who are able to start using the site.

Private Sector Engagement in Food Security and Agricultural Development: How do the U.S. government development priorities intersect with corporate strategies in countries where demand is rising, such as India and China; and where supply can increase, in particular Sub-Saharan Africa, South and Southeast Asia and Latin America? Growing populations, rising incomes and increased access to global markets will all continue to provide opportunity and growth for the sector, and mean that companies have a business interest in investing where they can have an impact, either by growing new markets, or by learning about potential markets that may one day rely on newer, more advanced products.
The report is published by the Center for Strategic and International Studies (CSIS) which is a bipartisan, nonprofit organization headquartered in Washington, D.C. The Center’s 220 full-time staff and large network of affiliated scholars conduct research and analysis and develop policy initiatives that look into the future and anticipate change. Over the past 50 years, CSIS has become one of the world’s preeminent international policy institutions focused on defense and security; regional stability; and transnational challenges ranging from energy and climate to global development and economic integration.
For a copy of the full report, click here:
Private Sector Engagement in Food Security and Agricultural Development March 2012

FSP has conducted a research study on what level of preference should be accorded worker claims in the context of an employer’s insolvency, and how should such preference be treated relative to other secured or unsecured creditors. This study was undertaken in the context of the insolvency law review by the Government of South Africa.The question is multifaceted, as there are many types of claims that affect employees pertaining to outstanding wages, health and disability benefits, and longer term pension commitments. Decisions on these issues can be compounded where the pension fund has been either underfunded or inappropriately dissipated to keep the business operating, or in some cases where the value of the pension fund is predicated on stock contributions to the fund of the company’s own stock, which has now become seriously devalued or worthless.
Employees and pensioners are placed in a unique category of creditors in the context of an employer’s insolvency. They are not treated as arms-length creditors with whom the company has negotiated, nor are they equity holders with a vested interest in the company who have taken an inordinate risk in the operation of the business. Rather they are providing a service and have an interest in maintaining their job. As such, workers are particularly vulnerable when an enterprise fails, facing the prospects of job loss, loss of unpaid wages or benefits and future income, and in some cases loss or decline in value of their pension rights. Loss of benefits may also include health and disability benefits.
The International Labor Organization, the European Union and the World Bank acknowledge the vulnerable position held by employees and the need for careful consideration in balancing treatment of employee rights against the interests of other creditors.
At the same time, such policies must be balanced in a manner that maintains confidence in the commercial sector through greater enforceability of bargained for contractual and collateral rights so as to support access to finance. Accordingly, the vast majority of countries typically recognize and give effect to secured rights in an insolvency proceeding and relegate employee claims to a preferential position below secured and administrative claims. South Africa’s current treatment of employee claims relative to other creditors is largely consistent with international best practice, ranking employee claims after secured claims and administrative costs. The preference of such claims was elevated in recent amendments. What is lacking in the system, however, is a mechanism to a more immediate and more complete satisfaction of employee wage claims, such as through a wage guarantee or insurance fund.
Here is a copy of the full report:
INSOLVENCY SYSTEMS IN SA – EMPLOYEE CLAIMS final 06 03 12

Dalberg SME support via Financial IntermediariesDalberg Global Advisors has built up a significant reputation in the development community through its work supporting the building of a thriving private sector as a step toward economic development. SMEs play an instrumental, but often under-recognized, role in private sector growth. This report by Dalberg reviews a large body of research, and demonstrates how SMEs in developing countries are often hampered by an inability to obtain financial capital for growth and expansion. Local financial systems do not sufficiently cater to the needs of SMEs, with negative consequences for economic development. This report develops interventions to close the gap in financing, and outlines contributing roles for public and multilateral actors. It describes both the challenges and the potential for international financial institutions to work through local intermediaries and stimulate capital provision to SMEs in a financially and socially sustainable manner. Dalberg Global Advisors outline the need to provide capital to Small and Medium Enterprises (SMEs) in developing countries and show the impact of this capital on economic development, and the role for International Finance Institutions (IFIs) in the provision of this capital. Finally, it outlines recommendations for additional interventions and further research. It should serve as an inspiration and impetus to others to undertake further research.
Here is a copy of the report (1.4Mb): Dalberg SME support via FIs report 11-2011
FSP is collaborating with Dalberg Global Advisors, JP Morgan’s research partner, in an initiative which involves piloting the development of a framework of M&E indicators with 20 SMEs supported by Aurik and Raizcorp. JP Morgan is undertaking research in South Africa that will assess what results BDS is achieving and will then measure its impact. FSP will support the research partner, Dalberg Global Advisors, in this initiative, entitled the SME Catalyst for Growth Facility.

