15 March 2010

Standard Bank Community Investment Fund launched in the Free State

Mangaung in the Free State, South Africa, will be the latest community to benefit from Standard Bank’s Community Investment Fund. The Standard Bank Community Investment Fund targets informal businesses who do not qualify for credit under existing criteria set out by most banks. Over R20-million has been disbursed through the fund in four provinces over the past two and a half years.

Coenraad Jonker, Director of Community Banking at Standard Bank Group, says: “Traditional banking models do not always understand informal businesses and how they operate. Standard Bank’s Community Investment Fund uses the networks already setup within a community to assist and help grow small businesses.

“Community Funds are only launched by Standard Bank in communities which have strong community-based organisations that are capable of partnering with Standard Bank in managing and disbursing the funds. Secondly, the model does not require collateral to support loans but relies on community peer pressure and moral persuasion to ensure repayment.”

Standard Bank has partnered with the Mangaung University Community Partnership Programme Trust, a well established community based organisation, to administer the loans of between R1 000 and R50 000 to small businesses. The trust is involved in social and economic developments programme in Mangaung.

The launch will be attended by Free State Premier Ace Magashule, the MEC for Finance Seiso Mohai, the MEC for Economic Development, Tourism and Environmental Affairs Mxolisi Dukwana the Executive Mayor of Mangaung Playfair Morule as well as executives from Standard Bank.

Jonker says: “The Community Investment Fund works on the principle of using donor funding for the purpose of on-lending to informal businesses with a view to creating the necessary banking track record that will qualify them for migration to formal banking.  The project has been funded by Standard Bank’s Corporate Social Investment division. Repayments are invested back into the community funds. The bank does not earn any returns on the investment funds.”

Mangaung is the first community investment fund to be launched in the Free State following the successful roll out of eight other funds in KwaZulu/Natal, the Eastern Cape, Gauteng and Limpopo. Standard Bank launched the Community Investment Fund (CIF) initiative in late 2007 with the aim of extending loans to informal businesses that would not qualify for credit under the bank's lending criteria.

In total over R21m has been disbursed to 1 172 small businesses with average loans sizes of R18 000.

Funds already launched

• Bethelsdorp Community Investment Fund (Eastern Cape) established in September 2007;
• Mutale Community Investment Fund (Limpopo) established in October 2007;
• Mhlontlo-Tsolo Community Investment Fund (Eastern Cape) established in October 2007;
• Inanda Community Investment Fund (KwaZulu/Natal) established in November 2007;and
• Mhlontlo-Qumbu Community Investment Fund (Eastern Cape) established in October 2008;
• Sedibeng Community Investment Fund (Gauteng) launched in January 2009
• The Umlazi Community Investment Fund (KwaZulu/Natal), launched in November 2008
• The Kwandwalane Fund (KwaZulu/Natal) launched in October 2009

How the loans work

Loans are made to existing businesses as well as start-ups for the purposes of working capital, acquisition of assets and business expansion. The terms of the loans are:

• They range from R1 000 up to R50 000 depending on the needs of the business and its repayment capability.
• Repayments are made over a maximum period of up to 24 months. The repayment schedule is linked to the nature and requirements of the business.
• Interest is charged at 3% p/m on outstanding balances. Sustainability of the fund is the core determinant factor in setting the interest rate.
• There is an initiation fee of R100 and a monthly charge of R15. (Both the interest and the fee charges are well within the limits for Developmental Credit based on the National Credit Act).