State’s small business body writes off millions

The government’s wholesale small business promotion agency Khula* had written off R220,6m of its loans advanced to its intermediary clients and partners between 2003-04 and 2009-10, Trade and Industry Minister Rob Davies said this week.

This represented 13% of total disbursements of R1,68bn over the period, during which the average provision for bad debts was 16,6%.

The repayment level showed a decline last year to 74% from 83% the previous year.

Davies was asked in a parliamentary question by Inkatha Freedom Front MP Seeng Lebenya-Ntanzi to give details of the repayment record of small and medium-sized enterprises (SMEs) loaned money by institutions falling under his department, which include the National Empowerment Fund, the South African Micro-Finance Apex Fund, Khula and the Industrial Development Corporation (IDC).

Davies said that the repayment record for SMEs in the IDC’s portfolio was lower than that of larger enterprises.

Of its overall arrears, 69% were related to clients with a turnover of less than R50m.

More than 80% of the businesses which were involved in talks about restructuring were SME-related. The IDC wrote off capital of R90m in the year to March.

“The bulk of this was in franchising businesses which were hard hit by reduced consumer spending.

“IDC’s policy is to only write off exposures when all avenues of restructuring have been explored, the business has ceased operations and there is very little probability to recover its capital,” Davies said.

For the South African Micro-Finance Apex Fund , the loan recovery rate was 66%. Loan losses written off amounted to R6,4m, or 17%, of the loan book.

The National Empowerment Fund experienced a 74% repayment in the year to March.

Preliminary year-end results indicated that between 5,5% and 8% of loans advanced would be written off.

Source: Business Day

* Khula Enterprise Finance Ltd is dedicated to the development and sustainability of small business enterprises in South Africa.  A leader in its field, it has a proud history of more than 13 years service of involvement in the rapidly growing and economically vital, small and medium enterprise (SME) sector.

The company is a wholesale finance institution which operates across the public and private sectors, through a network of channels to supply much-needed funding to small business.  Khula's channels include South Africa's leading commercial banks, retail financial institutions, specialist funds and joint ventures in which Khula itself is a participant.  Its primary aim is to bridge the "funding gap" in the SME market not addressed by commercial financial institutions.

Established in 1996 and operating as an independent agency under the auspices of the Department of Trade and Industry, Khula is recognised for its reputation as a major force in the development of the SME sector - a status it has achieved through its ability to adapt to the ever-changing fabric and challenges presented by the SME sector.