Banks claim lack of demand for loan guarantee scheme, but BBC says need is there

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There's realisation that the Loan Guarantee Scheme is not working. But BASA and BBC have different views why that's the case.
There's realisation that the Loan Guarantee Scheme is not working. But BASA and BBC have different views why that's the case.
  • The Banking Association of SA says banks had only disbursed R13.39 billion by mid-August as part of the state's guaranteed loan scheme.
  • The association says banks' own Covid-19 relief to small and medium-sized companies, which came months before the Loan Guarantee Scheme was implemented, has affected demand. 
  • The Black Business Council, however, says demand is there, but banks are not the right institutions to disburse it because less formal businesses that won't approach them.

The Banking Association of SA (BASA) says businesses aren't taking up the R200 billion Covid-19 Loan Guarantee Scheme as expected, even after the relaxation of its lending criteria.

The R200 billion scheme was announced by President Cyril Ramaphosa as part of the state's R500 billion coronavirus relief package in April, and implemented in May. It allows certain businesses to apply for special government-guaranteed loans from banks. The scheme was meant to help businesses to continue paying salaries and other fixed costs while they were unable to operate during the lockdown, and to help revive their operations when trading restrictions were lifted.

BASA, which represents all of SA's commercial banks and some of their international counterparts operating in the country, said on Friday that by mid-August only R13.39 billion of loans had been disbursed to small, medium and micro enterprises (SMMEs).

Of the 40 292 applications that banks received under this scheme, 10 754 were approved, equating to roughly 26% of received requests. Another 39% of applications are still in the process of being assessed, while the rest were rejected because they fell foul of eligibility criteria or had profiles too risky for banks to accept.

BASA blames weak demand

The SA Reserve Bank has only availed R67 billion of the R200 billion to the banks. The banks, in turn, expect that only R43.7 billion will be drawn down by January 2021 in a best-case scenario, and just R24.4 billion if demand remains at current levels. The best-case scenario assumes a full opening of the economy with all sectors operational and in need of funds. 

"Right now, at level 2, we are not at fully functional state. Those sectors which are not fully open, how fast can they take up?...If there is an upsurge, the requirement for credit will also go up. But if that does not materialize, then you go back to the base case of R24 billion by January," explained BASA's Managing Director, Bongiwe Kunene, during a webinar on Friday.

Kunene said despite National Treasury and the SA Reserve Bank relaxing the qualifying criteria for the scheme by doing away with surety requirements, requirements for audited financial statements and raising the turnover cap, demand remained week.

She attributed this partly to the fact that banks began offering Covid-19 relief to SMMEs and individual clients months before the Loan Guarantee Scheme was implemented. By August 15, banks had given out R42.6 billion in Covid-19 relief. Of that, R13.4 billion went to SMMEs outside of the Loan Guarantee Scheme.

"It's very clear that the early relief by the banks had an effect, and one of those effects of course is the reduction in demand of the Loan Guarantee Scheme when it was eventually launched in May."

Kunene said there is also anxiety among businesses about taking on more debt when they are already in distress and uncertain of what revenues they can generate in the current strained environment.

"We are finally coming to some conclusions and tentatively looking at what we know so far; debt is not the only answer. If businesses are in distress, what they are looking at is rightsizing…maybe that is one of the fundamental reasons why they are not taking more debt," she said.

Demand is there but banks are not the right middle man

The Black Business Council's Treasurer-General, Bonolo Ramokhele, said the weak demand does not mean businesses don't need funding, but rather that the institutions that have been disbursing the guaranteed loans aren't the right platforms to do so.

"The real problem is that this thing was badly designed. It was meant to save businesses that are very formalised, highly sophisticated. By the time they expanded it, they still expanded it within the banking sector which has a history of exclusion," he said.

Ramokhele said a lack of non-banking SMME funders is the core reason why the money is not moving. He said one of the BBC's members, Santaco, would have had over 100 000 taxi owners applying if SA Taxi, which finances majority of the players in the sector, was part of the scheme.

The BBC has had engagements with Treasury about including non-bank lenders and state-owned development finance institutions, but says it is still waiting for announcements in this regard.

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