Partnerships between banks and government in the mobilisation of contractor finance : a case study

Mavhandu, Fulufhelo Bethuel (2011-03)

Thesis (MDF)--University of Stellenbosch, 2011.


Using a case study design, this study described the relationship between a government department and a commercial bank aimed at increasing access to finance by SMMEs and improve service delivery. The study examined whether SMME contractors are able to deliver on contracted products and services without access to bank funding to answer the question: “Is access to funding as a constraint to SMME Development over-emphasised?” Commercial Bank A and Gauteng Department of Agriculture and Rural Development signed a partnership agreement which resulted in nine SMMEs that were awarded tenders by the Gauteng Department of Agriculture and Rural Development being referred to Commercial Bank A for loan funding application. All the nine SMMEs’ application for funding were unsuccessful due to various reasons including short term contracts, insufficient information, adverse listings in credit bureaux and improved cash flows of business after they received payment from GDARD. SMMEs delivered their goods and services as expected, but they experienced minor challenges which included delayed payments, officials not understanding specifications causing misunderstandings with the service provider, beneficiaries not understanding tender specifications, wrong beneficiaries who were not supposed to benefit from the service, and unavailability of stock of certain products from suppliers. From the mentioned challenges, it is clear that access to loan finance is not cited as a major challenge. SMMEs were able to deliver on goods and services despite their applications not being approved by Commercial Bank A. SMMEs used alternative sources of funding to deliver on the tenders awarded to them. The main source was credit from suppliers of goods and services. Own savings and borrowings from friends and families were also used. Once the first payment is received from GDARD, SMMEs are able to deliver on subsequent deliverables. This shows that payment on time is very crucial for the continued supply of goods and services by SMMEs. The partnership between Commercial Bank A and Gauteng Department of Agriculture and Rural Development had good intentions even though none of the SMMEs referred got access to funds. There is a need for the improvement of the way the partnership operates to ensure a high success rate. Success in this case refers to the number of SMMEs whose funding applications are approved by Commercial Bank A. The areas that need improvement are communication among the department, the Bank and SMMEs, the lending criteria, duration of the tenders (contracts), and training of SMMEs.

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