SA New Township and Rural Fund to Start Lending by 1st June

• The South African R1-billion township and rural economy fund announced by the Black Business Council (BBC) and Ubank, is expected to start lending its first loans from 1 June.
• For the next five years, an amount of R250-million will be available every year to lend to mainly black-owned companies located in townships and rural areas.
• The funding will be available via branches of Ubank, most of which are based in mining areas and labour-sending areas linked to the mines . The branch network is based in the North West, Free State, Eastern Cape and Gauteng.

The South African R1-billion township and rural economy fund announced by the Black Business Council (BBC) and Ubank last week, is expected to start lending its first loans from 1 June, says Ubank CEO Luthando Vutula.

This comes after Ubank, which is owned by the mining group, Thebe, disclosed last week that it had signed a “historic partnership agreement” with the BBC to establish the R1-billion fund for Township and Rural Economy Revitalisation.

For the next five years, an amount of R250-million will be available every year to lend to mainly black-owned companies located in townships and rural areas.

Speaking to Ventureburn last week, Vutula said that white entrepreneurs who have established township and rural areas solutions can also access the fund.

He said BBC is expected to match the R1-billion committed by Ubank. He said the matching funding would be arranged by the BBC but could come from the government or other funders.

Discussions to close the R1-billion remaining, he said, are “ongoing.” “I know they have some commitments, but they (BBC) have to disclose that,” he clarified.

READ ALSO: Black Business Council and Ubank set up R1bn Economy Fund

While firm loan size and funding instruments requirements have yet to be defined, Vutula said the fund will provide loans between R50 000 and R1.5 million. He expects asset financing as well as invoice-discounting or factoring to be one of the main lending items that the fund offers to entrepreneurs.

The funding will be available via branches of Ubank, most of which are based in mining areas and labour-sending areas linked to the mines. The branch network is based in the North West, Free State, Eastern Cape and Gauteng (around Vereeniging and Westonaria).

The BBC will set up a dedicated desk to manage the fund and will also allow online applications, he added.

Vutula said while part of the lending criteria will have to be suitable for those operating in the townships and rural areas, it will in no way be a handout. “Funds have to be repaid. But how you package the repayment terms is important,” he added.

When asked if the bank is prepared to take on the high risk of lending to the business, Vutula said that the bank’s financial modelling of the fund centred on a worst-case scenario of 12% to 16% of impairments in a percentage of its loan book and a best-case scenario of 5%.

However, he emphasized that Ubank and the BBC would rely heavily on collaborations with those in the sector in disbursing the funding.

This, he said, would include collaborations with fintechs for credit scoring and help organizations that could provide mentoring and post-approval help to those who received funding.

Emphasizing the need for the fund, Vutula maintained small businesses are a key catalyst to any economy and the world. “During and post Covid-19, most of the jobs will be created by small businesses,” he added.

Apart from all the big talk, the true test comes when the money is actually being lent out. Township entrepreneurs have grown accustomed to false promises from corporate and government bodies. Now it’s time to act.