PRESENTATION TO THE SELECT COMMITTEE

1. PRESENTATION TO THE SELECT COMMITTEE Thakhani Makhuvha Chief Executive Officer 19 FEBRUARY 2013

2. MANDATE Overarching Mandate To promote the establishment, survival and growth of SMMEs and thus contribute towards poverty alleviation and job creation. Legislative Mandate “To foster the development of Small and Medium Enterprises and Cooperatives;” as stipulated by the IDC Act s(3)(d).

3. Vision, Mission and Values Vision To be the leading catalyst for the development of sustainable Survivalist, Micro, Small and Medium enterprises through the provision of finance

4. Vision, Mission and Values Mission Our mission is to provide simple access to finance with support, in an efficient and sustainable manner to survivalist, micro, small and medium enterprise across the country: • Providing finance to small businesses on a wholesale and direct basis • Providing credit indemnity and guarantee facilities • Supporting the institutional strengthening of financial intermediaries so that they can be effective in assisting small businesses • Creating strategic partnerships for sustainable small business development and support • Monitoring the effectiveness and impact of finance provision, credit guarantees and capacity development in the small business sector • Developing (through partnerships) innovative finance products, tools and channels to catalyse increased market participation in the provision of affordable finance to small businesses

5. Vision, Mission and Values Values sefa’s guiding principles for decisions, activities and behaviour are: • Kuya sheshwa! Speed and urgency • Passion for development: Solution-driven attitude, commitment to serve • Integrity: Dealing with clients and stakeholders in an honest and ethical manner • Transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all stakeholders • Innovation: Continuously looking at new and better ways to serve our customers

6. Board Enterprise Risk Committee Audit Committee HC & Remuneration Committee Wholesale Investment Committee Direct Lending Committee Board Overview • Board • Ms SM Rensburg (Chairperson) • Mr TR Makhuvha (CEO) • Mr M Ferreira • Mr IAS Tayob • Ms HN Lupuwana • Mr SA Molepo • Members • Mr VG Mutshekwane • Ms BP Calvin • Mr GS Gouws • Ms K Schumann • Mr LB Mavundla

7. Management & Staffing Executive Manager: Direct Lending Executive Manager: Wholesale Lending Executive Manager: Human Capital CFO sefa Board Chief Risk Officer CEO Company Secretariat Head Internal Audit Head HR Head Risk Management Head of Direct lending (South) Head Financial Accounting Head Stakeholder relations & Communication Head : Micro Finance Wholesale Senior IR Specialist Head Legal Services Head of Direct lending (North) Head Management Accounting Head of Retail (South) Head : SME Wholesale Head IT Senior L & D Specialist Head Workout & Restructuring Head Supply Chain Management Head : Post Investment Monitoring Head : Post Investment Monitoring Business Planning & Strategy Manager Facilities Specialist Product Specialist Co-operative Specialist Property Co-ordinator/ Specialist Capacity Support Specialist Total Headcount – 6 Headcount : 22

8. Staff Complement

9. Target Market sefa’s target market consists of small businesses that have been failed by the existing formal banking and finance sector. These include: • Survivalists and microenterprises – those requiring loans of anything between R500 and R50 000 • Small enterprises – loans between R50 000 and R1 000 000 • Medium enterprises – loan between R1 000 000 and R5 000 000

10. Targeted Group Funding • 30% of funding disbursed targeted towards youth-owned enterprises. • 45% of funding disbursed targeted towards priority rural provinces. • 40% of funding disbursed targeted towards women-owned businesses, progressively increasing in subsequent years. • 70% of funding disbursed targeted towards black-owned businesses.

11. Overall Strategic Objectives The strategic objectives of sefa are to: • Increase access and provision of finance to small businesses and thereby contribute towards job creation. • Develop and implement a national footprint for effective product and service delivery. • Build an effective and efficient sefa that is a sustainable performance driven organisation. • Build a learning organisation . • Build a sefa that meets all legislative, regulatory and good governance requirements. • Build a strong and effective sefa brand emphasizing accessibility to SMMEs

12. Strategic Objective 1 Increase access and provision of finance to SMMEs and thereby contribute towards job creation Immediate Priorities: • Continuously identify small businesses that require funding • Conclude transactions in the pipeline to increase SMMEs accessing sefa funding • Design institutional strengthening and business support programmes • Pre-loan support (e.g. seda, Mpumalanga Economic Growth Agency , Gauteng Enterprise Propeller) • Business Support Centres (e.g. SAICA Business Hubs, Shanduka Black Umbrella) • More intensive training of staff (especially in direct lending) • Conclude and implement agreements with private and public sector partners • Funding of small business opportunities arising out of IDC projects • Procurement opportunities (e.g. SOEs, government departments)

13. Strategic Objective 1 (cont) Increase access and provision of finance to SMMEs and thereby contribute towards job creation Medium to Long Term Priorities: • Extend footprint • Manage growth in the number of businesses financed • Extend partnerships to other provincial governments, government agencies, community based organisations and private sector.

