BUILD TO GROW Shaping SMME Wholesale Lending 19 April 2013

Our experiences Insufficient working capital needs: on-lending facility subsidising working capital especially in the RFI/MFI Slow start up and slow take up Profitability expected in the short term Lack of understanding of the economic model in RFIs / MFIs / Specialised Funds Pricing for risk vs. mandate vs. sustainability of the business – credit guarantee scheme Insufficient involvement by sefa – MFI is a challenge Mindset and monitoring of investment “arms length approach” Debt funding model supported by adhoc grant funding Lack of accountability by beneficiaries of grant monies

Present mindset - CONFUSION RFI/MFI # of clients / loan book balance On-lending Grant funding Institutional strengthening Time Short / Medium

DEVELOPMENTAL SCORECARD including Wholesale / Retail lending split SURVIVALIST MICRO SMALL MEDIUM R5 million R500 R50 000 DIRECT LENDING DIVISION CO-OPERATIVES / MICROFINANCE INTERMEDIARIES / RETAIL INTERMEDIARIES / BANKING & FINANCIAL SECTOR / SPECIALISED FUNDS R100 million WHOLESALE LENDING DIVISION DEVELOPMENTAL SCORECARD including JOB CREATION / ENTERPRENEURIAL / BBBEE / REGIONAL / ENVIRONMENTAL

What our intermediaries do?

Continued

# of clients / loan book balance Build to grow - RFI Proposed # of clients / loan book balance On-lending Equity (Grant funding / Donor ) Institutional strengthening Time Medium / Long

# of clients / loan book balance Build to grow - MFI Proposed # of clients / loan book balance Equity (Grant funding / Donor) On-lending Institutional strengthening Time Medium / Long

Financial opportunity Mindset: Build to grow…… CAPITAL INVESTMENT INSTITUITIONAL SUPPORT ON-LENDING FACILITY Financial opportunity Financial support Access to finance Access to finance, financial support and financial opportunity is the backbone of SMME development which together presents an opportunity to address the issues of employment creation, poverty reduction and economic growth to bring about greater equality to all South Africans.

Working model for success Long term view towards sustainability Catalyst towards broad based economic empowerment Potential to grow in specific markets and or sectors Scalability and national reach Strong management and leadership Regulatory compliance and governance Developmental agenda Cost to serve by understanding the financial impact Subsidised (grant) funding should be better managed Institutional support to build sustainability Close oversight and participation by sefa

Wholesale Lending Performance driven Centralised Improved skill set Relationships supported by closer post investment monitoring Centralised Service delivery and efficiency Improved skill set External appointments to bolster capabilities / competencies Specialists expertise New ways through partnerships Build to grow Stronger relationships and direct involvement in businesses Better understanding of market needs Knowledge and expertise in R&D

Focus and attention - Client SME Intermediaries Retail Intermediaries Review and consolidate/merge – recapitalise Create new products and services Banks and other Financial Institutions Reviewed credit guarantee scheme relaunch Develop marketing opportunities for growth Specialised Funds Extend niche market and sector reach Land Reform Empowerment Fund New agreement Labour intensive markets

Focus and attention - Client Microfinance Intermediaries Retail Intermediaries Consolidate/merge – recapitalise Create new products and services Co-operatives Co-operative Bank Development Agency (“CBDA”) National Treasury: Regulator Co-operative Development Agency (“CDA”) Dti: Promote and develop On-lending new strategy Stokvels New development and strategy (Apex institutions)

Servicing client needs Post Investment Monitoring SME Specialised Funds Co-Operatives Credit Guarantee Schemes Agriculture and Land Reform Microfinance

Product offering Product Description Business Loans Partnership with intermediaries for on-lending to SMMEs. Specialised Funds: Joint Ventures and Partnerships Partnership with mainly private public sector entities for on-lending to SMMEs. Credit Guarantee Scheme sefa provides guarantees to banks and financial institutions, enabling loans to small businesses that do not otherwise have sufficient collateral/security to support facilities. Land Reform Empowerment Fund (LREF) Facility through which sefa lends money to commercial banks and other reputable agricultural lenders for on-lending to land reform beneficiaries including production, moveable assets, equity etc.

Non financial services Product Description Post-loan business support This service is only provided to SMMEs that have benefitted from facilities provided by sefa and its financing partners as a risk mitigating intervention (e.g. sefa provides a mentor to a small business to assist with specific aspects of running the business) Institutional strengthening Aimed at providing institutional strengthening and technical assistance to intermediaries (e.g. funding provided to an intermediary to assist in improving its operational management needs)

Credit Guarantee Scheme R3.3 billion budgeted - 2018 R1.400 billion SME R630 million Microfinance R165 million Co-operatives R300 million LREF R790 million Credit Guarantee Scheme

Hurdles to overcome Consolidation and merger process Cultural issues Repayment / Entitlement / Trust relationships Alternative security Financial vs. Social return Risk sharing and pricing to end user Skill and expertise development including technical Collaboration and partnerships: – national, provincial, and local private sector