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Zama Khanyile - Funding Your Business


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Zama Khanyile - Funding Your Business

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Zama Khanyile - Funding Your Business

  1. 1. FUNDING YOUR BUSINESS – A DFI PERSPECTIVE I AM AN ENTREPRENEUR - DURBAN 23 June 2018 AHA G atew ay Hotel Presented by M s Zam a Khanyile
  2. 2. Content 1. The Role of Development Funding Institutions (DFIs) 2. How DFIs differ from commercial banks 3. Mandates of DFIs in South Africa 4. Products offered by the NEF 5. Non-financial support 6. Investment Criteria and Screening of deals 7. Examples of NEF-Funded Businesses 8. Key success considerations
  3. 3. The Role of DFIs Development financial institutions remain relevant. Historically, DFIs have been created by governments around the world to promote economic growth and support social development. They typically provide credit and a wide range of capacity-building programs to households, SMEs, and even larger private corporations whose financial needs are not sufficiently served by private banks or local capital markets. In doing so, they seek to promote strategic sectors of the economy, such as agriculture, international trade, housing, tourism, infrastructure, and green industries, among other sectors. Although many of the institutions were created several decades ago, data shows that many governments around the world still see them as a relevant instrument to pursue economic goals. Source: financial-institutions-in-the-new-millennium
  4. 4. 5 How DFIs differ from Commercial Banks Commercial Banks Development Funding Institutions Usually set up as companies under Company Act May be owned by government or the private sector. Usually set up under special act passed by Government Accept deposits from public which are payable at demand Main source of funds is government allocations, loans, grants, repayments of/proceeds from previous investments etc. Their objective is to maximise commercial returns Their objective is to maximise commercial returns (sustainability) and to achieve the intended development mandate Place reliance on security/collateral available (Security Cover) Reliance is largely based on cash flows to be generated by the business DFIs fill a gap in the funding market DFIs are usually referred to as “lenders of last resort”
  5. 5. 5 South African DFIs and their mandates INSTITUTION MANDATE SECTOR FUNDINGLIMITS National Empowerment Fund (NEF) Finance B-BBEE individuals/entities No restrictions (excl. sin industries) R250 000 - R75 million Small Enterprise Finance Agency (SEFA) Finance SMMEs, Cooperatives, Financial Intermediaries No restrictions Primarily; services, manufacturing, agriculture, construction, mining, green industries Direct Lending R50 000 - R5 million Wholesale Lending R500 - R5 million Industrial Development Corporation (IDC) To contribute to the creation of balanced, sustainable economic growth in South Africa and on the rest of the continent Agro-processing, Manufacturing, Industrial infrastructure, Media and Motion Pictures R1 million – R1 billion Public Investment Corporation (PIC) To contribute towards the realisation of key developmental priorities of Government by funding businesses Economic Infrastructure, Environmental Sustainability and other Priority Sectors R10 million and above (no maximum) Development Bank of South Africa (DBSA) Finance social/economic infrastructure Priority Sectors: Water, Energy, Transport and ICT R40 million to R5 billion
  6. 6. 6 South African DFIs and their mandates (cont’d) INSTITUTION MANDATE SECTOR FUNDINGLIMITS GPF Affordable Housing for people earning R3 000 - R15 000 per month Affordable Housing finance 30%of the project costs and up to R50 million per project. National Housing Finance Corporation (NHFC) Provide property finance to income earning SA citizens Affordable Housing finance R10 million - R200 million Masisizane SME funding Agribusiness (Primary & Agri- processing), Franchising & Commercial, Supply Chain & Manufacturing R250 - R10 million Business Partners SME lending solutions & non- financial services The funding may be used for: Equipment; Expansion; Management buy-outs; Property finance for owner occupied businesses ; Revamps; Start-up; Takeovers; Working capital. Financing applications fromformal SMEs whose gross assets are under R100 million, where annual turnover does not exceed R200 million and/or employees are less than 500 in number. Land and Agriculture Development Bank of South Africa (Land Bank) Provide financial services to commercial farming sector/agri- business Agribusiness R30 million (no specified maximum) GEP To provide financial and non- financial support to SMMEs All sectors except transport and property R50 000 – R2.5 million
  7. 7. NEF Mandate… Established by the National Empowerment Fund Act No. 105 of 1998, the NEF is a driver and a thought-leader in promoting and facilitating black economic participation through the provision of financial and non-financial support to black-owned and managed businesses, as well as by promoting a culture of savings and investment among black people. The NEF is an agency of the dti and is the only DFI exclusively mandated to grow B-BBEE
  8. 8. NEF’s Products 5 specialist funds Fund Products Threshold 1 iMbewu Fund (SMEs) SME Fund providing Entrepreneurship, Procurement & Franchise Finance R250 000 – R15 million 2 Women Empowerment Fund (WEF) Achieve minimum 40% of enterprises owned and managed by black women R250 000 – R75 million 3 Rural & Community Development Fund Supporting rural economic development through New Ventures, Acquisition, Expansion & Greenfields Finance R1 million – R50 million 4 uMnotho Fund Funding of New Ventures, Acquisition, Project Finance, Expansion, Capital Markets, Liquidity & Warehousing R2 million – R75 million 5 Strategic Projects Fund Early-stage investment in industrial / manufacturing transactions Up to R75 million
  9. 9. Non-Financial Support Pre-investment As the first-point-of-contact the unit provides product advisory services, manages the online business-plan solution, manages the administration of applications, incubation and entrepreneurial training. Socio Economic Development Empower black people in existing NEF transactions and other broad based groups through various interventions such as promotion of saving and investments, social facilitation, entrepreneurial training, investor education, corporate governance training and market access for the acceleration of meaningful participation. Post-investment support Monitor investments, provide ongoing portfolio management, manage mentorship support and collections as well as legal compliance Turnarounds, Workouts and Restructuring Rehabilitate distressed transactions and reduce impairments Through a combination of measures including balance sheet restructuring, equity and /or working capital injection, operational restructuring, introduction of a strategic equity partner and / or turnaround specialist and business rescue.
