The Gauteng provincial government, the Industrial Development Corporation (IDC) and the SA SME Fund have set up what they characterise as a “game changing” R300-million SMME Crisis Partnership Fund for small businesses in the province. 

Geared at encouraging entrepreneurship, the public-private partnership was announced yesterday in Tembisa, Ekurhuleni.

There are more than two million small businesses in SA — many township-based — that are unable to access, or do not qualify for, funding from the formal banking sector. This impedes their ability to grow their business, take on larger projects and create new jobs. 

The SMME Crisis Partnership Fund is aimed at correcting this. Each of the three partners has contributed R100-million towards the fund, with the provincial government providing a first loss guarantee, which means it will compensate lenders should the borrower default. 

In a statement, the partners said they believe this model, which leverages the government’s underused first loss capital to attract private sector funding, to be a “game-changer” because it addresses the economic inclusion of township businesses in the region, and provides a blueprint which can be replicated and scaled nationally.

So far, the fund has signed up three intermediaries, but it has already committed to a total of six, with a seventh to be announced imminently.

The three intermediaries are Indlu Living, which helps homeowners fund the development of backyard rooms and helps place tenants via an app; Profit Share Partners, a fintech company that offers finance to small businesses; and Crede Capital Partners, a financial services firm offering transaction advisory services, risk and investment management services. They will begin offering working capital and asset finance to hundreds of small businesses and entrepreneurs. 

The SMME Crisis Partnership Fund will double Indlu Living’s loan book, enabling it to finance about 70 new property entrepreneurs in Tembisa, which will in turn benefit other small township businesses including tradesmen.

The SME Fund, which was set up five years ago to support entrepreneurs and SMEs to grow the economy, provides capital to intermediaries (non-bank lenders) who provide either debt or equity to small businesses.

Visit Daily Maverick’s home page for more news, analysis and investigations

Indlu Living, explained Claudia Manning, principal at the SME Fund, was chosen for its interesting business model. Indlu helps establish backroom accommodation of between six and 25 rooms for RDP homeowners that they then let. The homeowner does not need to pay for the construction because 85% of the rental income services the loan, while the landlord keeps the balance. 

“At the end of the loan period, which is five years, the homeowner would be an entrepreneur who rents out many rooms… They would be earning both an income and creating intergenerational wealth because after five years, their home would be worth considerably more than before. They are micro entrepreneurs, who are using their RDP house as an asset that they can leverage in the way that middle-class people use their properties as assets,” Manning said.

Indlu also seeks council approval for zoning and plans.

Credit records are at no point part of the decision, she explained — Indlu bases its decisions on the likelihood of letting units. Tembisa, which is a desirable area to live in due to its proximity to industry in the metro, was an obvious township for Indlu to launch in because there is a high demand for accommodation.

“Many of these tenants would be living in shacks, but with the provision of more affordable housing, they would be able to move into formal accommodation with proper services.”

Indlu has received R50-million for affordable housing, while Profit Share and Crede are sharing R60-million, for their supply chain funding which helps small businesses across Gauteng with funding for projects. SMEs, who would ordinarily have to wait between 30 to 90 days for payment from clients, would be able to apply to the partners for funding to execute their contracts. The partners provide upfront capital and will then be repaid once the client pays the SME. 

“With those kinds of loads, you can recycle, you know, R30-million in loans many, many times in the course of a two-year period, which is the size of this fund. The partners will be supporting many hundreds of businesses, because they will be using the same capital. We are also providing funding to a few others who we haven’t yet signed.”

Any small business can apply for the funding, she said, from builders to shopkeepers, tavern owners, or manufacturing businesses. 

“The fund is not focusing on any one sector as our partners work across the different parts of the economy.”

Fifty-one percent of the capital should go to black South Africans, and the rest to other South Africans and legal residents. BM/DM