State’s R200bn loan guarantee plan at risk of becoming ‘stillborn’
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The government’s R200bn Covid-19 loan guarantee scheme, which is meant to assist small businesses through the health crisis, faces the real danger of becoming stillborn and bringing the economy down with it, parliament heard on Wednesday.
The government’s stringent measures to curb the spread of the coronavirus led to the closure of many small businesses that simply did not have large enough cash buffers to remain afloat during the lockdown, which restricted trade. Many more remain on the brink of collapse despite the government moving to open the economy up this week.
The loan guarantee scheme, which was established in May, is a part of the country’s R500bn economic stimulus package and is targeted at companies with turnover of R300m or less per year.
However, concerns were raised about the scheme's failure to reach many small businesses, many of which do not typically meet the strict funding criteria set by banks.
Parliament’s small business development committee is interrogating these concerns and on Wednesday heard from trade union federation Cosatu as well as the Co-operative Banks Development Agency. The agency is an entity falling under the Treasury, which is tasked with providing support to co-operative banking institutions, and developing a competitive, accessible and sustainable co-operative banking sector that empowers communities.
In his submission, Cosatu parliamentary spokesperson Matthew Parks said that in the absence of a stimulus plan, and with an economy on its knees and in a deep recession, a 40% unemployment rate and millions at risk of losing their jobs, the loan guarantee was one of the few lifelines available to prevent the collapse of the economy. He said it was therefore worrying that three months after its launch, only R13.26bn of the R200bn had been committed to businesses.
Parks said that 37% of applying businesses had been rejected by the banks’ applying excessively strict lending criteria.
“At this rate the scheme faces the real danger of becoming stillborn, and bringing the economy down with it,” Parks said.
In July, the SA Reserve Bank and the Banking Association SA (Basa), which represents all registered banks, announced in a joint statement that the scheme had been reviewed to make it easier for struggling companies to access it.
They said the bank credit assessments and loan approvals were made “more discretionary and less restrictive, in line with the objectives of the scheme”.
Parks said the government at the highest levels, the Treasury ...
The government’s stringent measures to curb the spread of the coronavirus led to the closure of many small businesses that simply did not have large enough cash buffers to remain afloat during the lockdown, which restricted trade. Many more remain on the brink of collapse despite the government moving to open the economy up this week.
The loan guarantee scheme, which was established in May, is a part of the country’s R500bn economic stimulus package and is targeted at companies with turnover of R300m or less per year.
However, concerns were raised about the scheme's failure to reach many small businesses, many of which do not typically meet the strict funding criteria set by banks.
Parliament’s small business development committee is interrogating these concerns and on Wednesday heard from trade union federation Cosatu as well as the Co-operative Banks Development Agency. The agency is an entity falling under the Treasury, which is tasked with providing support to co-operative banking institutions, and developing a competitive, accessible and sustainable co-operative banking sector that empowers communities.
In his submission, Cosatu parliamentary spokesperson Matthew Parks said that in the absence of a stimulus plan, and with an economy on its knees and in a deep recession, a 40% unemployment rate and millions at risk of losing their jobs, the loan guarantee was one of the few lifelines available to prevent the collapse of the economy. He said it was therefore worrying that three months after its launch, only R13.26bn of the R200bn had been committed to businesses.
Parks said that 37% of applying businesses had been rejected by the banks’ applying excessively strict lending criteria.
“At this rate the scheme faces the real danger of becoming stillborn, and bringing the economy down with it,” Parks said.
In July, the SA Reserve Bank and the Banking Association SA (Basa), which represents all registered banks, announced in a joint statement that the scheme had been reviewed to make it easier for struggling companies to access it.
They said the bank credit assessments and loan approvals were made “more discretionary and less restrictive, in line with the objectives of the scheme”.
Parks said the government at the highest levels, the Treasury ...
