Khula, SAMAF & IDC small business: merger update

Meeting Summary

The Committee was briefed on the progress of the merger of Khula Enterprise Finance Ltd, South African Micro-finance Apex Fund (SAMAF) and the Industrial Development Corporation (IDC), which was seen as a means of improving access to finance for small, medium and micro enterprises. The key issues confronting the merged entity were reported, consisting of: products, infrastructure, functional structure, governance, funding, and overlaps with other Development Finance Institutions (DFIs). In order to progress with the merger, the outstanding issues were the finalisation of the name, the appointment of the Board, consultations and communication, change management, the finalisations of union negotiations, the operationalisation of the business case, and the approving and tabling of the three year business plan.

During the discussion, there were a number of clarifications needed about terminology used in the presentation, such as ‘subsidiary’, ‘shareholder agreement’, and ‘Joint Venture’. Several members also questioned the foreseeable costs of the merger, apprehensive that the budget would go into running the entity rather than providing loans to small businesses, and questioned the reason for the proliferation of institutions like Khula, needing clarification on the links between those institutions and the new entity.

Members suggested that the Economic Development Department analyse the weaknesses and challenges of similar entities in order for the new entity to learn from them, and the value of SAMAF was discussed. It was also recommended that all government enterprises like Khula be merged together to work as a ‘one-stop shop’. Regarding workshops, it was advised to keep track of the participants so as not to ‘lose them’ as had happened in the past.

The Economic Development Department (EDD) noted the questions and concerns, and commented that the failure rates of Micro and Small Enterprises (MSEs) were universally high, stressing that it was important to keep these rates as low as possible.