FSP held a workshop for partner financial institutions to present new trends in investing and financing for social impact and SME Development. Entitled “New Trends in Business”, the workshop was an opportunity for several speakers to cover a range of progressive business practices including Social Impact Investing and the development of Impact Reporting and Investment Standards (IRIS), a case study of GreaterCapital’s SRI fund and the process of certification under the IRIS standards covering the requirements, challenges and benefits of social impact investment, energy efficiency opportunities for SMEs, and an introduction to FSP’s SME Debt Fund. There were 19 participants representing Absa Bank, Standard Bank, the International Finance Corporation, the Industrial Development Corporation, TrueGroup, SASFIN, CADIZ Asset Management, Spartan Technologies, Greater Capital, Dalberg Global Development Advisors, Mercantile Bank and the Identity Development Fund. The discussions on SRI were particularly lively and participants offered insights on overcoming reporting challenges, new models for funding implicit in SRI based on alignment with IRIS, the value of joining the Aspen Network of Development Entrepreneurs (ANDE) which is a global network of around 150 organizations housed within the Aspen Institute that invest money and expertise to propel entrepreneurship in emerging markets; the changes to Regulation 28 and the fact that fund trustees are now seeing opportunities in it and the valuable role the DCA can play in catalysing this, as well as the critical role of the SME Debt fund. The event was also an excellent networking opportunity and many synergies between the work of participants was identified and contacts were exchanged. FSP also took the opportunity to present finfind and participants expressed interest in the tool’s ability to funnel SME owners to banks in a way that makes them more bankable and prepared.
Here are the presentations from the event:
GreaterCapital/CADIZ: Case Study of SRI fund
JP Morgan SME Catalyst for Growth Program
FSP’s Energy Efficiency research into opportunities for SME finance
IRIS overview for FSP
USAID FSP SME Debt Fund Presenation March 2012

A new publication by the World Association for Small and Medium Enterprises (WASME) contains a collection of essays that attempt to evaluate entrepreneurship development strategies and how is it evolving in the context of technological changes. The publication contains informative statistics and presents several best practices in the link between academia and industry and entrepreneurship development.
It is edited by Gyan Prakash Agarwal and it has seven articles, including one by FSP’s partner, International Small Business Congress (ISBC) 2012 director, Mr Septi M. Bukula, who is based with OSIBA Research in Johannesburg, South Africa. OSIBA is the originator of the ISBC which is holding its annual international conference in South Africa for the first time in mid-September 2012.
Mr Bukula’s article, “The evolving role of universities in SME development in South Africa”, discusses the changing role of educational institutions in the promotion of SMEs and the current status of academia-industry interface in South Africa.
The essay “The need for a practical approach in enterprise development” by Henry Bwisa explores a practical approach in teaching entrepreneurship, and he stresses the business incubators’ role in the entrepreneurship education.
In the essay titled “Empowering Enterprises by academia-enterprise linkage: Case of Enterprise connect, Australia” by John Ridge, the various enterprise researchers in the RiB business programme of Australian Government, Department of Innovation, Industry, Science and Research (DIISR) are discussed. His case study of the link between academia and industry created through the placement of researchers into small and medium enterprises illustrates how new marketable ideas and innovations can be nurtured in this way.
P. Koshy in his paper titled “Role and Relevance of Business Incubators in ICT led global educational system: case for Eco-Enterprise Village”, presents a new approach for education and enterprise development where business incubators, with the use of information and communication technology, can be transformed as learning centers for entrepreneurship development. He has presented a model called eco-enterprise village, which shows a combination of business incubator and education facilities.
Siddhartha Mishra’s “Ideation and Innovation transforming into Businesses”, talks about the role of ideation in transforming the business prospect. He also discusses about the need of preparation for the pre requisites before finally launching the business.
Simon Wallace presents an entrepreneurship development scenario in Saudi Arabia in his article: “SME’s and Entrepreneurship in Saudi Arabia – From Ideation to Action”.
The article on “Marketing Tips for MSMEs” by Henry M. Bwisa talks about Kenyan experience of marketing for SMEs and has proposed an extension of the traditional 4 Ps of marketing to 9Ps.
Published by World Association for Small and Medium Enterprises (WASME), Year of publication, 2012, Price US $ 5, pp. 86. Some of the papers have been previously published in World SME News by members of WASME Economic Division.
Copies will be available for purchase at Osiba Research from 1 May (www.osiba.co.za).

In a concerted effort to meet with government’s call to create more jobs and assist in poverty alleviation, Absa Group has launched Enterprise Development, a unit focused and dedicated to assist the growth and development of emerging enterprises.

The Unit which is a sub-section of Absa’s Business Markets division aims to take on government’s challenge of job creation through entrepreneurship, says Mr Marcel de Klerk, Head of Business Markets.

“The challenge of creating 5m jobs by 2020 as a country is absolutely imperative and still remains a priority. As Absa, we are mindful that in order to achieve this, government has to work in partnership with the private sector,” he says. Mr De Klerk notes that entrepreneurship and small business have globally been proven to be the primary creators of jobs in any economy, both the developed and the developing countries. “However unemployment remains a major problem for South Africa with current figures estimated at 40%. This is especially severe in the Youth category where unemployment figures are as high as 50%.”

He emphasises that while Absa has been supporting small and medium sized enterprises for many years through various products and services, it had become imperative to Go Beyond Banking. “This means finding other ways of assisting with nurturing small businesses from their start up phase right through their growth, development and expansion phases with the aim of ensuring that enterprises are sustainable,” says Mr De Klerk.

While funding remains a perennial obstacle to the survival of SMEs, access to markets is a stated primary obstacle that stands in the way of sustainable SME success. Absa has therefore developed innovative solutions such as our Procurement Portal, Procurement funding, Enterprise Development Centres to grow the SME sector, as well as a USAID backed guarantee scheme that supports funding. Absa Bank has partnered with a major global player in the form of USAID. Together, we have put in place guarantee schemes that will serve to share the risk in funding SMEs, especially start-ups. Essentially, the scheme will aim to plug-in the gaps that SMEs are not able to meet such as security. Again, the realisation here is that economies need a robust and active SME community in order to thrive which leads to job creation.”

“Absa, therefore, does more than help small business owners to manage their own businesses. The bank also assists SMEs to identify potential opportunities for their businesses and also puts them in touch with other stakeholders such as corporates and parastatals that will enable them to excel and realise their full potential,” he concludes.