Title: Khula%20Enterprise%20Finance%20Ltd%20Corporate%20Strategy%202011-13
1Khula Enterprise Finance LtdCorporate Strategy
2011-13 Economic Development Parliamentary
Portfolio Committee
Venue Parliament Cape Town 24th August 2010
1
2Presentation Outline
- SECTION 1 KHULA THE AREA WITHIN WHICH KHULA
OPERATES - Khulas Mandate, Vision and Mission
- Focused Area
- Governments focused area
- Financing Gap Filled by Khula
- SME Financiers
- SECTION 2 KHULAS HIGH LEVEL STRATEGIC INTENT
- Overview of Khulas Business Operations
- Khulas Activities
- Highlights of Strategic Priorities
- Strategic Goals 2011 2013
- Focusing Financing Programmes
- Strategic Goals 2011 2013
- SECTION 3 KHULAS PRODUCTS
- Product offering
- RFIs strategic priorities
- Profile of Existing RFIs
- Credit Indemnity Utilisation
- Khulas Public Sector Funds
2
3Presentation Outline ....(Cont)
- Khulas Private Sector Funds
- Impact of Khula Funds
- Khulas Products historical performance
- Mentorship Programme
- Khula Properties
- Geographic distribution of property Portfolio
- Properties Strategic Intent
- Corporate Balanced Scorecard 2010/11
3
4- Section 1 Khula the area within which Khula
Operates
4
5Khulas Mandate, Vision and Mission
Mandate To address market failures in the SME
finance sector by leveraging and unlocking
private sector and other developmental funding
for the creation of a vibrant SME sector. Khulas
main focus should be on facilitating access to
finance by SME maximising development impact and
ensuring organisational sustainability
Vision To be the development finance partner of
first choice in the field SME development
Mission Khulas mission is to provide finance,
mentorship services and small business premises
to SMEs through a network of partnerships and to
encourage the sustainable development of SMEs
whilst ensuring that Khula remains financially
viable.
5
6Khulas focus areas
6
7Governments Focus Areas
- CHALLENGES
- The latest stats SA figure on unemployment is
25.3. - Prior to the economic crisis of 2008 and 2009
SA experienced growth rates that were - marked by structural imbalances.
- The SA economy still experiences structural
constraints that impacts on its ability - to generate sustainable growth - - e.g.
increases in credit and therefore - consumption has led to growth that is not
underpinned by production.
- To address these economic growth challenges,
government adopted - 12 outcome-based targets that were approved by
cabinet Lekgotla - In January 2010.
- Output indicators were developed out of the 12
outcomes. - Both the Economic Development Department and the
dti are - responsible for outcome number 4 which talk to
Decent - Employment through inclusive Economic Growth.
- From this outcome 7 outputs were developed. All
the 7 outputs have a bearing on how - Khula conducts its business going forward but
output number 6 is directly relevant - for Khula since its on Small Business and
Cooperative support
7
8Financing Gap Filled by Khula
- Primarily black-owned owner-managed formal
SMEs - SMEs requiring financial solutions between R10
000 and R3 million, with special emphasis on the
underserved market segment of loans below - R250 000.
- Start-up and expansions of early stage businesses
- Focus on underserved provinces, rural areas and
urban poor communities - Focus on women-owned enterprises
8
9SME Financiers
Long-term
CAPITAL MARKETS
Long
INVESTMENT BANKS
DEVELOPMENT FINANCE INSTITUTIONS
TERM
Medium- term
TERM
MORTGAGE PROVIDERS
Medium
COMMERCIAL BANKS
GAP
MICRO-FINANCE INSTITUTIONS
CONSUMPTION LENDERS
Short-term
STOKVELS, BURIAL SOCIETIES
Short
MONEY-LENDERS
Micro
Medium
Large
Small
Micro
Small
Medium
Large
TRANSACTION SIZE
- Source Roussos and Ferrandi (2008)
TRANSACTION SIZE
9
10- Section 2 Khulas High level Strategic intent
10
11Overview of Khulas Business Operations
11
12Khulas Activities Summarised
Product Activity
Business loans Khula gives loans to Retail Financial Intermediaries (RFIs) who further on lend to SMEs. However, through Khula Direct loans will be extended directly.
