MICRO-financier Blue Financial Services is venturing into unchartered waters in SA by becoming the first mass-market lender to offer unsecured loans to small businesses, CEO Dave van Niekerk told Real Business in an exclusive interview last week.

The company, with operations in nine African countries, would next month start disbursing between R50000 and R300000 loans to a plethora of SMEs in SA, before extending the service to other countries where it operates, Van Niekerk said.
 Blue Financial Services had secured R150m debt-financing from the trade and industry department’s Khula Enterprise Fund for its inaugural SME loans and was also receiving funding from other sources.

Blue Financial Services’ unsecured loans for SMEs marked a departure from the norm in SA where business loans available in country focused “almost exclusively” at higher income levels or required significant collateral.

“In other parts of Africa, traditional micro-finance entails the lending of money without security, specifically for business start-ups. However, very little is done in terms of viability studies, business planning, cash flow management and support to business entrepreneurs,” Van Niekerk said.
“Equally, effective collection methods are not in place, which means that a large majority of these lenders operate on principally the same basis as a charity,” he said.
Blue Financial Services had pioneered “ethical credit extension to employees in the lower income levels, who traditionally do not have collateral to offer on a loan. Effective collection methods and transparent billing systems enable the group to maintain non-performing loans to less than 5% of loans advanced,” Van Niekerk said.
A significant number of Blue Financial Services’ clients in SA and in the rest of Africa used a general purpose loan as seed capital for their small businesses.
 Blue SME loans can be obtained at a better rate than consumer loans. Funds such as Khula Enterprise Finance offered competitive funding rates, provided the lender proved the money was “solely” for SME development.

“The benefit of a lower interest rate is passed on to the borrower, which enables funding at lower rate than a consumer loan.”
The SME loans depended on the “security” offered for ability to repay the monthly installments.
“ This might be a formally employed person who applies for a business loan to start up a new business for themselves or a family member .
“This will have to be accompanied by a business plan specifying the type of business and products or services .”
 
Although it was in its infancy, Blue believes its SME loan product will revolutionise access to “credit by a largely neglected segment of society, which in turn will add to employment and growth in the economies in which they operate”, Van Nikekerk said.

Blue, which has more than 170 branches in Africa, is the largest micro-financier listed on the JSE’s alternative exchange market AltX, with a market capitalisation of R2bn.