1. Venue: Parliament: Cape Town
Khula Enterprise Finance Ltd Strategy Presentation
Economic Development Parliamentary Portfolio Committee
Venue: Parliament: Cape Town
30th March 2011 1 1

2. Presentation Outline Khula’s Mandate; Vision & Mission
Overall Strategic Goals
Process of Achieving Goals
Khula’s Strategic Priorities
Khula’s Strategic Priorities and Activities
Key Deliverables 2

3. Khula’s Mandate; Vision & Mission
To Address gaps in the SME financing by leveraging private secotr and other development funding for the creation of vibrant SME sector
Vision
To be the development finance partner of first choice in the field SME development
Mission
Khula’s mission is to provide finance, mentorship services and small business through a network of partnerships and to encourage the sustpremises to SMEs ainable development of SMEs whilst ensuring that Khula remains financially viable.

4. Overall strategic goals of Khula
To achieve efficiency in delivering products & services - reducing the costs; quicker turnaround times; integrating provision of services; e.g. Non-financial support; etc.
Have higher development impact. – introduction of Khula Direct; effectively utilising the existing capacity of current products & services & delivery platform.
Increase Khula’s outreach: increase in scale – reach out to more SMEs and entrepreneurs (spatial/geographic spread); diversify the source of funding; partnerships with potential funders.

5. Government’s Priorities in the NGP
Khula will focus its funding on the following sectors as prioritized in the NGP:
Agro-processing
Minerals & beneficiation
Knowledge economy
Tourism & creative sectors
The green economy
Manufacturing
Co-operatives & Social Economy

6. Key Deliverables
Increasing of Funds under Khula’s management in order to increase access
to finance to by SMEs.
Integrating the wholesale business model with KD – one Khula.
To improve the functioning and effectiveness of the Credit Indemnity Scheme.
On-going product & service review to improve performance.
Increase Khula’s products & services to black entrepreneurs; people in rural areas; women; and to youth. (designated groups & spatial outreach).
Restructure the property portfolio to improve its performance.
Restructuring of Operations to realign the products and focus on key growth areas

7. Key Deliverables (cont...)
8. Implement and roll out KD business model by launching a pilot in two provinces in Improve credit risk management of the investment lending activities. 10. Investigate and design processes & mechanisms to facilitate deposit-taking as another measure of limiting credit risk. 11. Strengthening Khula’s staff capacity in order to deliver at a high level under the new operating environment. 12. Implementation of policies; procedures; processes; and systems to improve turnaround times; reduce cost of delivery and enhance our credit and risk management. 13. Participate in the merger led by EDD between Khula, Samaf and the IDC’s SME portfolio.

8. High level performance Targets 2012-14
Increase access to finance to SMEs owned by blacks;
women; youth & people in rural areas.
Focus financing in specific sectors; specific target groups & in
specific spatial/geographic areas.
Improving the IT systems; processes ;policies &
operational efficiencies.
Reducing risk in all lending activities (M&E); strengthen risk
management framework
Position Khula as the cutting edge lender & Premier Player in
SME finance.
Improve staff capacity through training; improve morale &
performance.
Implement Khula Direct.
Merger of Khula, Samaf and IDC’s SME portfolio
Inputs/Goal
R235m approvals & R316m disbursements; create 7214
jobs of which 30% go to Youth.
1031 investment loans to SMEs in specific sectors (i.e . green
Economy; agro-processing; minerals & beneficiation;; tourism;
Etc).
Reduction in the cost of doing business; quicker; turnaround
times; & effective business processes.
Credit risk managed – reduce clients handed over to loss
Control by 5%; explore the possibility of taking deposits through
Post bank as a risk reduction mechanism; strategy on risk
Management framework & risk register.
20% improved rating in media and 90% customer satisfaction
Capacitate staff through media training – PDPs; 10% LTO; 7 IIP
Standard.
Launch out of Khula Direct pilot project in 2012 FY.
Complete merger by end of 2012.
2011/12
Outputs/Targets

9. High level performance Targets 2012-14
3126 jobs created – improved quality of life.
SMEs/Entrepreneurs and employment – Development
impact amongst the youth; women; disabled;
black-owned SMEs and SMEs in rural areas.
Improved business processes; efficiencies in costs;
reporting increasing service value to our clients.
4. Reduced risk both internally & externally.
5. Improved perception of Khula as an SME financier.
Maximum performance with competent staff that
Enables Khula to deliver on its mandate.
7. Roll out Khula Direct additional capacity.
8. One effective institution that services the SME market
Outcomes/Impact

10. Increasing Access to finance

11. Increasing Access to finance (Cont..)

12. Designated Groups & Spatial Outreach

13. Improving the Credit Indemnity Scheme
Improve efficiencies by offering a portfolio indemnity product linked to specific SME programmes.
Review the rules to support changes aimed at improving efficiency and better risk-sharing.
Khula will increase the product uptake of the scheme by reviewing contracts & pricing matrix – to ascertain that all parties involved benefit.
Extend the scheme to other financiers who are not necessarily commercial banks.
Also invite all other registered commercial banks to participate in the scheme and not only the big four banks.

14. On-going product & service review: Joint Ventures & Funds
Fund Manager
Khula’s Partners
onwards
Khula
Khula’s Partners & intermediaries
Outreach
2011
Increased outreach
& impact
2012
Sustainability & increased access
Capacity will be built to manage funds internally.
Khula will position itself as a preferred SME Fund Manager
for both public & private sector organizations.

