Black Business Growth Funding a win-win for financial sector black empowerment
The financial sector has four months left in which to shore up ownership and empowerment financing scores for 2018 against the targets of the Amended Financial Sector Code (FSC) by making use of the new alternative option of channelling funding to black owned enterprises in line with the FSC’s Black Business Growth Funding (BBGF) provisions. The amended FSC Code came into effect on 1 December 2017 and the financial sector will be expected to report on progress made against the new targets in 2019.
Isaac Ramputa, CEO of the Financial Sector Charter Council (the Council), says the inclusion of the BBGF provisions in the amended Code provides the financial sector with an attractive way to top up shortfalls in their ownership and empowerment financing scores.
“With a few exceptions, many of the original empowerment deals no longer exist as black shareholders have sold their stakes. There is no denying that huge value has been created as a result of these empowerment deals, but it must also be acknowledged that in many cases these deals have made rich people even richer.”
Ramputa says therefore, instead of pushing direct ownership transactions as the only way to score ownership points against the FSC scorecard, the constituents* of the Council agreed to include BBGF as an alternative.
“We recognise that real transformation of the financial sector requires the channelling of funds from the financial sector into black owned businesses ready for growth. As an added requirement, the BBGF provisions require that capital is channelled through units established for this purpose within institutions or via black private equity funds.”
This requirement ensures that black business growth funding from the financial sector is channelled via proven funding mechanisms, namely black-owned private equity funds, into the real economy where black-owned businesses are focused on driving growth and job creation.
According to Ramputa, the financial sector has access to around R100 billion that could be deployed to black entrepreneurs, black industrialists, black asset managers, black financial brokers and other black people in business in the financial services and other key sectors of the economy.
He says the BBGF provisions also create a smart solution to score empowerment points for multinational companies not able to conclude direct ownership transactions with South African black empowerment partners.
The BBGF provisions require that funding is channelled to businesses that:
Were created by black people and where black people are directly involved in the management and operation of the business, and
Are financially sustainable and able to preserve and/or create jobs.
Ramputa says different industries within the financial sector are responding to the BBGF opportunities with either private equity deals or empowerment financing solutions.
Black-owned asset manager, 27four, in partnership with the Association for Savings and Investment South Africa (ASISA), established the Black Business Growth Fund (BBGF) in May this year. The partnership creates a channel for ASISA members to fund black businesses, thereby complying with the private equity BBGF provisions of the FSC Code.
Ramputa says the banks on the other hand are more likely to opt for empowerment financing solutions.
“We also expect to see innovative funding solutions emerge as a result of ongoing collaboration between the Banking Association South Africa and ASISA,” adds Ramputa.
He expects empowerment financing to gain more traction towards the end of the year once the revised targets have been finalised in September this year.
About the Amended FSC
The Amended Financial Sector Code (FSC) provides the financial sector with a clear roadmap on how to build on existing achievements in black economic empowerment to the benefit of all stakeholders. The Code is also the framework against which the empowerment progress of the financial sector is measured.
The Code is the product of extensive consultation and carries the endorsement of the labour and community constituencies of the National Economic Development and Labour Council (Nedlac), business as represented by the financial sector trade associations (ASISA, BASA, SAIA and IBA), Government as represented by the Department of Trade and Industry, National Treasury and the Presidency, as well as the Association of Black Securities and Investment Professionals (ABSIP).
About the Financial Sector Charter Council
The role of the Financial Sector Charter Council is to provide the financial sector with interpretive guidance and practice directives with regard to the application or intention of the Amended FSC, facilitate negotiation and agreement by all FSC stakeholders when amendments to BBBEE regulation are required, and report on the progress made by the financial sector in terms of the FSC.
Financial Sector Charter Council
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