Statement made in the National Assembly, Parliament, on the Small Enterprise Finance Agency

Yesterday I made a statement in the House to follow up my article which appeared in Business Day two weeks ago and posted on this blog, drawing attention to the dreadful state of Sefa's finances.

In response, Minister Lindiwe Zulu stood up and acknowledged the problem, but then went on to excuse the businesses who did not repay the loans by saying they knew nothing about finance and loans and were untrained, and this could not be termed "reckless lending".

Is this reason enough for Sefa to loan them money? No, certainly not. A loan is a loan if you expect it to be paid back and the borrower signs an agreement to that effect. If you are fairly certain it won't be repaid then either give it away as a grant or don't lend it at all. Sefa is falling between two stools here.

The key issue is whether development finance institutions (DFIs) like Sefa, the IDC and the NEF are mandated to have a higher appetite for risk, and what is an acceptable level of write-downs or impairments? Sefa's record of 67% is definitely too high, while the IDC's increased 99% to 16,9% in the last financial year.

This is a key issue which needs to be agreed by the political masters and professional managers so they are working to the same set of objectives.

Read the statement below:

"The Small Enterprise Finance Agency, Sefa, is heading towards financial meltdown, unless measures recently announced to the Portfolio Committee on Small Business Development are successfully implemented.

In the financial year ending March 2016, Sefa disbursed R1,2 billion to small and micro enterprises across all 9 provinces. But it recorded an operating loss of R378 million. Most of this came from its direct lending business.

During the year under review, Sefa made loans to 302 businesses but had to write off R380 million in bad debt provisions. 67% of its direct loans are impaired.

This situation is unsustainable, and is due to reckless lending which has increased tenfold between 2012 and 2015.

As the Department of Small Business' main funding agency, Minister Lindiwe Zulu must take immediate corrective action to put Sefa on a secure financial footing. If this involves closing down its direct lending business, then so be it.

In the current very tight fiscal environment, South African taxpayers can not be expected to continually throw money down the drain, money which should be spent on proven fund managers and lenders who actually know what they are doing."