  10. 10. NEF Funding Criteria Each application is assessed in terms of the following criteria • Minimum % of black ownership • Managerial and operational involvement of black people • Black Women Empowerment • Youth empowerment • Community involvement • Job Creation (Cost per job) • Growth Sectors (NDP, IPAP) • Geographic Spread ((rural/urban/disadvantaged areas) • Investment Return (commercial viability of the business) • Meet specific product criteria • compliance with all the relevant laws and regulations • the possibility of co-funding with another public or private sector institution.
  11. 11. 11 Deal declined at screening stage – Property acquisition finance • Business plan did not contain sufficient information to enable proper screening of the merits of the transaction. Thus more information had to be requested from the client. • The additional information requested was provided after an extended period of time. • The sponsor relied on consultants to put together the information for the finance application and did not vet all the information before submitting to the deal team. Thus when asked for clarification about the details, they were unable to account. • This delayed the screening process as they would first consult their consultants before responding to the deal team. • This also demonstrated the lack of experience that the sponsor had in that line of business. • The sponsor believed in the merits of the transaction, but could not demonstrate it to the deal team. • Financial projections provided did not reflect realistic/achievable figures. • A point of reference is always the historical performance of the business which is then supplemented by evidence of additional/new demand (occupancy rates) • The projections could not be substantiated as there was no proper basis for them.
  12. 12. 12 Deal progressed beyond screening stage – Property finance • The directors are expertise in the property field, thus were able to provide comprehensive industry and market analysis which helped in assessing the commercial viability of the transaction. • Full co-operation and participation from all the Directors and employees of the Investee. • The client nominated one of their employees to fully devote their time to respond to the deal team’s requests. • Thus they availed themselves at any time to respond to requests from the deal team. • They understood the information required, thus provided information of good quality. • The deal team received a comprehensive business plan with sufficient supporting information. • Additional information request were submitted timeously which enabled smooth screening process.
  13. 13. African People Movers APM provides intercity passenger transport services. APM started its operations with four rented/leased buses before obtaining NEF funding. APM received R45m expansion finance from the NEF. The company has sales offices in Pretoria, Johannesburg and Durban. APM has 32 operating licenses for all the routes envisaged in the business plan. Black ownership is 100% and includes black women and youth. Through this investment, 30 jobs were retained and 33 new jobs were created. Localisation: All NEF-funded buses were assembled South Africa. Local content of body value is 31%, chassis is 19%. Average of 25%.
  14. 14. 14 Rise Uniforms § Phakamile Industries CC t/a Rise Uniforms is 100% owned and managed by a black female, Ms Ntombekaya Nonxuba. § Clothing manufacturing company - specializes in the mass production of a wide range of clothing items e.g.. corporate clothing and school uniforms. § Established in 2007 and has grown into an established, reputable business. § Located in Teguka Business Park in Philipi, a township in Cape Town. § Employs 49 staff, most of whom are women § Annual renewable contract to supply staff uniforms to Pick n Pay (part of ESD). § The NEF approved R5m (machinery, equipment and working capital required for the expansion of the business
  15. 15. 15 L&R Building and Civils Construction • L&R Building and Civils Construction (Pty) Ltd (“L&R”) is a construction company that has been operating since 2003. • The business is 100% black woman owned and specialises in social housing. • Product and Service offering: • General Building; • Concrete Supplies; and • L&R is expanding its services into civil engineering • The NEF approved a R15 million working capital facility. • Key Highlights of L&R: • Past projects to the value of R322 million since inception; • Confirmed order book to the value of R201,4million; and • Created and maintained 165 jobs where 134 are temporary and 31 are permanent; • Through assistance with the NEF funding has potential of creating 10 new jobs. • The business’ head office is based in Meyerton, Gauteng and satellite offices in the Eastern Cape and other site operations.
