R200 billion loan guarantee program attracts fewer than expected buyers



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Cape Town – Finance Minister Tito Mboweni said the R200 billion loan guarantee program had failed to meet its original expectations as fewer than expected loans were approved by banks and raised by qualified small businesses.

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

He responded to a question from IFP MP Russell Cebekhulu in Parliament who asked for the full details of the deficit on companies that could get 40% of the R500 billion stimulus package in loans.

The program was launched to ease pressure on qualified businesses negatively impacted by weak economic activity following the global lockdown to curb the spread of Covid-19.

It was part of the R500 billion package announced by President Cyril Ramaphosa in April last year.

Mboweni said there was no underfunding, grant or loan a company would be eligible for directly from the R200 billion program.

“Any unused part of the program cannot be considered a ‘deficit’, nor should it be expected to be used to fund other programs, as that would effectively increase debt to GDP ratio.”

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 during the lockdown to help them in their efforts survive the pandemic.

“When the program was first introduced, it was for small businesses with sales of less than R300 million. On July 27th, 2020 the system was improved and this turnover limit was abolished and replaced by a maximum loan of R100 million per loan to qualified companies. “

He said banks should finance such loans from their own resources using their own balance sheets.

The state should only pay out of the treasury if the small businesses were behind with their payments to their bank and the bank had taken on the initial losses.

“By February 2021, the banks had provided 13,173 approved beneficiaries with R 17.8 billion as relief.

“It should be noted that actual drawdowns were lower than originally expected as the demand for such loans was low, possibly because many small businesses were reluctant to borrow additional debt given the uncertainty about how long the pandemic would last. “Said Mboweni.

He also said that companies may stop reinvesting and borrowing 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 holidays and other forms of indulgence that were significantly more convenient than the loan guarantee system.

“It is important to note that the National Treasury and SARB never intended to fully draw on the guarantee and only expected to pay a relatively small portion of the R200 billion,” Mboweni said.

On Jan. 16, R17.84 billion in loans were approved by banks and raised by small businesses under the Covid-19 loan guarantee program.

The scheme received 48,366 loan applications, 27% of which were approved by banks and accepted by applicants.





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