LENDING by banks to black-owned and empowered small businesses fell by 27% during the recession – down from an R2.6 billion a year to R1.9 billion in 2009, according to the Financial Sector Charter (FSC) Council.
Bank’s lending to black small businesses is one of the key issues on the table, as negotiations between banks and industry roleplayers around the Financial Sector Charter drag into their third year.
A report released in October last year by the charter council titled “FSC Access and Empowerment Finance 2008-2010”, revealed that last year banks lent out R1.3bn as at end August 2010 to black-owned or empowered businesses with an annual turnover of between R500 000 and R20 million, and that lending to black small enterprises was expected to come in at R1.9bn for the year.
A draft Financial Sector Charter was gazetted in December last year, but the draft did not contain any of the specific targets, including lending to black SMEs.
This target and others are expected to be thrashed out by the charter participants this month, according to the FSC council.
Key will be whether or not to raise the target the charter sets for banks to lend to black SMEs, after the four major banks lent R12.8bn to black small businesses between 2004 and 2008 – more than double the charter’s five-year target of R5bn.
Participants are also expected to debate whether banks are providing sufficient finance to black small firms in all areas of the country.
In his 2006 council report, then charter council head Enoch Godongwana (and now deputy minister of Economic Development) expressed concern that 98% of bank’s finance to black SMEs was concentrated in Gauteng, KwaZulu-Natal and Western Cape.
While banks continue to be reluctant to share many details of their lending, Nedbank’s 2009 BEE report revealed that 81% of the bank’s finance was to these three provinces.
A similar percentage of finance goes to black SMEs at FNB, through the bank’s overdraft book, according to figures supplied by Greg Illgner, head of core products at FNB commercial.
But given that banks lend mostly to more sophisticated businesses in the formal sector, according to the Finscope 2010 Small Business Survey, the concentration of lending in the three provinces isn’t surprising.
While about 55% of small businesses reside in these provinces, according to the Finscope report, the three provinces also have a high number of sophisticated firms.
More revealing however are the statistics provided by Standard Bank’s head of small business enterprises, Marius le Roux, that show that among black SMEs that access finance, 52% of finance went to Indians, followed by 38% to black Africans and 10% to coloureds.
The large amount of finance to Indian businesses – which are concentrated mostly in KwaZulu-Natal and Gauteng – could go some way to explaining the over concentration of finance in these provinces.
It’s clear to see why half the small firms Standard Bank finances are Indian. The Finscope report reveals that Indian entrepreneurs make up 10.4% of the country’s estimated 278 800 most sophisticated small businesses (the businesses banks most like to finance), with whites making up a massive 61%, coloureds 9% and black Africans, a mere 19% of these firms.
So was the target of R5bn over five years then not high enough? It’s near impossible to calculate whether this figure is high enough. Even if banks are willing to say how much finance they lent to white businesses of the same turnover, how would one determine what the level of lending to black small firms should be?
Does one set a target according to the percentage of black firms that make up businesses between R500,000 and R20m, the number banked by banks, or set it against the general population make up of South Africa?
On top of this is the low entrepreneurship levels among particularly black Africans – with research by the Global Entrepreneurship Monitor (Gem) revealing that while 87% of white entrepreneurs and 83% of Indian entrepreneurs run opportunity-driven enterprises, just 75% of coloureds and 62% black Africans are opportunity-driven.
Le Roux said he didn’t believed that enough entrepreneurs are receiving funding: “I don’t think it’s due to a lack of wanting to do so, but rather a lack of the opportunities being created to assist black entrepreneurs and entrepreneurs in general to start businesses or to take existing business to the next level”.
This article appeared in Business Day on 15 March 2011.
Stephen Timm is a