  16. 16. Mmutle Mining Projects § Mmutle Mining (Pty) Ltd (“Mmutle”) was established in 2016 by Mr John M Mmutle (start-up). § The business is 100% black and youth owned. § Provides material handling, crushing and screening, mining rehabilitation, drilling, blasting and plant hire services § Mmutle was awarded a material handling contract by Zizwe Open cast Mining (Pty) Ltd § Anglo Greenside Colliery (Mpumalanga) for 36 months. § NEF assisted the client to renegotiate rates and volumes (to improve viability). This increased the contract size. § NEF approved R13m to wards this contract § 24 new jobs will be created through this contract 16
  17. 17. 15 Rhino Ridge Safari Lodge is a lodge of contemporary design with overtones of organic forms, utilising natural finishes and materials. It offers 22 rooms nestled in natural bush high up on the ridge with commanding views of the landscape. It is situated on the Western boundary in the first private concession within South Africa’s oldest proclaimed Game Reserve; Hluhluwe uMfolozi Park, in Northern KwaZulu Natal. The lodge is set in a 96 000 hectare park that enables guests to enjoy 4-star luxury at a private lodge for the first time within the park, offering spectacular scenery and excellent safari opportunities within the heart of Big 5 territory. The Graskop Gorge Lift Company has developed a new lift and retail centre at the Graskop Gorge as part of the Panorama Tourism Route node. The outdoor lift system ferries passengers up and down the cliff face into the forest environment that lies about 50 metres below ground level. A complementary ground level tourism centre comprises a restaurant, bar, retail outlets, kids play area and centre management offices. As part of the second phase of the project, a 36-bed hotel and associated infrastructure is yet to be developed. R22.5 million Tourism Project in Northern Kwa-Zulu Natal R33.4 million Tourism Project in Mpumalanga Further examples of NEF Funding
  18. 18. Franchises Funded 17
  19. 19. 19 Key success considerations • Be clear about your business model – what problem are you solving? How does your company generate income? • What is your unique selling proposition? • Are you the right jockey? (Demonstrate skills, experience and technical competence to execute sales) • Be the first one to invest in your business. • Demonstrate the business’s viability. Prove the concept. • Become an expert on the market you wish to service. Avoid being generic. • Cash is king! • It’s a learning process… • Keep going. Don’t give up.
  20. 20. 19 Thank You Contact Details LOCATION TELEPHONE 1 Head Office, Johannesburg 011 305 8000 or 0861843 633 / 0861 THE NEF 2 Eastern Cape 0861 633 327 / 0861 NEF ECP 3 Free State 0861 633 377 / 0861 NEF FSP 4 KwaZulu Natal 0861 633 596 / 0861 NEF KZN 5 Limpopo 0861 633 546 / 0861 NEF LIM 6 Mpumalanga 0861 633 678 / 0861 NEF MPU 7 Western Cape 0861 633 927 / 0861 NEF WCP 8 North West 0861 633 697 / 0861 NEF NWP 9 Northern Cape 0861 633 627 / 0861 NEF NCP
  21. 21. Key Institutional Financial Incentives Department of Trade and Industry INCENTIVE PURPO SE O FFER M AXIM UM 121TaxAllowanceIncentive Tosupport Greenfieldinvestments Grant R30m Agro-ProcessingSupport Scheme (APSS) Tosupport agro-processinginvestments 10%–40%Grant R30m AquacultureDevelopment and Enhancement Programme(ADEP) Tosupport aqua-culture Grant R30m Capital ProjectsFeasibility Programme(CPFP) Tosupport feasibilitystudieslikelytoleadtoprojects that will increaselocal exports 50%Grant R8m Export MarketingandInvestment Assistance(EMIA) Tohelpdevelopexport marketsfor SouthAfrican products Variousservices varies FilmandTelevisionProduction Incentives Topromoteitsfilmproductionandpost-production industry Grant Nocap BlackIndustrialistsScheme(BIS) Tounlocktheindustrial potential Grant (managedbyNEF/IDC) R50m Support Programmefor Industrial Innovation Topromotetechnologydevelopment Grant R7m ClothingandTextile CompetitivenessImprovement Programme(CTCIP) Tobuildcapacityamongmanufacturersandinother areasof theapparel valuechain Grant (managedbyIDC) R30m
  22. 22. INCENTIVE PURPO SE O FFER M AXIM UM BlackBusinessSupplier Programme (BBSDP) Tosupport small businesses Machinery&Equipment: 50%grant Businessdevelopment andTraining: 80%grant R1m Theco-operativeScheme(CIS) Toincreaseviabilityof co- operatives 50%grant R350k SharedEconomicInfrastructure Facility(SEIF) Providenecessaryinfrastructure especiallytownships 50%grant R5m Key Institutional Financial Incentives Department of Small Business Development and Other INCENTIVE PURPO SE O FFER M AXIM UM Youthgro-e Topromoteyouth entrepreneurship Pricingof prime–5% (AdministeredbytheIDC) R50m NYDA, IDCandSEFAtripartite Topromoteyouth entrepreneurship Grantsandfunds varies Department of Small Business Development Other