SUPPORT THE PRODUCTIVE SECTOR FOR ACCELERATED AND SHARED GROWTH
Support to the Standard Bank’s BEE strategy in promoting black SMEs
Context
After 15 years of democracy, most of the South African economy remains controlled by white minorities. In this context, the Broad Based Black Economic Empowerment (BB-BEE) was ratified in 2003 in order to promote the participation of Historically Disadvantaged People (HDP: black and coloured populations) in the economy. This policy took shape with the endorsement of a convention between the banks: a general agreement defining precise goals to be achieved during the next 10 years in terms of access to financial services and funding for HDP. One of the aims of this convention is to promote the creation of a suitable ambient for SMEs (Small & Medium Enterprises), in order to stimulate the economy of the country and foster the economical insertion of HDP.
Under these circumstances, the AFD developed a partnership with Standard Bank, one of the country’s biggest banks, which actually finances 25% of the SME market. With this partnership, AFD is engaged to support Standard Bank in the implementation of the SME plan set by the convention. The partnership aspires to develop the funding of enterprises managed or owned by historically disadvantaged communities.
Goals
The main goals of the project are:
- To spur economical growth by promoting investments in SME
- To reduce inequalities by supporting HDP’s access to employment and SME management
More specifically, this project aims to:
- support the government on the BB-BEE effort
- support Standard Bank in the implementation of the SME plan set by the convention.
Detail of the project
The project, designed to encourage the funding of emerging and growing SMEs with medium and long term loans, is declined in two components:
- A line of credit to assist Standard Bank in the funding of Black SMEs with a €40 000 to €2 millions turnover.
- A warranty tool called ARIZ, which allows to overcome the lack of warranties or personal securities among HDP entrepreneurs, and to support to the banks which could not respond on their own to the solvency of such demand. ARIZ guarantees 50% of the bank’s final loss, in exchange of a 2% annual commission on the amount assured.
Impacts
An impact survey showed that, after 3 years in operation, the project saved 809 jobs and led to the creation of 192 jobs more in the 25 companies funded through Ariz. 50% of the firms are now fully owned by HDP shareholdings.
Schedule & Amounts
Start-up: October 2005
Funding: €20 millions line of credit over 8 years, plus a €10 millions warranty backing this line of credit.