Since inception 10 years ago, the Citizen Entrepreneurial Development Agency (CEDA) has funded 4 086 businesses worth over P2.3 billion and in turn created over 31 000 new jobs. The funding was financed mainly by government through grants amounting to P2.6 billion in addition to at least half a billion Pula the agency has generated for itself over the operational decade.
Responding to Sunday Standard enquiries, the agency’s spokesperson, Masegonyana Madisa, said 75 percent of the P2.3 billion disbursed was on start-up businesses while the remainder was on expansions. A total of 2 184 projects, funded to the tune of P1.1 billion, have succeeded with manufacturing projects producing goods worth over P120 million a year.
Despite the relative success that the agency has enjoyed since inception, it has also faced challenges as 743 funded projects failed to perform and were consequently foreclosed. The agency has had to provide for close to P400 million in write offs and provisions for bad and doubtful debts accounting for a third of its entire capitalisation. CEDA is to date saddled with arrears of over P290 million that it is struggling to recoup.
“The greatest achievement for the agency has been development and growth of the entrepreneurial spirit of Batswana. Access to finance, which was a major impediment has really grown and improved. It is because of CEDA, and our committed support for SMMEs to take off that commercial banks are now moving in with financing options and packages. These businesses were largely off limits to the financial industry a decade ago. Further CEDA continues to contribute to national priorities such as employment creation, poverty eradication and economic diversification,” said Madisa.
He cited the underlying reasons for foreclosures as ranging from lack of prudent financial management to market access as well as product quality issues and brand awareness.
Madisa said it is important to note that the reasons for business failures and main cause of foreclosures are numerous and varied as each of the foreclosed business had challenges that were specific and peculiar to the respective businesses and no two businesses were foreclosed for the exact same reasons.
On lack of prudent financial management, he explained that the issues entailed improper cash flow management, incorrect product pricing, selling below breakeven sales levels, loose cost control measures and overall challenges in internal controls.
Another challenge that relates to financial management issues is maintenance of management and financial records. “In some instances the promoters that CEDA funded did not have the requisite skills to manage the funded entities,” said Madisa.
However, in an effort to mitigate against the risk of funding inexperienced promoters, CEDA has often attached a mentor to the projects with a view of the mentors providing the necessary interventions to sustain the operations of the businesses.
He was quick to point out that due to budgetary constraints, the mentors are attached for short periods of time and once they have moved on and the promoters are left to their own devises, “these businesses collapse as the time spent by the mentors in these businesses is not sufficient to transfer all the necessary skills. Because these businesses are also small with meagre resources they too are unable to attract skilled labour with the capacity to bring about change to the businesses”.
Madisa said the other major cause of business failure for CEDA funded projects is lack of commitment by some of the promoters in these enterprises as people tend to see these businesses as a pastime rather than a livelihood and a creator of wealth.
The other challenges are of a macroeconomic nature that have affected the fiscus in general and have also found their way into small, micro and medium sized enterprises and negatively affected their performance.
“Other issues relate to market access, product quality issues, brand awareness and the general competitive environment where local businesses are forced to compete with goods imported from abroad. The establishment of LEA and other services such as the Business Place are starting to bear fruit in entrepreneur training and mentoring, which aim to give SMME promoters tools and skills to effectively run businesses,” said Madisa.
The agency has learnt a number of lessons from the foreclosures and is doing everything possible to avert future foreclosures. The lessons include the need to accelerate implementation of technical intervention measures to ensure that promoters are armed with the necessary skills to run their businesses in a sustainable manner.
Madisa said in order to ensure that the right calibre of promoters is funded, that possess the right entrepreneurial spirit, with the zeal to do business and the passion to create wealth, the agency has been compelled to implement scientific screening processes similar to psychometric tests which will help identify appropriate promoters that are worthy of funding.
He noted that most businesses are never adequately funded and, therefore, CEDA as an institution set up to assist businesses has to provide follow up on timely funding before such ventures collapsed.
“These foreclosures have taught the agency that there is need to insist on proper record keeping and even going to the extent of setting up chart of accounts for these SMME prior to disbursing. The fact of the matter is that it is only through these vital financial records that early warning signs of impeding trading challenges can be indentified and remedial action taken,” said the agency spokesperson.
He added that the other lesson is that CEDA may need to narrow the sectors that it funds because locally there are specific sectors where businesses will have competitive advantage and industries that make sound commercial sense.
The agency has meanwhile initiated several measures to recoup the P400 million losses by way of entering into payment plans with the defaulters in order for them to liquidate their debts.
“Another option being pursued by the agency is the legal process where the business and personal assets of the promoters are liquidated through a legal process with the intention of expunging their loans. In some instances CEDA has gotten the businesses into judicial management so that the judicial manager can trade in order to repay creditors including CEDA. This option is a last resort when all efforts to save the project have failed,” said Madisa.
On how the agency intends to sustain itself way from government funding on a sustainable and viable basis, the spokesperson said it will have to finance quality businesses and advocate for a conducive trading environment in which SMMEs can be able to thrive and repay their loans in addition to inculcating a culture among Batswana of repaying their loans with the agency.
The agency will also have to fund businesses and industries that are innovative, have high margins and less competitive and increase revenue through the introduction of cost recovery measures by charging transaction fees.
“Development financing institutions by nature are not able to graduate from government funding. This is because, whoever can replace the government, as the financier, will want to make returns (real profits) on their investments. On the one hand, the government sees its return on this investment in the form of growth in the economic landscape and citizen empowerment. That is where the agency finds itself at the moment,” said Madisa.
On whether his agency provides bridging finance, Madisa answered to the affirmative explaining that the loans offered to their clients over a fairly short term not exceeding 12 months are meant to finance tenders, contracts and purchase orders which are to be repaid from the receipt of moneys due to the client.
He added that the loans are for individuals or companies wishing to start a new business or expand their operations and the loans are purely meant for working capital.
Madisa said the repayment period will depend on the date of receipt of expected moneys which will be used for to clear the debt, but will not exceed 12 months while monthly repayments are not usually required and instead a once off repayment made using the received funds.