Credit indemnities Khula assists SMEs to access private sector funding (through banks RFIs) by indemnifying their loans
Joint Ventures Khula partners with the private public sector to finance SMEs.
Funds Khula establishes a Fund that will facilitate loans to SMEs. The fund is managed by an experienced Fund Manager who does not contribute their own capital to the fund.
Mentorship Programme - Mentors are used for both pre- and post loan interventions as well as capacity building to the RFIs. Currently Khula has entered into an agreement with Institute of Business Advisors of Southern Africa (IBASA) to manage the mentors database.
Properties - is mostly located in previously disadvantaged areas. It provides operating space for small entrepreneurs at discounted rates. It encourages entrepreneurs to move away from operating in informal set ups to a much more formal environment.
12
13Highlights of Strategic Priorities
- Re-engineering wholesale model To grow Khulas
outreach and impact thus fulfilling our mandate
as the flagship development finance institution
for small business - Khula Direct Commence with the initial stages
of establishing direct lending operations to
complement the wholesale model. - Recapitalisation cost efficiencies To build an
effective institution that achieves its SME
development mandate in a financially sustainable
manner.
13
14Highlights of Strategic Priorities .. cont
- Human Capital alignment To invest in the
development of our people to create and retain
high performance teams - Operational efficiencies To establish effective
and efficient processes to support operational
activities - Position Khula Brand To increase awareness of
Khula and its products within its target market
and achieve high client satisfaction levels - Increase influence of Khula on SME formulation
policy Establish research unit through which
knowledge management on SMEs can be improved.
14
15Strategic Goals 2011 2013
- Re-engineering of the wholesale model
- Focusing SME Financing Programmes into distinct
offerings. - Review and redesign of existing products (
LREF Business Loans) - Improved service delivery channels through
regional offices and closer collaboration with
funding partners - Improved monitoring and evaluation
- Alignment of human capital
- Position Khula as a Fund Manager for SME
development funds
Credit Indemnity
15
16Focusing Financing Programmes
16
17Strategic Goals 2011 2013
- Processes
- Policies
- Blueprint
- Secure funding
- Credit scorecard
- Convert regional offices
- Set up first branches
- Hire field staff
- Build IT system
- Organisation redesign
- Capacitate head office
- Open first branches
- Appoint key strategic partners
- Launch SME development campaign
- Test model
- Acquisitions
- National expansion
- Review model
17
18Strategic Goals 2011 2013
- Recapitalisation
- Establish a corporate affairs function to raise
funding and liaise with donor and investor
organisations such PIC, IFC etc to leverage
funding for Khula -
18
19Strategic Goals 2011 2013
- The Human Capital Management (HCM) of the new
Khula Structure - will designing organisational structures that
supports both the re-structured wholesale model
and Khula Direct. Activities that the HCM
department will undertake include - Conducting skills audits with current staff
- Developing and implementing a change management
programme - Recruiting new staff
- Upskilling current staff
- Redeploying staff
- HCM will recruit competent staff to strengthen
its legal compliance and monitoring and
evaluation capabilities
19
20Strategic Goals 2011 2013
- Improving operational efficiencies
- In line with the EDD growth path Khula
intends improving operational efficiencies
through - General costs reduction measures through
stricter budgetary controls and other measures - Reducing red-tape - e.g. Decentralising some
business activities to regions and allowing them
to take key business decisions. - Improving turnaround time measures such as
completing forms electronically reducing the
length of time in approving loans automated
reporting tool
20
21Strategic Goals 2011 2013
- Branding and positioning of Khula
- Launch of the June and Andrew Mlangeni SME
Support Programme - Increase access to financial and non-financial
support to SMEs - Mobilise public and private sector organisations
to implement best practices in their programmes
dedicated towards supporting SMEs - Contribute towards increase entrepreneurial
activity amongst South Africans especially
historically disadvantaged people - Increase linkages between large enterprises and
small business for procurement and enterprise
development opportunities through corporate
affairs - Profile Khula success stories
21
22Strategic Goals 2011 2013
- Increase influence of Khula on SME formulation
policy - Policy formulation is one of the key drivers of
the EDDs growth path. - Research centres and academic institutions in
the country have done extensive on SMEs. However,
there is a need for a government agency that
plays in the SME space agency that understands
and relate to the dynamics and challenges of the
sector. - Khula plans to establish an SME research unit
that can influence government SME policy
formulation.
