Sasfin obtains nearly R1bn to provide loans to SA entrepreneurs

Sasfin is set to announce that it has received a R600 million guarantee from a European Union (EU) financial programme, as well as R390 million in funding, to provide loans to smaller businesses and entrepreneurs. In total, Sasfin will be able to provide nearly R1 billion additional funding to small businesses and women and youth entrepreneurs in SA.

Loans will also be made available to businesses that were severely impacted by the Covid-19 pandemic.

Sasfin is the first bank in the world to receive the guarantee that will be provided under the EU’s Nasira programme, described as an innovative financial programme that supports young, female and migrant entrepreneurs in sub-Saharan Africa and countries neighbouring Europe.

The programme uses guarantees to allow local banks in different countries to on-lend to entrepreneurs who might struggle to get loans under traditional lending criteria.

The goal of the programme is to allow banks to provide loans to groups they normally perceive as too risky.

The Nasira guarantee aims to reduce the perceived and real risks of lending to vulnerable and under-served parts of the population by sharing risk among the contributing members. The guarantee is part of the EU External Investment Plan, which, by investing €4.6 billion in EU funds, is set to leverage an additional €47 billion in total investment from the public and private sector.

‘Stepping up support’

Sasfin CEO Michael Sassoon says the guarantee is already in place and will allow Sasfin to step up support to small and medium enterprises who usually struggle to get finance.

Together with the R360 million in funding from FMO, a Dutch Entrepreneurial Development Bank, the guarantee should enable small business owners to access affordable loans through local banks.

Meagan Rabe, head of Sasfin’s Build the Bank initiative, indicates that the funding and guarantee will enable quite aggressive lending to entrepreneurs. “We are currently partnering with FMO and the Frankfurt School of Business to build an automated credit scorecard to drive the project.

“Sasfin is in the process of defining more relaxed lending criteria to support small and medium businesses. As an example, Sasfin currently lends to businesses who have been operating for more than three years, but we will be looking to lend to businesses who have been operating for one year, given the guarantee,” says Rabe.

In this regard, the proposed loan scheme will differ a lot from the SA government’s R200 billion loan guarantee announced during the Covid-19 pandemic.

This scheme was criticised for not really helping small businesses as banks still applied normal strict lending criteria.

However, Rabe explains that the SA government loan scheme did assist businesses. “Sasfin participated in the SA government scheme and around 50% of the facility has been approved for Sasfin clients.

“We have a strong pipeline to deploy the balance. An important point is that the banks provided meaningful support to their clients in terms of payment holidays, which in our experience limited the need to offer the guaranteed loans to existing clients.

“The SA loan scheme was also only available to clients who had an existing banking relationship with a bank. The benefit of Sasfin’s partnership with FMO is that we will be able to offer lending to clients who may not be existing lending clients,” says Rabe.

Helping hand

The overall aim of the Nasira scheme is to utilise EU resources to help build businesses in developing countries. Marjeta Jager, EU deputy director-general for international cooperation and development, says it is very important for the west to reach out to countries that need help.

“The FMO has the expertise to use EU money to do that. The support of the EU and Dutch government for Nasira is a major step towards ensuring that financing reaches entrepreneurs.

“They are potentially great job creators in countries where employment is much needed, now and in the future.

“We believe increased coordination and cooperation between governments, development finance institutions and the private sector is a prerequisite to deal with the complex challenge of financial inclusion of young, female and migrant entrepreneurs,” says Jager.

Risk-sharing facility

Nasira brings together public and private funding, with the guarantee provided by the European Fund for Sustainable Development. The Dutch government has also supported Nasira with a €7.5 million contribution, while FMO and the European Commission agreed on a risk sharing facility for an amount up to €75 million over a period of four years.

The facility targets mainly Tier 1 and Tier 2 financial institutions, as well as Tier 1 micro-finance institutions in sub-Saharan Africa and Europe’s neighbouring countries.

By catalysing other investors, the programme is expected to support more than €500 million in financing for entrepreneurs.

It is interesting that Sasfin is the first to sign up to the loan guarantee scheme and that this is the first time that FMO, one of the largest international private development banks, is getting involved in the programme.

FMO describes its operations as investing in businesses, projects and financial institutions by providing capital and knowledge to support sustainable growth and empower entrepreneurs across the developing world, noting that SA is one of the most unequal countries in the world with a struggling SME sector that has been hit by Covid-19 as well.

Its corporate profile states that FMO believes that “a strong private sector leads to economic and social development” and notes that FMO has a 50-year track record of empowering people.

It focuses on three sectors that have high development impact, namely financial institutions, energy and agribusiness, and food and water. FMO has committed €9.7 billion spread over 85 countries to achieve its objectives of growing businesses.

Sassoon says Sasfin is proud to be the first bank in the world to receive the Nasira guarantee under EU funding, adding that this is an indication of Sasfin’s commitment to and the work it is doing for small and medium enterprises in SA.

Read: Sasfin, Hello Paisa launch bank for thousands without accounts

“Nasira specifically targets underserviced entrepreneurs who struggle to access finance from traditional banks. In this regard, together with the FMO, we are designing the lending products and credit processes to ensure that they work for these businesses,” says Sassoon.

Sasfin will formally start to market products designed around the guarantee in 2021.

Listen to Nompu Siziba’s interview with Sasfin CEO Michael Sassoon (or read the transcript here):