Khula, the government small business finance agency, is making drastic changes in the services it offers business owners and in the way it operates in a bid to boost lending to entrepreneurs ahead of the launch of Khula Direct later this year.
Khula Chairman Malose Kekana said on Friday, the agency was among other things sharpening procedures around its credit indemnity scheme and also planned to set up one-stop shops to make it easier for entrepreneurs to register a business.
Briefing the Economic Development Portfolio Committee in Parliament, Kekana said the agency recently met with banks and business chambers in a bid to improve its lending. Khula's lending approvals have fallen to R132 million in the 2009/10 financial year from R746 million in 2006/07.
Khula does not lend directly to business owners, but through banks and a network of retail finance intermediaries.
Kekana attributed the decline to stricter lending criteria from banks, a poorer economic climate and reduced funding from its shareholder, the Department of Trade and Industry.
Despite this Khula had helped create 25 000 jobs and lent out R2.5 billion since its inception in 1996, pointed out the agency's General Manager Mkhululi Mazibuko.
And though provision for bad debt is presently at 12 percent, it had come down significantly from 2002 when it was sitting at 40 percent.
However, Kekana said relationships with other organisations such as business chambers, needed to be improved, while there was a need to review many of Khula's lending products - especially its credit indemnity scheme.
The number of guarantees disbursed through the scheme, which sees Khula advance funding to banks which then lend this on to business owners, had fallen from 467 in 2006/2007 to just 53 in the last financial year.
Kekana said the uptake in the scheme had decreased in recent years because of stricter lending criteria adopted by banks due to the recent recession.
The scheme would be repositioned and customised so that administrative burdens associated with managing the product - such as the paying of claims to banks - would be reduced.
He said in meeting with banks recently, bankers said it often took six months to settle claims with Khula when a loan defaulted.
Banks had proposed that Khula pay out a portion of the default as soon as a loss was reported and that the agency also put in place better systems to make claims repayments faster.
Khula was also engaging more with banks and Mazibuko recently met with Nedbank to discuss some of the problems in the credit indemnity scheme. He would be meeting with other banks soon.
The agency also planned to champion one-stop shops, together with Business Unity South Africa (Busa) where entrepreneurs could get all the services they needed to register and set up their business, at one single point.
After a meeting with chambers Khula had established that the problems facing small and medium-sized enterprises were greater than those that effected any one organisations.
A steering committee would be convened by Busa and Khula, and ANC stalwart Andrew Mlangeni had agreed to act as the patron of an entrepreneurial campaign led by Busa and Khula.
Meanwhile, Kekana said Khula had also formed a steering committee with other organisations to discuss finance as all need to work together, adding that there was a need for the entire sector which assisted entrepreneurs to obtain finance, to work together.
"Right now there is a war between those operating in commercial arena and the developmental arena," he said.
To improve access to finance, Khula would also be setting up a web portal to which banks could upload examples of applications for funding and an example of a business plan.
The agency was also investigating setting up a credit information bureau which would allow banks and development finance institutions to share credit ratings granted to entrepreneurs, and in so doing cut down on the amount of red tape small enterprises have to deal with.
Kekana said Khula Direct would start rolling out at the end of the year and the agency had recently signed a Memorandum of Understanding with the Small Enterprise Development Agency (Seda), which see Khula Direct being offered to entrepreneurs through Seda offices.
Khula is also in talks with the Post Bank to see if it can also make use of the bank's branch network.
The roll out of the network would be funded through alternative funding sources, said Kekana. - BuaNews