New NEF funding put on ice

Ministry’s ambitious plan forces agency to stop new loans

Overly optimistic expectations of the readiness of the department of trade and industry (DTI) to recapitalise the R5 billion National Empowerment Fund (NEF) has forced the agency to immediately stop all new funding before it becomes unable to honour the loans it has already approved.

The NEF is the only major government intervention exclusively aimed at funding black entrepreneurs, but will probably be accepting no new applications this financial year.

The “unexpected” need to conserve capital is due to negotiations for a recapitalisation with the DTI and National Treasury taking longer than anticipated, says NEF spokesperson Moemise Motsepe.

The DTI is pushing the NEF to accept a more modest level of funding than it got in a previous round of capital injections. It is also concerned that the fund is approving loans that are too large, rather than exclusively focusing on small companies.

The NEF has been on a massive expansion drive since 2005, fuelled by the DTI injections totalling R2.4 billion between 2005 and 2010.

The fund’s loan book grew from a meagre R2 million in 2004 to well over R2 billion today, and was projected in this year’s national budget to grow to just shy of R5 billion by 2016.

Those are the net loans after repayments and write-offs.

The DTI’s current proposal for the NEF is a more modest yearly funding of R100 million to R200 million as well as “limited borrowing powers”.

The department’s director-general, Lionel October, says: “You can get low-interest loans from things like the African Development Bank and on-lend that.”

NEF has, in stark contrast, lobbied hard to be reclassified as a “major” development finance institution by the treasury, a legal distinction that allows it to raise its own money by issuing bonds like the large parastatals do.

The DTI also wants to “reposition” the NEF in terms of how it disburses funds, October told City Press.

“We want them in the SMME (small, medium and micro-sized enterprises) space and to maybe give up on the bigger deals.”

It is not entirely certain how the repositioned NEF would differ from the Small Enterprise Finance Agency (Sefa), which is owned by the DTI but is run by Minister Ebrahim Patel’s economic development ministry.

Sefa aims at supplying credit of up to R3 million to SMMEs and was handsomely capitalised in this year’s budget with allocated transfers of R1 billion in the next three years.

“We want to persuade the rest of government,” October says of the model favoured by the DTI.

NEF loans have, on average, been getting larger instead of smaller, as the DTI wants.

In 2008, its loans averaged R5.6 million each, but between 2010 and last year, that average settled around R12 million with the largest ones totalling R50 million.

“About 500 deals have been approved, but not all disbursed. The NEF will still pay out about R1.1 billion in approved loans, leaving it with R600 million cash,” says Motsepe.

He adds: “The agency still has work to do in supporting its investments, even if it isn’t disbursing new funds.”

Apart from the DTI’s injections, the NEF’s only major source of capital since 2005 has been its sale of MTN shares to the public in 2007, which netted it almost R1 billion.

Other than that, it has operated on dividends, interest from its cash pile and repayments of its long-term “patient capital” loans, which generally have generous repayment terms.

The NEF has MTN shares worth R1.6 billion, but selling these is not on the table, says Motsepe.

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