14. Strategic Objective 2 Develop and implement a national footprint for effective product and service delivery Immediate Priorities: • Complete merging of 2 regional offices by the end of March (NW and WC) • Capacitate all offices for direct lending through staff training and strengthening lending systems • Use our partnership network to extend market reach Medium to Long Term Priorities: • Establish 48 Branch and Satellite offices in order to cover all districts leveraging on the Post Office/Post Bank network (roll-out over a 5 year period)

15. Strategic Objective 3 Build an effective and efficient sefa that is a sustainable performance driven organisation Immediate Priorities: • Conclude corporate balanced scorecard aligned to the Corporate Plan • Signed performance contracts for all staff aligned to the Corporate Plan • Continue to build organisational culture geared to delivering on the Corporate Plan • Continue to up-skill staff • Develop the sustainability model of sefa • Continue to analyse the cost driving activities and increase efficiency • Improve customer service Medium to Long Term Priorities: • Analyse the cost driving activities and improve operational efficiencies

16. Strategic Objective 4 Build a learning organisation Immediate Priorities: • Integrating systems and processes to build internal capability • Develop knowledge management resources • Consolidate the available local and international SMME research Medium to Long Term Priorities: • Establish R&D capacity and capability to service market needs • Talent management and succession planning

17. Strategic Objective 5 Build a sefa that meets all legislative, regulatory and good governance requirements Immediate Priorities: • Appointment of the Chief Risk Officer • Regularise the enterprise risk environment - all policies, systems and procedures Medium to Long Term Priorities: • Maintenance and the monitoring of corporate governance and compliance through the Chief Risk Officer

18. Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs Immediate Priorities: • Sign off of the communication plan and media policy • Implement and roll out of brand awareness campaign • Media campaign of products and services Medium to Long Term Priorities: • To build a strong and prominent brand

19. Products & Services - Wholesale

20. Products & Services - Retail

21. Products and Services - Non Financial Services

22. Wholesale short term initiatives • Partner with stronger financial intermediaries and recapitalise • Sign agreements with financial institutions and increase utilization of the Credit Indemnity Scheme • Continue with the review of the wholesale lending portfolio, including the consolidation of intermediaries • Expand wholesale offering through partnerships targeting specific sectors and/or markets • Introduce new products that are aligned to intermediary needs that meets sefa’s developmental objectives • Influence interest rate charged by intermediaries to SMMEs to meet sefa’s developmental objectives • Institutional strengthening of intermediaries through targeted capacity building grants and technical support • Target specific co-operative markets • Finalise the wholesale lending division’s structure and placements • Review the financial modeling for the wholesale lending division

23. Co-Operatives support The following will be undertaken to support Co-operatives: • Set a target on the number of co-operatives to be supported and value to be disbursed • Set clear outcomes in terms of the support provided • Benchmark internationally including drawing on other African states • Provide capacity building support and mentorship to Co-operatives.

24. Direct Lending short term initiatives • Appoint Executive Manager: Direct Lending • Fill all key vacancies • Improve customer service rating • Implement simpler loan and approval processes (e.g. forms, contracts) • Improve turnaround times with regard to processing of applications • Enhance the IT functionality to improve processes. • Introduce credit scoring to align the pricing of products • Co-locate regional offices with IDC and other DFI’s to enhance cost efficiencies • Training of employees to deal with retail lending and client services • Launch and roll out of business support (e.g. SEDA and SAICA) • Leverage off IDC’s mega projects to create spin offs for SMME funding • Launch of guarantee product

25. Human Capital short term initiatives • Fill all key vacancies • Develop and implement a robust performance management system • Develop and institutionalise Human Capital policies, processes and procedures • Establish compliance forums (Employment Equity, Training, Health and Safety committee etc.) • Develop and implement a change management programme targeted at creating a customer centric and performance driven culture • Develop and implement employee engagement strategy • Negotiate the new conditions of employment • Sign recognition agreement with labour • Develop and implement a training plan for improved performance • Enhance the Human Resource Information System e.g. VIP • Implement head office security measures in accordance with the risk security assessment

26. Funding and pricing strategy • sefa’s pricing strategy will be developmental in nature (affordable to small businesses, incorporating an appropriate discount for developmental impact) whilst ensuring the sustainability of the institution. • The Business Plan assumes moving towards an average interest rate of • 8.5% for Secured lending (market rates* are on average 20%) • 19% for Unsecured lending (market rates* are on average 32%) • The maximum rate allowable by the National Credit Act is 32% • Risk is mitigated by post-loan business support. * sefaconducted a survey of market rates charged by other financial institutions for similar sized business with similar risk profiles. sefa was found to be considerably more affordable

27. Funding and pricing strategy • Thebudget assumes a pricing range of between 8.5% and 19% • And an impairment levels of between 15% and 25% • As we cannot price above 19% to cover higher levels of impairment, grant funding will be required to cover impairment levels above 25%

28. 2013-2017 Performance Targets –Approvals

29. 2013-2017 Impact Targets -SMMEs Financed & Jobs Created/Sustained

30. Approvals per Business Area

31. Disbursements per Business Area

32. Performance Overview

33. Performance Overview

34. Cost Effectiveness • The merger will result in cost savings in terms of overheads such as office space both at head office and regional level • Efficiency improvements as a result of the relationship with the IDC for eg savings on Internal Audit costs, centralized procurement and sharing of regional office space • Maximization of Interest received on surplus funds as no management fees are paid to the IDC • Cost containment measures such as restrictions on venue hire for meetings, strict rules on travel etc • Scaling up of disbursements • The above measures will, amongst other things, result in the decrease of cost to disburse as well as the decrease in the cost to income ratio • At the end of the 3rdQuarter 2012/13 it costedsefa R1.50 to disburse one Rand. This is an improvement when compared to the 1st quarter cost of disbursement of R2.00

35. Cost Effectiveness (Cont) * The Cost to income ratio includes the cost of disbursement as well as the cost of managing and monitoring the existing loan book

36. Delivery Network The retail network consisting of regional, branch and satellite offices will span across the nine provinces and all districts of the country. Added to these will be Financial Intermediaries who will also distribute sefaproducts throughout the country to ensure access by qualifying SMMEs. Initially sefawill roll-out its retail products through the existing regional offices whilst the branch and satellite offices are being set up. The regional offices are:

37. Delivery Network

38. THANK YOU