International investment banking giant JP Morgan, together with the Department of Commerce, Industry and Competition (dtic), announced on Tuesday an investment program that will see the deployment of R340 million to address critical funding gaps for small and medium-sized enterprises (SMEs), mainly in the industrial and commercial sector of South Africa. sectors of the ‘green economy’.
The two entities said during a press conference that the program aims to finance the South African economy and generate a positive economic and social impact in the country by supporting SMEs that do not meet the traditional underwriting criteria of the general requirements of commercial banking. .
The initiative will not only provide funding, but also business and mentoring support for start-up companies.
This program will see JP Morgan become the first international investment bank in South Africa to launch a dtic approved Equivalent Investment Program (EEIP) called Abadali EEIP, consisting of The Abadali Fund, a black business growth fund, and Abadali Grant.
The deployment of the initial R300 million from JP Morgan through the fund and R40 million through the grant is expected to result in financial transactions worth R2 billion that are expected to create a minimum of 1000 permanent jobs during the designated eight-year period of the Abadali EEIP.
“The financing is intended to support small and medium-sized enterprises in sectors of great public importance, from transactions in the green economy to financing for companies with manufacturing operations,” said Commerce and Industry Minister Ebrahim Patel.
“South Africa needs more jobs for the youth and deeper levels of industrialization.”
“This transaction will boost the country’s localization efforts, creating jobs and helping to strengthen economic production. I celebrate the commitment to the creation of 1000 new jobs and the focus on supporting a market segment that is not adequately served by the financial system ”, he added.
Short-term financing will be provided to companies with minimal or no initial income, with a capital requirement of at least R250,000 for one to 12 months.
The program aims to have applications processed efficiently, with a response time of approximately one week from application to payment.
Furthermore, companies with no commercial, financial or security history will also be considered if they are in the supply chain of large corporations or governments, as the sole purpose is to turn these SMEs into sustainable companies and transfer them to the traditional commercial finance sector.
JP Morgan South Africa senior officer Kevin Latter said Tuesday’s announcement “is a key milestone” for the group “after more than two years of constructive engagement with the dtic.”
From concept to reality
“What was an aspirational concept at the beginning of our thinking in 2017 has become a structured program focused on creating sustainable and inclusive economic growth.
“The South African private sector has a great capacity to multiply the impact through alliances, as we intend to do with the dtic. Although the current growth rate in South Africa is low and the impediments in the economy are well known, now is the time to reinforce and increase our commitment to equality and inclusive growth and work harder across our business to better serve our people, our customers and the communities of South Africa, ”said Latter.
The Abadali Fund will offer medium- and long-term financing at significantly subsidized rates to companies with income from R 1 million that require financing for two to five years.
The majority of the selected and eligible businesses will be black owned and operated businesses with a history of at least 12 months of trading.
The Abadali Scholarship hopes to award grants of 40 million rand to turn black companies into sustainable and successful businesses, with a key focus on supporting entrepreneurship and promoting jobs and skills for in-demand sectors such as the digital and green economy.
The fund will be overseen by JP Morgan and managed by Masakhe Partners, a joint venture between Edge Ventures, an established fund manager, and ProfitShare Partners, a fintech short-term equity solutions partner. Both are owned and controlled overwhelmingly by blacks.
JP Morgan will administer the Abadali Scholarship.
Palesa Mofokeng is a Moneyweb intern.