To support small, medium-sized and microenterprises (SMMEs) in Gauteng’s townships, the Gauteng provincial government (GPG), the Industrial Development Corporation (IDC) and the South African SME (SA SME) Fund have launched the SMME Crisis Partnership Fund – a R300-million debt fund. 

The SMME Crisis Partnership Fund seeks to remedy the lack of funding experienced by township-based small businesses. Each of the partners have contributed R100-million towards the fund. 

The GPG’s share provides a first loss guarantee, meaning it will assume the first portion of any losses.  

The majority of the more than two-million formal and informal small businesses in South Africa are township-based and unable to access or qualify for funding from the formal banking sector. 

Without this funding, these businesses are unable to grow, create jobs or participate meaningfully in the economy.  

The partners believe this model, which leverages the government’s underused first loss capital to attract private-sector funding, addresses the economic inclusion of township businesses in Gauteng, and also provides a blueprint which can be replicated and scaled in other provinces and nationally to leverage different skills sets and pools of capital to support entrepreneurs and help SMMEs grow.

The fund is already committed to six intermediaries, with a seventh in the pipeline. Three intermediaries – Indlu Living, Profit Share Partners and Crede Capital Partners – have already finalised their agreements, and the full allocation process is expected to be completed by the end of this month, according to a statement issued on October 5. 

These intermediaries will facilitate the provision of working capital and asset finance to hundreds of small businesses and entrepreneurs. 

Indlu Living provides micro property and backyard developers in townships with an all-in-one rental management software, finance and property development solution. This allows landowners to fund the building of professionally designed and rentable backyard rooms, and for the loan to be paid off from the rental income.  

This is expected to create a pool of township-based property entrepreneurs, while benefitting an ecosystem of other small businesses, such as builders, electricians and cleaning services. The SMME Crisis Partnership Fund will double Indlu Living’s loan book, enabling it to create between 60 and 70 new property entrepreneurs.

“Today’s launch of the SMME Crisis Partnership Fund is part of our deliberate approach to reignite the township economy and elevate it to respond to the current needs of society. 

“For many years, township property owners have struggled to get flexible and risk-free funding to build backyard rental flats. We are working in partnership with Indlu Living to provide that assistance to property owners,” Gauteng Economic Development MEC Parks Tau said on October 5.

GPG SMME development entity the Gauteng Enterprise Propeller (GEP) will be working with the SA SME Fund and the IDC to support the fund. 

GEP CEO Saki Zamxaka said the partnership would play an instrumental role in realising the objectives of the Township Economy Development Act. 

“This partnership will help broaden access to funding for township-based SMMEs, particularly as we will be working with implementing partners who already have a pipeline of applicants in the township economy,” he said.

IDC CEO TP Nchocho added that it was important that the partnership reflect the collective intent of supporting the growth of township economies and SMMEs measurably.

“The fund will enable entrepreneurs to contribute to creating sustainable jobs, increasing economic activity and sustaining livelihoods. The IDC will use the learnings from this and other funds and investments to replicate the approach and impact in other provinces,” he said.

Besides its investment of R100-million, the SA SME Fund – which was established by the CEO Initiative and works to support the SMME sector in a partnership between corporate CEOs and government – will manage the fund pro bono. 

The SA SME Fund is experienced in allocating capital to reputable fund managers in the venture capital and private equity market, as well as to non-bank SME debt providers, which, in turn, invest in scalable SMMEs.  

“It is imperative that we ensure that entrepreneurs and small businesses, especially those in the township environment, are economically included. This model facilitates the building of non-bank institutional funders, who have the requisite skills and experience to service this sector, unlike the banks who aren’t as effective in this environment,” SA SME Fund CEO Ketso Gordhan said. 

He said he hoped this would be replicated in other provinces.