Date: 10/12/04
Source: Ministry of Trade and Industry
Title: Hendricks: Stakeholder briefing on SA Micro Finance Apex Fund
Speech delivered by the Deputy Minister of Trade and Industry, Lindiwe Hendricks, at the stakeholder briefing on the South African Micro Finance Apex Fund (SAMAF), Pretoria
10 December 2004
In the United Nations report on Human Development and Poverty it was revealed that in South Africa during the period from 1991 to 2001 approximately 23% of our population lived on less than $2 per day or at the current exchange rate less than approximately R360 per month. Given the cost of living in our country this means that every day millions of South African's are not able to fully meet their basic needs. Many of these people often fall outside of the mainstream economy and they rely on government grants, remittances from family members who are employed, on temporary work, and on other income generating activities in order to survive. The President earlier this year spoke about these people falling into what has now become known as the second economy.
The term second economy is a relatively new concept and I would like to use this opportunity to explain more about what we mean by the second economy. Many of this country's rural and urban poor, informal traders, and micro entrepreneurs form part of the second economy and their participation in mainstream economic activities is either minimal or on the periphery. This sector also includes a large number of uneducated youth who are unable to find employment, as well as people who have been made redundant because their skills are no longer required by the increasingly dynamic and competitive economy that is emerging in South Africa. The emergence of this dynamic economy, which is partly as a result of the pressures that South Africa finds itself as we increasingly become incorporated into a global trading system, is not a phenomenon that is unique to our country.
Other than increasing social welfare grants to people located in the second economy, which is not sustainable in the long term; our response as government to the challenges of the second economy is to try and migrate people into the first economy, so that they are able to fully participate in the economic mainstream. Consequently, one of the aims of the Department of Trade and Industry (the dti) is to support the second economy by helping to increase the capacity of people in this sector to become involved in productive activities, and boost their potential to generate income for their households. Such productive activities will go a long way to alleviating the poverty that is faced by people in the second economy, and will compliment the activities of other government departments who are also responding to a very real need in the economy.
The mechanisms available to increase the productive capacity of people in the second economy are:
Firstly, support greater levels of entrepreneurial and business activity. This is being achieved through the economic growth that our country is experiencing; the increased amount of public sector investment that is taking place, particularly in the expanded public works programmes; ensuring that there is greater spread of economic growth and investments across the country; through opportunities arising from broad based black economic empowerment; and from increased levels of support to small businesses, amongst others.
The second mechanism available for the dti to promote the productive capacity of people in the second economy is to create new economic opportunities and new markets. For example, opportunities will be created by promoting sectors such as tourism and home industries, and encouraging more players to enter these sectors. We also need to see rural areas, townships, and small towns as more than just residential areas and find ways for them to become zones of economic activity that are able to attract industries that sustain and grow that area.
Support for businesses to develop so that they are able access and take advantage of these opportunities will be provided by the Small Enterprise Development Agency (Seda), which is in the process of being established. Important announcements will be made regarding Seda this coming Monday at the Annual Small Business Summit.
The third mechanism available for the dti to promote the productive capacity of people in the second economy is through the provision of micro finance services. It is through the establishment of the South African Micro Finance Apex Fund (SAMAF) that the dti, in co-operation with other players in the sector, will be providing greater levels of support to the second economy, and is the reason that we are here today.
In the South African context it has become important to draw a distinction between micro-credit and micro finance services. Micro credit, which is the provision of small loans to people and enterprises, has unfortunately in South Africa, unlike other developing countries, seen its micro credit sector being tainted by unscrupulous operators who have been known to take advantage of their dis-empowered clients. This unfortunate situation is being improved through the work of the Micro Finance Regulatory Council, and by greater awareness from consumers of the unfair business practices being committed in this area. The dti is also finalising the Consumer Credit Bill, which will improve the regulation of this sector.
On the other hand we have micro finance services, which are a lot broader as they cover savings, financial advice, and financial products, in addition to the provision of micro-loans, and are more developmental. Institutions in this area are playing a critical role in supporting micro business finance and productive economic activities. The SAMAF will be located in this latter area of development finance and provision of a broader suite of financial service support. Priority will need to be given to issues such as financial management and cash flow management.
Ladies and gentlemen, what is significant about SAMAF is that it will 'upscale' the support that is currently available to this sector, by bringing more resources into the sector, continuing to support capacity building of financial intermediaries in the sector, and promoting innovative responses to the needs of the sector.
