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Introduction

Challenges in the financing of SMME Contractors SAFCEC 25 July 2011 Kobus van Loggerenberg General Manager: Corporate Relations. Introduction.

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Introduction

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  1. Challenges in the financing of SMME Contractors SAFCEC25 July 2011Kobus van LoggerenbergGeneral Manager: Corporate Relations

  2. Introduction • The topic of my presentation is ‘Challenges with the financing of SME Contractors’. I can only speak about this from my own and my company’s experience. Most of you know that the mandate of NURCHA is to provide financing solutions to contractors and developers. This includes providing construction support services, but more as a risk management tool than a deliberate and structured enterprise development intervention. I will come to back our products and programmes later in my presentation. • I am very glad I had the benefit of listening to some very excellent presentations yesterday. A number of the issues that I wanted to talk about were already raised, and in a very comprehensive way. I do not need to break the bad news that our industry is not in a very good shape. But I might have to remind you again about some of the challenges that were already raised, in order also to make you aware of the dilemmas that NURCHA as a construction finance company is facing. • Over the more than 20 years that I have been involved with some form of development or project management I have always found the Interactive Planning model of Jamshid Gharadjedachi to be very useful, both as a way to analyse our current dilemma, also referred as the ‘MESS’, and as a way to look forward to what would be the ‘IDEAL’. I am not an idealist, I would rather be called an Idealizer or an Optimizer. I see our networking here as an opportunity where we should look very deeply and honestly at the MESS where are in, and then explore how we can optimize our resources and intellectual abilities to develop new plans, to design the IDEAL future for our industry. • So let me first tell you a bit more about Interactive Planning, and let me warn you from the start that I will be using words that might initially sound a bit soft and out of context in the hardcore business of construction. • Interactive Planning is a development planning tool based on the assumption that people, communities and organizations, small and large, desire to have as much as possible of the following 5 things in their lives –

  3. If there is balance within each dimension, and between these dimensions, everybody will be reasonable happy. Not everyone will have the same definition of what is enough, or what is beautiful, or just. But as long as you have a sense of balance, the ability to earn, to influence, to take care, to enjoy, to belong – then the world would be a much better place, the future more bright. • Unfortunately, we do not live in a perfect world (that is why we must define the IDEAL world / system / company and work to achieve it!) • If there is malfunction in one or more of these dimensions, if there is a mal-distribution of resources, if some people are excluded – it could bring the whole company / nation down, it could result in a real MESS. And to get out of the MESS is not an easy matter – the MESS is a complex system of problems. • Let us then look at the MESS into which we as NURCHA have to conduct our business.

  4. Common Vision for Construction Enterprise Development

  5. MANDATE • NURCHA supports the development of Sustainable Human Settlements • Maximise options for the construction and financing of housing and infrastructure • Promote synergy and co-operation between public and private sectors • Contribute to the emergence of a new generation of successful black-owned construction companies.

  6. FOCUS AREAS • Construction finance and support for Contractors - • Subsidy Housing • Infrastructure and Community Facilities • Contractor Development Programmes to promote the development of Sustainable Construction Enterprises • SMME’s, Women, Youth, etc. • Programme and Fund Management support to Employers • Implementing Agent for special programmes • Account / Subsidy Administration – Housing programmes • Development finance for Affordable Housing Developments • Feasibility studies and conceptualizing / packaging of projects • Financing the Construction phase of the development

  7. Construction Finance & Support • NURCHA = development finance institution • But we do not receive annual grants for overheads • We source our loan funding from the private sector at commercial rates • Willing to take more risk than commercial lenders • But we have to maintain a sustainable business • We cannot afford to make any losses! • We cannot afford Contractor failure! • Therefore – we apply the best possible lending and risk management practices • Tailor made loan & support products

  8. LENDING CRITERIA • Viability and profitability of contract • Assessment of the priced Bill of Quantities • Reasonable profits for the Contractor after cost of financing • Contractor’s ability to meet contractual requirements • Ability to raise Performance Guarantee (if required) • Track record of the Contractor (previous successful projects) • Technical ability of staff to execute the particular construction works • Own contribution in terms of cash or other resources, e.g. plant • Employer’s ability and cooperation • Track record in terms of project and financial management • Willingness to sign an Irrevocable Payment Undertaking to NURCHA • Collateral requirement will be based on combination of all of the above - plus - • Size of the loan • Balance sheet of the Contractor • Borrowing needs, e.g. upfront advances, or certificate lending

  9. Certificate-based lending • No advances without Certificates • Minimum support, e.g. • Confirm contract terms, but no in-depth analysis of Bill • Confirm validity of the monthly Certificate • Maximum of 90% for Infrastructure and 80% per subsidy housing projects on approved certificates only • Conditional payment undertakings to Suppliers subject to approved certificates • Joint signing powers on Bank Account

  10. Comprehensive lending • Limited advances without Certificates, e.g. • Site establishment (according to items in Bill) • Materials where MOS apply • Medium to Maximum Support, e.g. • In-depth assessment of the Bill and the Construction Enterprise • Assistance with scheduling and procurement • Regular meetings on site, including Monthly Site meeting • Verification of the monthly Certificates • Joint signing powers on Bank Account

  11. CONTRACTOR FINANCE & DEVELOPMENT PROGRAMME • Comprehensive Programme to support Construction Enterprises in the Human Settlements arena - • Produce quality houses, infrastructure & community facilities • Become competitive, profitable and sustainable businesses • Become preferred service providers - contribute to the achievement of Outcome 8 targets

  12. Objectives and Scope of the CFDP • Establish a register per province of selected and approved Contractors (Human Settlements) • Provide comprehensive programmes to enable development and growth of Emerging Construction Enterprises • Financial Support • Construction Support • Enterprise Development Support • Further training of owner/manager and key staff • Provide steady access to work opportunities for registered Contractors for periods of 2-3 years

  13. CFDP Implementation in Provinces • NURCHA to assist as PROMOTER of the CFDP on provincial level • Currently negotiating a special grant to sponsor the mentoring & support costs for Contractors • Provincial Dept of Human Settlements - • Allocate housing projects to the CFDP over the MTEF period • Ensure that the CFDP Contractors are paid on time! • Or transfer funds to NURCHA to act as Account Administrator (e.g. Vulindlela Housing in KZN)

  14. IMPLEMENTING AGENT / PROGRAMME SUPPORT MANAGER • Implementing Agent for special programmes or projects • e.g. Women or Youth Build initiatives • Programme and Project management support for distresses or blocked projects • Audit of current status of projects and houses • Business plans to rectify, terminate or complete projects • E.g. Free State Dept of Human Settlements • Fund management • Account Administration for large scale and PHP programmes (e.g. Vulindlela)

  15. AFFORDABLE HOUSING • Bridging finance to qualifying Developers who undertake Affordable Housing projects. These projects include: • The development of serviced sites • The construction of entry level bonded housing • NURCHA will lend Developers up to 80% of the peak working capital required • The Developer is required to provide tangible security for the full loan amount.

  16. THANK YOU Kobus van Loggerenberg 011 214 8700 www.nurcha.co.za We understand and are passionate about the construction business

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