Mathabo Le Roux
21 October 2008
Johannesburg — THE Industrial Development Corporation (IDC) is considering sinking between R100m and R200m into setting up a microfinance institution for the establishment of small businesses.
The microfinancier could come to market as soon as next year and would fill a funding gap not covered by other development finance institutions and deemed too risky by commercial banks.
While the IDC would not specify the minimum threshold for funding, nor the interest rate to be charged, it is likely to be between R5000 and R100000, depending on market demand. Small operations, such as spaza shops or informal traders, are the likely borrowers.
The IDC's divisional executive for services sectors, Katinka Schumann-Bester, last week said details were yet to be presented to the executive committee and her team was still working on the plan's feasibility . The government has put the IDC at the centre of its drive for growth and job creation.
With micro, small and medium enterprises widely seen as the bedrock for employment, the aim is to prioritise funding to help establish such enterprises. However, with the IDC's investment funding starting at R1m, micro and some small enterprises are excluded from funding.
While development finance counterparts, such as the National Empowerment Fund, set the bar somewhat lower with a minimum funding threshold of R250000, micro enterprises, such as spaza shops or informal traders, requiring just a few thousand rand for basic start-up capital , are still out of the loop.
Government agency Khula's investment threshold of R10000 is more reasonable, but small enterprises struggle to obtain funding because the agency's wholesale model has not proven viable.
Asked whether the global financial crisis could delay or scupper the plan , Schumann-Bester said: "It may be even more necessary for the IDC to intervene in what we perceive to be a market failure, especially due to liquidity issues at other financial service providers. Obviously it would be critical to test the risks vigorously, and mitigate them to the extent possible."
However, she said the plan was viable: "We think it can work. The proposal is absolutely commercially viable. You will be able to make money out of it."
The IDC will partner with a financial services company, which it declined to name before the deal has been thrashed out. The partner would also contribute funds to the venture, but the quantum has yet to be determined, she said.
The IDC has in the past provided funding for financial services, notably helping to facilitate the empowerment deal of Capitec Bank, while it has provided funding to help set up Real People, a micro finance outfit in East London. The capital injection into these deals had led to further job creation and greater access to finance, the IDC said.
The IDC had hoped that Capitec could provide a platform from which it could branch into a commercial micro financier, but Schumann-Bester said it was then decided to opt for a free-standing microfinancier.
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