JP Morgan banks R340m on SA’s SMEs

International investment banking giant JP Morgan together with the Department of Trade, Industry and Competition (dtic) on Tuesday announced an investment programme that will see R340 million being deployed to address critical funding gaps for small and medium enterprises (SMEs) mainly in SA’s industrial and ‘green economy’ sectors.

The two entities said during a media briefing that the programme intends to finance the South African economy and generate a positive economic and social impact in the country by supporting SMEs that do not meet the traditional underwriting criteria of general commercial banking requirements.

The initiative will not only provide funding, but also business and mentorship support to early-stage businesses.

Fund, grant

This programme will see JP Morgan becoming the first international investment bank in South Africa to launch a dtic-approved Equity Equivalent Investment Programme (EEIP) called the Abadali EEIP, consisting of The Abadali Fund, a black business growth fund, and the Abadali Grant.

The deployment of JP Morgan’s initial R300 million through the fund and R40 million through the grant is expected to result in R2 billion worth of financing transactions which is expected to create a minimum of a 1 000 permanent jobs over the designated eight-year period of the Abadali EEIP.

“Funding is intended to support small and medium-sized businesses in sectors of significant public importance, ranging from transactions in the green economy to funding for firms with manufacturing operations,” said Trade and Industry Minister Ebrahim Patel.

“South Africa needs more jobs for young people and deeper levels of industrialisation.”

“This transaction will give a boost to the country’s localisation efforts, creating employment and helping to strengthen economic output. I welcome the commitment to the creation of 1 000 new jobs and the focus on supporting a segment of the market that is not adequately served by the financial system,” he added.

Short-term finance will be provided to businesses with minimal or no initial revenue, with capital requirement of at least R250 000 over one to 12 months.

The programme aims for applications to be efficiently processed, with turnaround of about a week from application to payment.

Additionally, businesses with no trading history, financials or security will also be considered if they are in the supply chain of large corporates or government as the sole purpose is to develop these SMEs into sustainable businesses and transfer them into the traditional commercial funding sector.

JP Morgan’s senior country officer in South Africa, Kevin Latter, said Tuesday’s announcement “is a key milestone” for the group “after more than two years of constructive engagement with the dtic”.

From concept to reality

“What was an aspirational concept at the start of our thinking in 2017 has developed into a structured programme focused on creating sustainable and inclusive economic growth.

“The South African private sector has great capacity to multiply impact through partnerships, as we are aiming to do with the dtic. Although the current growth rate in South Africa is low and the impediments in the economy well known, now is the time to reinforce and increase our commitment to equality and inclusive growth and work harder across our business to better serve our people, our clients and the communities of South Africa,” said Latter.

The Abadali Fund will offer medium to long term finance at significantly subsidised rates to businesses with revenue starting from R1 million that require funding for two to five years.

Most of the selected and eligible businesses will be black-owned and managed enterprises with a track record of at least 12 months of trading.

The Abadali Grant expects to extend grants of R40 million towards developing black enterprises into sustainable and successful businesses, with a key focus in supporting entrepreneurship and advancing jobs and skills for in-demand sectors such as digital and the green economy.

The fund will be overseen by JP Morgan and will be administered by Masakhe Partners, a joint venture between Edge Ventures, an established fund manager, and ProfitShare Partners, a fintech short-term capital solutions partner. Both are majority black-owned and controlled.

JP Morgan will manage the Abadali Grant.

Palesa Mofokeng is Moneyweb intern.