One of key roles of SAMAF will be to increase the levels of finance that are available to people in the second economy by among things, working with intermediary organisations to provide financial services and loans up to R10 000. This means that SAMAF will not be lending directly to individuals and households but rather using intermediary organisations to the second economy, the modalities of which still need to be worked out. Another important area of work for SAMAF will be to work with co-operatives and other savings groups such as stokvels and burial societies to promote savings and wealth accumulation.
Ladies and Gentlemen as part of this briefing I would like to inform you that the process for establishment of SAMAF has started to take place and the implementation of its programmes will take place over the next few months. This gradual implementation has been deemed necessary, as we do not want the institution to undermine the good work that is already taking place in this sector by embarking on a number of ill conceived programmes. This gradual implementation will allow us to complement and expand existing initiatives, and ensure that we maximise our impact for the benefit of the second economy. Some of our activities over this initial start up period will include:
* Appointment of the SAMAF board
* Appointment of the acting CEO
* Staffing the organisation
* Migrating the Khula Start programmes from Khula to SAMAF
* Evaluation and modification of these programmes
* Developing and running pilot programmes
A critical exercise that will also take place during this period is the development of appropriate models for the delivery of micro-finance support and piloting these models through different organisations. It is important that we refine these models to ensure maximum outreach at the lowest possible cost.
During this period SAMAF will also need to form partnerships and co-operative relationships with other role players in the sector. In particular partnerships will need to be formed with other government departments that are supporting this sector for example, the Department of Agriculture.
After this initial start up period we will then be able to have a clearer idea of what financial models are best suited for the provision of micro finance services in South Africa. This will allow us to make informed decisions and become fully operational.
To conclude, the problems that we experience in our second economy are a global phenomenon, and recognition of this has seen the dti aligning itself with the United Nations 'Year of Micro Credit' campaign. This campaign is promoting the extension of micro finance services, as this has proven to be a successful instrument to start generating greater levels of economic activity in impoverished regions and developing countries.
The South African government cannot allow a situation where so many of our people live in poverty. Through initiatives such as the Micro Finance Apex Fund we hope to improve the support and sustainable livelihoods of those in the second economy, and along with other initiatives that will improve people's skills levels, entrepreneurial capacity and experience bring them into the first economy.
I thank you.
Issued by: Ministry of Trade and Industry
10 December 2004
Source: Ministry of Trade and Industry
Title: Hendricks: Stakeholder briefing on SA Micro Finance Apex Fund
Speech delivered by the Deputy Minister of Trade and Industry, Lindiwe Hendricks, at the stakeholder briefing on the South African Micro Finance Apex Fund (SAMAF), Pretoria
10 December 2004
In the United Nations report on Human Development and Poverty it was revealed that in South Africa during the period from 1991 to 2001 approximately 23% of our population lived on less than $2 per day or at the current exchange rate less than approximately R360 per month. Given the cost of living in our country this means that every day millions of South African's are not able to fully meet their basic needs. Many of these people often fall outside of the mainstream economy and they rely on government grants, remittances from family members who are employed, on temporary work, and on other income generating activities in order to survive. The President earlier this year spoke about these people falling into what has now become known as the second economy.
The term second economy is a relatively new concept and I would like to use this opportunity to explain more about what we mean by the second economy. Many of this country's rural and urban poor, informal traders, and micro entrepreneurs form part of the second economy and their participation in mainstream economic activities is either minimal or on the periphery. This sector also includes a large number of uneducated youth who are unable to find employment, as well as people who have been made redundant because their skills are no longer required by the increasingly dynamic and competitive economy that is emerging in South Africa. The emergence of this dynamic economy, which is partly as a result of the pressures that South Africa finds itself as we increasingly become incorporated into a global trading system, is not a phenomenon that is unique to our country.
Other than increasing social welfare grants to people located in the second economy, which is not sustainable in the long term; our response as government to the challenges of the second economy is to try and migrate people into the first economy, so that they are able to fully participate in the economic mainstream. Consequently, one of the aims of the Department of Trade and Industry (the dti) is to support the second economy by helping to increase the capacity of people in this sector to become involved in productive activities, and boost their potential to generate income for their households. Such productive activities will go a long way to alleviating the poverty that is faced by people in the second economy, and will compliment the activities of other government departments who are also responding to a very real need in the economy.
The mechanisms available to increase the productive capacity of people in the second economy are:
Firstly, support greater levels of entrepreneurial and business activity. This is being achieved through the economic growth that our country is experiencing; the increased amount of public sector investment that is taking place, particularly in the expanded public works programmes; ensuring that there is greater spread of economic growth and investments across the country; through opportunities arising from broad based black economic empowerment; and from increased levels of support to small businesses, amongst others.
