Only 3.5% of R200bn loan guarantee scheme has been deployed
19 June 2020
The Democratic Alliance (DA) calls on National Treasury and major banks to appear before Parliament and explain the slow roll out of the R200 billion Covid-19 Loan Guarantee scheme.
The DA will write urgently to the Chairperson of the Standing Committee on Finance to request that he invites national Treasury and the heads of South Africa’s major banks tasked with administering the R200 billion Covid-19 Loan Guarantee scheme to businesses, to come and account for the poor uptake rate.
The South Africa Banking Association has revealed that Banks have only approved R7 billion in loans, from the allocated R200 billion, to businesses negatively impacted by Covid-19. This represents only 3,5% in loan approvals since the scheme was launched over a month ago.
This scheme was the most significant business support programme announced by government. It is essential that this scheme works well if businesses are to survive the post-lockdown economic crisis. In an environment where thousands of businesses are on the verge of collapse, with corresponding job losses expected to be in the millions, the dismally slow rate of loan approvals is simply not acceptable.
The DA is concerned that there is a major flaw in the loan scheme design, namely the requirement that banks apply their normal stringent vetting on loan applications. Normal vetting requirements should not apply in this abnormal time, especially since the state is guarantor for 94% of any potential losses. Medium to small enterprises have unique requirements during this crisis that require flexibility in the loan risk assessments to enable them to access finance.
The DA has received complaints from small business owners around the country who have been turned down for this loan for petty reasons. A small business owner from Mpumalanga had her R1 million loan applications declined because her business was R1800 behind in credit card payments. Another business owner from Gauteng had an outstanding overdraft of R18 000, but was declined a R2 million loan. There are dozens, if not hundreds, of similar examples.
Unless design adjustments are made to the scheme to allow flexibility in banks’ risk assessment of applicants, the loan guarantee scheme will be a flop.
Parliament has a responsibility to ensure that national Treasury and the banking sector are accountable for the design and implementation of this loan scheme.
The DA looks forward to submitting design adjustment proposals to enable a more flexible vetting system that will assist more businesses to access bridging finance and save jobs.
Issued by Geordin Hill-Lewis, DA Shadow Minister of Finance, 19 June 2020
