The SAB Foundation, in collaboration with Lead Impact Capital and the National Treasury's Jobs Fund, has launched the Financing for Impact Fund. The fund is worth R88 million and aims to provide affordable financing to qualified alumni of South African entrepreneur programs.
The Impact Fund seeks to address the financing gap that exists in South Africa, particularly for small businesses. These businesses often lack collateral and are perceived as high-risk by investors. Consequently, they either don't qualify for finance or, when they do, they face high interest rates, with some short-term lenders charging rates as high as 30%. This results in a high default rate, which discourages investors from lending further, creating a vicious cycle.
The Impact Fund is backed by grant capital, which allows interest rates to remain affordable, ranging from prime minus 2 to prime plus 3. Loan sizes will range from R200,000 to R10 million, and entrepreneurs will need to provide sufficient documentary proof to support the loan amount applied for.
The financing can be used for asset and equipment financing, growth financing, or purchase order and cash flow financing. To qualify for financing, candidates must be graduates of the SAB Foundation's Tholoana Enterprise Fund, the Tholoana Enterprise Program, the Social Innovation and Disability Empowerment Awards, or the Social Innovation Fund. The entrepreneurs must be looking to grow their businesses and create new employment opportunities.
Candidates who receive financing must have already spent at least two years mentoring and training with the SAB Foundation. This allows for other metrics to assess the entrepreneur's character and likelihood of honoring the loan.
Bridgit Evans, executive director of the SAB Foundation, emphasizes that South Africa needs innovative financial products that do not pass on high interest rates to SMEs if it wants to grow the economy and create jobs. The Financing for Impact Fund seeks to mitigate risk in three ways, thereby addressing the financing gap that affects SMEs known as the "missing middle."
The SAB Foundation and Jobs Fund partnership aim to provide SMEs with the capital and support they need to drive enterprise growth and further job creation. These enterprises are significant job creators, especially for young people, women, and those living in rural areas. Najwah Allie-Edries, the head of the Jobs Fund, says that they hope to scale up this initiative and make a meaningful contribution to enterprise growth and job creation.
The Financing for Impact Fund is designed to demonstrate to the South African financial and investment community that small businesses with innovative and impactful business models are investable. If they can show that all loans are repaid, they can use this as a model to attract further financing. This will ensure that entrepreneurs with real growth and job creation potential are not held back by a lack of access to affordable capital. Ultimately, the SAB Foundation and Lead Impact Capital seek to build a model that can be scaled and replicated by others, contributing to enterprise growth and job creation in South Africa.
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