The second mechanism available for the dti to promote the productive capacity of people in the second economy is to create new economic opportunities and new markets. For example, opportunities will be created by promoting sectors such as tourism and home industries, and encouraging more players to enter these sectors. We also need to see rural areas, townships, and small towns as more than just residential areas and find ways for them to become zones of economic activity that are able to attract industries that sustain and grow that area.
Support for businesses to develop so that they are able access and take advantage of these opportunities will be provided by the Small Enterprise Development Agency (Seda), which is in the process of being established. Important announcements will be made regarding Seda this coming Monday at the Annual Small Business Summit.
The third mechanism available for the dti to promote the productive capacity of people in the second economy is through the provision of micro finance services. It is through the establishment of the South African Micro Finance Apex Fund (SAMAF) that the dti, in co-operation with other players in the sector, will be providing greater levels of support to the second economy, and is the reason that we are here today.
In the South African context it has become important to draw a distinction between micro-credit and micro finance services. Micro credit, which is the provision of small loans to people and enterprises, has unfortunately in South Africa, unlike other developing countries, seen its micro credit sector being tainted by unscrupulous operators who have been known to take advantage of their dis-empowered clients. This unfortunate situation is being improved through the work of the Micro Finance Regulatory Council, and by greater awareness from consumers of the unfair business practices being committed in this area. The dti is also finalising the Consumer Credit Bill, which will improve the regulation of this sector.
On the other hand we have micro finance services, which are a lot broader as they cover savings, financial advice, and financial products, in addition to the provision of micro-loans, and are more developmental. Institutions in this area are playing a critical role in supporting micro business finance and productive economic activities. The SAMAF will be located in this latter area of development finance and provision of a broader suite of financial service support. Priority will need to be given to issues such as financial management and cash flow management.
Ladies and gentlemen, what is significant about SAMAF is that it will 'upscale' the support that is currently available to this sector, by bringing more resources into the sector, continuing to support capacity building of financial intermediaries in the sector, and promoting innovative responses to the needs of the sector.
One of key roles of SAMAF will be to increase the levels of finance that are available to people in the second economy by among things, working with intermediary organisations to provide financial services and loans up to R10 000. This means that SAMAF will not be lending directly to individuals and households but rather using intermediary organisations to the second economy, the modalities of which still need to be worked out. Another important area of work for SAMAF will be to work with co-operatives and other savings groups such as stokvels and burial societies to promote savings and wealth accumulation.
Ladies and Gentlemen as part of this briefing I would like to inform you that the process for establishment of SAMAF has started to take place and the implementation of its programmes will take place over the next few months. This gradual implementation has been deemed necessary, as we do not want the institution to undermine the good work that is already taking place in this sector by embarking on a number of ill conceived programmes. This gradual implementation will allow us to complement and expand existing initiatives, and ensure that we maximise our impact for the benefit of the second economy. Some of our activities over this initial start up period will include:
* Appointment of the SAMAF board
* Appointment of the acting CEO
* Staffing the organisation
* Migrating the Khula Start programmes from Khula to SAMAF
* Evaluation and modification of these programmes
* Developing and running pilot programmes
A critical exercise that will also take place during this period is the development of appropriate models for the delivery of micro-finance support and piloting these models through different organisations. It is important that we refine these models to ensure maximum outreach at the lowest possible cost.
During this period SAMAF will also need to form partnerships and co-operative relationships with other role players in the sector. In particular partnerships will need to be formed with other government departments that are supporting this sector for example, the Department of Agriculture.
After this initial start up period we will then be able to have a clearer idea of what financial models are best suited for the provision of micro finance services in South Africa. This will allow us to make informed decisions and become fully operational.
To conclude, the problems that we experience in our second economy are a global phenomenon, and recognition of this has seen the dti aligning itself with the United Nations 'Year of Micro Credit' campaign. This campaign is promoting the extension of micro finance services, as this has proven to be a successful instrument to start generating greater levels of economic activity in impoverished regions and developing countries.
The South African government cannot allow a situation where so many of our people live in poverty. Through initiatives such as the Micro Finance Apex Fund we hope to improve the support and sustainable livelihoods of those in the second economy, and along with other initiatives that will improve people's skills levels, entrepreneurial capacity and experience bring them into the first economy.
I thank you.
Issued by: Ministry of Trade and Industry
10 December 2004
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