Driving enterprise development through partnership | Old Mutual

The Old Mutual Foundation is committed to driving transformation through effective socioeconomic development initiatives and the integration of marginalised South Africans into the mainstream economy. Beyond simply providing funding, the Foundation is determined to create positive and sustainable impact.

A focus on enterprise development

The Foundation funds and provides ongoing support to black-owned businesses that have high potential for job creation. A strategic shift in 2014 enabled the Foundation to have greater developmental impact, by funding qualifying for-profit entities directly. Since then, the Foundation has spent R28.6 million on enterprise development (ED) projects.

The ED portfolio focuses on the development of SMMEs in the agriculture, manufacturing and commercial sectors. Its primary goals are to fund enterprises that will create sustainable jobs, benefit a broad group of black beneficiaries, and develop rural, peri-urban and township communities.

The Foundation provides funding in the form of working capital and asset finance, both to start-ups and to existing businesses that are expanding or restructuring. Businesses must be at least 51% black-owned and preference is given to women, youth (18–35 years) and people with disabilities. 

Strength through partnership: a hybrid funding model

The ED strategy is a shared initiative. A hybrid funding approach combines grant funding from the Foundation and loan funding from the Masisizane Fund, the Foundation’s primary funding partner in this space.

This model allows both the Foundation and the Fund to maximise the impact of their investments, and to increase access to finance and development support to SMMEs operating in target sectors. The grant funding provided by the Foundation creates a crucial buffer for supported entrepreneurs, de-leveraging their businesses. It also avoids the risk of a business being underfunded from the start, by a loan that is too small for the business’s requirements.

This type of approach does have challenges. Various funders means disjointed funding approval processes and dates. There can also be difficulties when co-managing a project. Still new to this space, the Foundation is in the process of establishing which processes work best.

There are, however, also many advantages. It enables the partners to leverage resources, such as finance and technical expertise, attracts diverse thinking and enables sharing of experiences and lessons learnt. The Foundation, in particular, is benefiting from the Fund’s years of experience in the ED space.

A role beyond funding

To ensure the effective use of the grant and loan funding approved for projects, and the achievement of business objectives, the Foundation and the Fund provide business mentorship and training to all supported businesses.

Entrepreneurs are often new and inexperienced, and, while their technical skills are good, often lack broader financial and business management skills. As a result, a degree of ‘hand holding’ is crucial for ensuring the success of their businesses. 

The Fund has a dedicated unit that works with these entrepreneurs to understand each enterprise’s characteristics, needs and challenges and identify where there is room for capacity building. The Fund offers mentorship, training and upskilling in business management, aligning in-house and external technical experts to the needs of each enterprise. For example, the Masisizane Fund provided a business mentor to work with the founder of Incapeace on business management and strategy building.

“We understand ‘development finance’ in the very broadest sense of the term. We view ourselves not simply as bankers to our clients, but as their partners.”

Khanya Okumu (Post-investment Associate: Manufacturing and Supply Chain, Masisizane Fund)

Lessons learnt

Often, in the first few years of a business’s operations, the actual capital requirement fluctuates from what was initially predicted, and things generally do not go as planned. This is particularly true in the agriculture sector. Grant funding enables the supported businesses to withstand unexpected challenges, where a straight loan facility would be far less flexible.

For example, Incapeace started producing its bricks in winter. The cold weather meant that the bricks did not dry as quickly as had been calculated and the business did not have sufficient drying pallets to accommodate the backlog. As a result, the entire production line was slowed.

The Fund and the Foundation have also both learnt that a good working relationship and regular contact are critical. It is important to keep abreast of how each business is performing. That way, the entrepreneurs feel comfortable asking for assistance to address difficulties as they arise.

Regular contact also enables the Fund to obtain information that allows it to better measure the broad-based impact of its investments, although this can be difficult, particularly in rural areas. This has the added advantage of demonstrating to the entrepreneurs the importance of record-keeping in their own businesses.

Looking ahead

The Foundation is still finding its feet in the ED space, but it is proud of the impact from its investments with the Masisizane Fund. The partners are now working towards more effective monitoring and evaluation methods – to ensure that the impact and beneficiation of the investments are sufficiently broad based – and towards encouraging the supported enterprises themselves to become community-focused, responsible businesses. 

Business in Society Handbook, 2016