Lifebuoy fund offers more than money
A R5bn small and medium-size enterprises (SME) fund, Kisby, has been created to support small businesses with more than money.
One of the driving forces behind it is former South African Post Office CEO Mark Barnes, who says many funding models for SMEs don’t enable the businesses to grow — current models, he says, are either off-the- street funding (“loan sharks”) or tools of- fered by banks that are not designed to help businesses flourish.
“Nobody really understands SMEs, they are a cocktail conversation piece and nobody has seen them in the wild,” says Barnes, executive chair of Kisby.
The new funding scheme for SMEs — the name “kisby” also refers to a type of lifebuoy — has been set up by 4 Africa Exchange (4AX), in which Lebashe Investment Group owns a majority stake.
Lebashe also owns Arena, the publisher of the Sunday Times.
The fund aims to raise R5bn in loans for SMEs through an online platform underpinned by 4AX Debt Services, an online marketplace where loans can be bought and sold. Kisby will allocate all funds over two years.
The loan amounts are expected to be between R1m and R3m, but Barnes says this is a rough guideline.
Loans below R300,000 will probably not be considered, he says, because offering many small loans would risk spreading the available support too thinly.
Apart from money, Kisby support will include professional services, mentorship and media packages with titles in the Arena portfolio.
It’s this additional support that will be the fund’s differentiator, says Andile Khumalo, a nonexecutive director of Kisby’s investment committee and CEO of specialist investment firm Khumalo.Co.
Khumalo says SMEs are currently “doing a wonderful job with a skills backlog” but that to become sustainable and make a more meaningful contribution to SA’s ailing economy, they need upskilling.
Khumalo says the majority of smaller SMEs — those with an annual turnover of between R2m and R10m — are focusing on surviving and find it difficult to envisage the future.
They don’t know how to change their business to not just survive the Covid-19 lockdown but make it through the next three years. Most SME funds only provide money and do not deal with the fundamental issue of planning.
He says funding enables an SME to pay its bills, but if the business does not have a strategy — which is what most small businesses lack — then it will die and the owner will be left with debt.
He says the focus should be on providing support, which he says must include business services and strategy consultants.
These services, says Barnes, will be more affordable because “the SME community” — the Kisby beneficiaries — will have collective purchasing power and be able to create economies of scale. To apply for Kisby’s financial support a business needs to have been trading for at least three years, have a minimum annual turnover of R3m, be tax-compliant and create jobs.
There will be a bias towards socially responsible businesses.
No investment companies will be considered.
The interest on loans will be linked to the prime lending rate. Each loan will be tailored to the needs of the SME, with Barnes envisaging a blended model that could include initial interest payments with deferral of capital repayment, or equity stakes.