R200 billion loan guarantee program attracts fewer takers than expected

Through Mayibongwe Maqhina March 23, 2021

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Cape Town – Finance Minister Tito Mboweni said the R200 billion loan guarantee program fell short of his original expectations as fewer loans than expected were approved by banks and taken over by of eligible small businesses.

Mboweni said 13,173 beneficiaries had been approved for the loan guarantee program.

He was responding to a question in parliament from IFP MP Russell Cebekhulu, who asked for full details of the shortfall in companies that could receive 40% of the R500 billion stimulus package in the form of loans.

The program was introduced to help ease pressure on eligible businesses adversely affected by weak economic activity following the global lockdown imposed to reduce the spread of Covid-19.

It was part of the R500bn package announced by President Cyril Ramaphosa in April of last year.

Mboweni said there was no deficit, no subsidy or loan, that a company was entitled to receive directly from the R200 billion program.

“Any underutilized part of the program cannot be considered a ‘deficit’, nor should it be expected that it could be used to fund other programs, as it would effectively increase this debt by relative to gross domestic product. ”

The National Treasury has partnered with the South African Reserve Bank (SARB) and the Banking Association South Africa, to launch the Covid-19 loan guarantee program to make it easier for banks to lend than they normally would. to small businesses during the lockdown, to help them in their efforts to survive the pandemic.

“When the program was launched, it applied to small businesses with sales of less than R300 million. On July 27, 2020, the system was improved and this turnover limit was abolished and replaced with a maximum loan of R100 million per loan to eligible businesses. “

He said banks should finance these loans from their own funds, using their own balance sheets.

The government was only to pay out of the fiscus if small businesses defaulted on their payments to their bank, and only after the bank had taken the initial losses.

“As of February 2021, banks had provided R 17.8 billion in relief to 13,173 approved beneficiaries.

“It should be noted that actual underwriting was lower than initially expected as demand for such loans was low, possibly because many small businesses were reluctant to take on additional debt, given the uncertainty over the duration of the pandemic, ”Mboweni said.

He also said companies might not want to reinvest and borrow more until they feel more confident about the future of the economy.

The minister said many banks had taken their own initiatives to help their customers by allowing payment suspensions and other forms of forbearance, which offered significantly more relief than the loan guarantee scheme.

“It is important to note that the National Treasury and the SARB never intended for the guarantee to be fully called, and expect only a relatively small portion of the R200 billion to be paid,” Mboweni said.

As of January 16, R17.84 billion in loans had been approved by banks and taken over by small businesses under the Covid-19 loan guarantee program.

The program received 48,366 loan applications, 27% of which were approved by banks and taken over by applicants.

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