22
23- Section 3 Khulas Products
23
24Product offering - Suite of innovative
financing instruments
Khula Products
Financing Instruments
Development Impact
24
25RFIs strategic priorities
- Khula business loans are done through
intermediaries (RFIs) who lend further to
end-users (SMEs). - Khulas focus will be strengthening those RFIs
who grow their outreach especially to rural
areas (talks to spatial dimensions of the growth
path). - Focus will be on those RFIs that provide niche
products in areas such as manufacturing minerals
beneficiation the green economy etc. - Khula to facilitate collection of current book
25
26Profile of Existing RFIs
RFI Branches Khula ExposureLoan Book
Marang Financial Services GP LP MP EC R30 m
Retmil Financial Services (Pty) Ltd FS R46 m
True group(Pty)Ltd (EEIF) EC R55 m
True group (Pty) Ltd(EGF) EC R4 m
New Business Finance (Pty) Ltd WC R36 m
Vengrow Capital (Pty) Ltd WC GP R10 m
Supplyfin(Pty) Ltd LP R5 m
Small Enterprise Foundation LP R16 m
Business Finance Promotion Agency EC R19 m
Regent Factors (Proprietary) Limited KZN R107 m
R 329 m
26
27Credit Indemnity Utilisation
27
28Credit Indemnity Scheme
- Uptake of the scheme has decreased in the recent
past due to stricter lending criteria adopted by
banks due to recession. - Scheme will be repositioned customised such
that administrative burdens associated with
managing the product will be reduced. - Take repeat borrowers who want to expand their
businesses. - In the past participating partners to the scheme
were commercial banks only. Henceforth Khula
will promote Institutional credit indemnity to
allow deserving RFIs to benefit from the scheme. - Scheme will be used as an incentive for private
sector that wants to operate in the green economy
portfolio indemnities.
28
29Credit Indemnities
- The loans to be indemnified must range from a
minimum of R10k to a maximum of R3m - The indemnity cover will range from a minimum of
50 to a maximum of 90 depending on the loan
amount and the developmental impact bestowed in
the SME project - Khula charges an annual indemnity fee ranging
between 2 and 3.5 depending on the loan amount - own contribution in cash or assets towards the
financial structure of the business ranging
between 2.5 and 10 depending on the loan amount - Maximum facility term is 60 months
- The turnaround time is a maximum of 5 (five)
working days
29
30Khulas Public Sector Funds
Partner / Fund Manager Programme Focus Area Port folio No. of Projects
Business Finance Promotions Agency KHULA Emerging Contractors Fund Construction R20m 35
Akwandze KHULA Akwandze Fund Agriculture R28m 29
Absa Bank LREF Agriculture / Eco-Tourism R42,6m 20
Standard Bank LREF Agriculture R40,8m 9
First National Bank LREF Agriculture R13,8m 4
Nedbank LREF Agriculture R4m 1
Ithala LREF Agriculture R30,6m 5
IDC LREF Eco-Tourism R5,2m 2
Total - - R185m 105
30
31Khulas Private Sector Funds
Partner Programme Focus Area Comtmnt Rm
Business partners Ltd Business Partners-Khula Start-Up Fund Start-up early expansion capital Black SMEs, rural areas women-owned businesses 120
Anglo Zimele Empowerment Initiative Ltd Anglo KHULA Mining Fund Junior mining projects Pre-feasibility 100
Enablis Entrepreneurial Network SA Enablis KHULA Loan Fund ICT-focused Guarantees up to 90 of loans to SMEs 20
Enablis Entrepreneurial Network SA KHULA Enablis SME Acceleration Fund Supports all sectors 25
Entrepreneurial Growth Fund KHULA SME Fund Early Stage Funding 25
31
32Khulas Private Sector Funds .. cont
Partner Programme Focus Area Comtmnt Rm
Metropolitan Life Ltd Median Fund (Pty) Ltd Izibulo Fund SME venture capital finance Debt and/or equity facilities 22
Identity Development Fund Managers (Pty) Ltd Identity Development Fund Start-up early expansion capital Women youth-owned enterprises 75
Fabvest Investment Holdings Ltd Small Business Growth Fund Start-up early expansion capital Rural areas townships 70
32
33Impact of Khula Funds
Actual
Total facilities to end users 334
Facilities to women entrepreneurs 25
Facilities to Black entrepreneurs 89
Facilities lt R250K 42
Facilities disbursed to priority Provinces 46
Jobs created 2790
33
34Funds and JVs
- Given the restricted funds at Khulas disposal
and the fact that funds have a time lag before
returns are realised Khula will limit the
establishment of new funds in the period under
review. - New funds that will be established in this period
