Key Priority Areas for 2010/11 Presentation to Portfolio Committee on Economic Development V454, 4 th floor, Old Assembly 11 March 2010 Sithembele Mase: CEO samaf 11 March 2010

1.Background 1.1 Mandate of the Trading Entity 1.2Achievements Hitherto 2.Key Priorities for 2010/ Strategy implementation 2.2 Investments in Institutional Building of Developmental Micro-Finance Sector 2.3 Building Confidence in the Developmental Micro-Finance Sector 2.4Lobby for Policy, Research and Enabling Regulatory Framework for the Sector CONTENT: 2

1. BACKGROUND: 1.1 Mandate of the Trading Entity: samaf was established in 2006 as a trading entity in terms of section 38(1)(m) read with section 76(4)(b) of the Public Finance Management Act, The trading entity runs as a sub-programme of the EEDD in the dti. The trading status is an interim arrangement intended to expire in March samaf was budgeted for under vote 32 of the Trade and Industry with funding transfers being approved beyond This is in anticipation of samaf, undergoing reform and adopting a corporate legal status by March samaf’s exists to contribute to government poverty reduction goals by acting as a catalyst for effective delivery of developmental micro-finance in South Africa. 3

samaf confidence has been spurred by the achievements of the past 3 years, which includes, amongst others:  Disbursements of R76m (R50m loans and R26m grants) to 49 Financial Intermediaries;  Benefiting individuals, multiplied this by 5 people per household, translates to family members. This outreach and impact was achieved through additional funding obtained from other funding sources like IDC, NYDA and KHULA (financial leverage) by Financial Intermediaries after being funded by samaf;  Improvement in the loan recovery rate from 14% (in 2006) to 70% in 2008 which is currently hovering at 60%; and  Implementation of financial and operating systems to ensure proper processes for funding of Financial Intermediaries and removal of R3.8m audit qualification for 2006/7.  samaf initiated a round table policy debate with the dti Ministry and other stakeholders which resulted in clear identification of inadequacies in policy, funding and regulatory framework for the sector ACHIEVEMENTS HITHERTO…

2. KEY PRIORITIES FOR 2010/11: Strategy Implementation: samaf will achieve its mandate through:  Providing support and establishment, growth and development of micro- finance intermediaries that effectively mobilise deposits and granting of developmental loans to the enterprising and working poor communities thus going deeper and broader;  Facilitating an enabling policy and regulatory environment for effective financial intermediation and ensuring that such markets work for the enterprising and working poor communities; and  Building a strong, effective and efficient Apex Fund. The first priority is to ensure the realisation of samaf mandate through increasing disbursements by R46,5m to R122,5m during this financial year (2010/ 11).

2.2 Investment in Institutional Building of the Developmental Micro-Finance Sector: During the first 3 year pilot phase, samaf has clearly understood the environment of developmental micro-finance and its concomitant challenges and risks. We have identified institutional inadequacy of the funded entities, skills gaps in samaf staff, credit and operational risks and potential risks for fraud.  Financial Intermediaries are struggling to establish financial systems of controls and reporting in order to meet PFMA requirements and drawdown funds quickly. In response hereof we have reviewed our institutional building policies and we plan to increase our investments in this area.  A developmental micro-finance sector requires people with multi-dimensional skills in areas of social/people competencies, community developmental activism, financial discipline and leadership skills. To respond adequately to this gap, samaf will invest in areas of talent management, performance management, change management and an aligned organisational design.  samaf has conducted an evaluation on the performance of its business for the past 3 years. The evaluation was conducted by an independent firm of consultants with wide ranging inputs from the sector, Government, policy expects and interest groups. The results of this evaluation will be used to reform samaf as a corporate legal entity geared towards excellent service delivery KEY PRIORITIES FOR 2010/ 11 CONT…:

2.3 Building Confidence in the Developmental Micro-Finance Sector: During the past three (3) years, samaf has identified inadequacy in operational systems, business processes, risk management and internal control systems within Financial Intermediaries. samaf will invest in capacity building efforts that will yield public and investor confidence. There are further potential risks for fraud, credit and non-compliance in this sector. samaf will prioritise due diligence processes, monitoring and evaluation of controls, compliance audits and standardised operational systems. Government funds are often perceived as “free” funds yet these should be considered as “risk and venture capital funds,” intended to support the cause of deserving communities. samaf will invest in efforts to ensure transparency in line with acceptable accounting standards and effective debt management measures in line with National Treasury regulation samaf will further Implement controls to eliminate the technical non-consolidation audit qualification that has already been reduced from R10, 5m to R3m. We intend to clean this qualification from samaf financial statement by 2010/ KEY PRIORITIES FOR 2010/ 11 CONT…:

The developmental micro-finance in South Africa lacks research, adequate policy and regulatory framework to support sustainable growth (for instance there is no clear policy on deposit taking, specifically insurance depositing taking/ guarantee, inadequate reporting standards for the sector and tax policy issues). samaf has no legislation governing its operations. samaf legal status has been questioned during litigation process. This has negative cost implications and reputation risk to the entire Ministry. There are different funding sources located in different spheres, departments and public entities with little or no co-ordination. This results in double dipping and duplication of resources with different conditionality's in sourcing funds. We intend investing in research and development of policies as well as regulatory framework to establish baseline information for best practices. samaf strives to be at the cutting edge of this initiative LOBBY FOR POLICY, RESEARCH & ENABLING REGULATORY FRAMEWORK FOR THE SECTOR:

In line with the Ministerial letter dated 19/10/2005, which forms the basis of samaf mandate: samaf has piloted the proposed partnerships with 49 community based Financial Institutions ; Developed in-house capacity and systems (which are being continuously improved); Developed products in response to market needs; Refined business model to ensure that it is clear, focused and practical. This pilot model has resulted to the achievement of the results alluded to in slide 4 above [referred to as achievements hitherto] 9 CONCLUSION

Thank you! 10