15. Restructuring of the Operations Division
Towards streamlining of investment & lending Activities
The name Operations will hence change to Investment division in order to reflect the activities of the division.
Improvements in risk management & provision of capacity building support.
Partnership funds e.g.
Khula – Akwandze
SOE Fund as part of NGP.
Some products & programmes will be restructured in order to address specific needs in the market – e.g. the credit indemnity scheme.

16. Improving Operational Efficiencies
Strengthening Risk Management & Compliance
Improve the IT System & other Operational Efficiencies
Put effective and strong risk management controls.
Update the risk management framework
Divisional risk workshops will be conducted and divisional risk registers completed.
Risk division is expanded and capacitated to accommodate KD.
Integrate Risk; Finance and Internal Audit (IA) to be involved in monitoring loans & performing reviews with clients
Khula will put in place robust; secure; stable and scalable IT applications that are user-friendly - that also reduce the cost of doing business.
These applications will also reduce the turnaround time in producing reports; responding to clients; etc.
Installing good IT infrastructure will also enhance Khula’s credit & risk management. 5

17. Improve Credit Risk & Management
Risk & Compliance Division
Investments Division
Restructured to include Credit approval
and loan monitoring functions.
Risk; Finance and Internal Audit divisions
will monitor loans by performing reviews
with clients through the credit committee.
Reduce loss control hand over clients
by 5%
Strong risk Management controls.
Updated risk management framework.
Strategic & divisional risk workshops.
Divisional Risk register will be completed
and
submitted to the enterprise credit risk
committee.
Capacitating the division with personnel
with specialist skills
WORKING IN PARTNERSHIP TO MANAGE ORGANIZATIONAL RISK

18. Improving & Positioning the Khula Brand
Outreach programme and workshops for SMEs and relevant stakeholders. Primary role of the workshops is raise the image and brand of Khula.
Khula wants to ensure that its rating media coverage improves by 20% and 90% customer satisfaction index.
Khula has set itself a target of reaching out to 3500 SMEs through product launches; SME business sessions and exhibitions.
Position Khula as an SME financier of first choice by implementing a customer relationship management system

19. Roll out and Implementation of Khula Direct
Regional Offices
Management of agencies
Front line appraisal
Monitoring
Business Support
Head Office
Strategy, Contracts & SLAs
Credit management
Portfolio Management
Data Management
Agencies
Market intelligence
Deal origination
Client visits
Collections
Go to market strategy
Khula must be seen as a front runner in the development of SMEs in South Africa

20. Implementation of Khula Direct
Business plan finalised after a number of iterations
Funding approved by National Treasury
Head of retail division recruited
Credit division created to vet all applications
Credit manager secured with over 20 years experience
Lending –field staff recruited and undergoing training
Call centre staff to assist with volume and directing applications trained
IT system for lending in place and functional
Credit Policy in place – to be tested and reviewed during pilot
2 branches identified for pilot and the Pretoria branch intimately involved with planning. Then East London
Marketing material in development (e.g. application forms, etc)– ready before pilot starts
Lending process, policies and procedures have been completed
Collections capacity in place

21. Implementation of Khula Direct
deliver simple products that are accessible, easy to execute and structured with realistic pricing that is not prohibitive with fast turnaround times.
grow the retail business through the optimal use of existing infrastructure and partnerships with other institutions. Will gradually expand by establishing a Lending Window in partner’s offices. SEDA and the Post Office could offer such an opportunity.
branding to include the retail business. Direct lending enhances brand visibility for Khula and positions the organisation as a lender that is specifically geared to the SME market; Khula will positively affect market perceptions regarding the true contribution that government is making towards developmental impact;

22. Direct Lending Products
Term loans
Asset Based Finance
Working Capital / Bridging Finance
Revolving Credit

23. Critical Success Factors
For Khula to achieve its strategic priorities; it has to take into consideration the three critical success factors
Internal Restructuring
and Implementation
Of Khula Direct
Alignment to the
New Growth Path
(NGP)
Merger of Khula;
SAMAF
& IDC’s SMEs
Business

24. Khula Group Budget KEF: Khula Enterprise Finance
(including Property Portfolio)
KDL: Khula Direct Lending
KIS: Khula Institutional Support
KCG: Khula Guarantee Fund
KLR: Khula Land Reform

25. Budget Overview: Income Statements
R’m
KEF
KDL
KCG
KIS
KLR
TOTAL
Income
*31.8
2.7
11.0
33.9
7.7
87.2
Op.Exp
70.0
4.8
0.9
37.7
116.3
Staff
45.4
3.5 -
16.2
66.2
Premises
3.7
4.0
0.2
7.9
Depr’n
1.4
2.3
Marketing
5.1
1.1
6.4
Admin
14.8
1.3
6.1
24.2
Progr Costs
9.3
Net Income
(38.2)
(2.2)
10.1
(3.8)
5.0
(29.2)
Provisions
(4.9)
(4.3)
(32.0)
(41.2)
Interest
16.7
1.7
5.7
3.2
12.4
39.6
Net Profit
(37.3)
(4.8)
(16.3)
(0.6)
17.4
(41.7)

26. Budget Overview: Balance Sheets
R’m
KEF
KDL
KCG
KIS
KLR
TOTAL
ASSETS
Non Current Assets
1,061.9
39.9
(31.0)
5.0
91.7
1,166.5
Current Assets
202.4
11.1
92.3
47.9
241.6
595.3
1,264.3
50.2
61.3
52.9
333.3
1,761.8
EQUITY AND LIABILITIES
Equity and Reserves
1,256.1
0.5
49.2
333.2
1,689.2
Non Current Liabilities -
36.7
Current Liabilities
8.2
24.1
3.7
0.0
36.0

27. THANK YOU