must meet the following criteria - The applicant must have a proven track record and
be able to deliver scale development impact. - Khulas investment should have the potential to
yield good financial returns to encourage
cross-subsidisation (ie financial returns from
profitable investments will be used to support
projects that have scale development impact). - The applicant institution (ie management
expertise, systems, prudent policies and
processes) must manifest appropriate capacity. - Funds will be considered only for niche markets
and sector-specific projects - The applicant must be able to co-invest with
Khula. - Khula will act as an implementing agency for SME
development funds thus diversifying its income
34
35Khulas Products historical performance
Approvals
35
36Khulas Products historical performance
Loan Book
36
37Mentorship Programme
- PRE-LOAN MENTORSHIP SMEs will be assisted with
the development of business plans if the meet the
following conditions - A feasibility study that demonstrates the
viability of the business idea - A comprehensive and well researched marketing
plan - Have some level of experience in the proposed
business venture - Have a minimum equity contribution as defined by
Khulas financing partners. - POST-LOAN MENTORSHIP - Khula receives the
intervention request from one of its financing
partners to - Provide business support services to enterprises
at an early stage (introductory/ compliance)
Expansion or Decline stage (Turnaround) of the
SMEs lifecycle - The intervention is only provided to SMEs that
have benefitted from debt and/ or equity
facilities provided by Khula through its
financing partners (Khulas indirect clients) - The intervention is offered for 48 hours over a
period of 12 months
37
38Khula Properties
- Khula took over the Property Portfolio from
Business Partners in 2001 in order to provide
businesses with infrastructure and to support
SMEs. - This was a contribution in part towards the
recapitalisation of Khula - the total number of
properties were 100. - The properties were valued at R129.8m when taken
over and currently are valued at R192m - Current total number of properties is 50
38
39Geographic distribution of property Portfolio
39
40Properties Strategic Intent
- To earn a reasonable rental income return and
sell non aligned properties - Retain and refurbish properties identified for
retention - Portfolio is currently split as follows
- Retain - 26
- Sell Immediately - 21
- In transfer 13
- Empower tenants - Selling properties to them
Installment Sale Agreement Scheme Private
sales. - Provide mentorship to small businesses with
potential to grow - Identify properties to be developed in synergy
with Khulas business and goals and also assist
with local upliftment of the community - Engage in property transactions that assist in
promotion of economic development of SMEs in the
relevant communities
40
41Corporate Balanced Scorecard 2010/11
ACTIVITY PERFORMANCE INDICATOR TARGET
ACCESS TO FINANCE ACCESS TO FINANCE ACCESS TO FINANCE
Maximising access to finance for SMEs (SME Financing) Value of facilities approved to intermediaries R316 million approvals
Maximising access to finance for SMEs (SME Financing) Value of facilities disbursed to intermediaries R531 m disbursements
Maximising development Impact No. of jobs created/maintained 2 000
Maximising development Impact No. of SMEs financed by intermediaries 1 500
Maximising development Impact Facilities disbursed to end-users located in priority provinces ( value) 40
Maximising development Impact Facilities disbursed to Black businesses ( value) 70
Maximising development Impact Facilities disbursed to women owned businesses ( value) 45
Maximising development Impact Facilities below R250 000 disbursed to end-users ( value) 40
41
42Concluding remarks
- The strategic plan focuses on consolidation of
existing strategies and structures to optimise
service delivery and dedicated SME finance - The wholesale financier model has limited the
ability of the institution to make optimal impact
and will be re-engineered - The key strategic thrust, in order to raise
delivery to the next level and thus make more
meaningful impact to SMEs, is the design and
implementation of KhulaDirect - Khula has built a strong delivery platform to
increase access to finance to SMEs - Bolder investment required to sustain momentum
42
43Thank You
43