Committee recommends expanding Covid-19 loan scheme controls

24th February 2021 By: Tasneem Bulbulia - Creamer Media Reporter

The Standing and Select Committee on Finance on the 2020 second Revised Fiscal Framework has recommended that Finance Minister Tito Mboweni consider extending the R200-billion Covid-19 loan guarantee scheme to enable development finance institutions to provide liquidity to projects that they are directly funding, the National Treasury noted in its review of the 2021 Budget on February 24.

The committee reiterated its disappointment that there had only been 8% take-up of the loan scheme.

It has asked that Treasury report to it on its renegotiation of the lending criteria with the participating commercial banks.

Treasury said it welcomed the opportunity to brief the committee at its earliest convenience.

Treasury, in partnership with the South African Reserve Bank and the Banking Association South Africa, launched the Covid-19 loan guarantee scheme in May 2020 and revised it in July 2020.

This arrangement was designed to enable commercial banks to support firms until economic activity could resume.

Treasury guaranteed initial support of up to R100-billion, which was later increased to R200-billion, for this scheme.

To date, banks have provided R17.8-billion in relief to 13 173 approved beneficiaries.

The arrangement is being expanded through nonbank financial institutions to reach a greater number of distressed firms, but the final outlay is expected to remain well below the guaranteed amount.

At the height of the pandemic, banks provided R617-billion in restructuring of credit exposure following guidance from the Prudential Authority. A portion of this was provided to small businesses.

Recommendations of the Standing Committee on Appropriations on the second Adjustments Appropriation Bill include that Mboweni ensure that Treasury provide a detailed report on the uptake of the scheme, the banks that have provided loans to businesses and the list of the companies that have benefited from the scheme.

The committee wants to understand the overall framework that governs the loan guarantee scheme and examine whether small, medium-sized and microenterprises are benefiting from the scheme.

Treasury said it would provide a detailed report to the committee.

Mboweni, meanwhile, said that, in the short term, the government was working to reduce the impact of the pandemic and associated lockdowns.

This includes supporting businesses through the Unemployment Insurance Fund, the tax system and the loan guarantee scheme, and providing income support to low-income households.

Over the longer term, the government is implementing key structural reforms through its Economic Reconstruction and Recovery Plan.

The plan involves a comprehensive health response to save lives and stop the spread of the pandemic; interventions to restore the economy while controlling the health risks; and reforms to support a sustainable, resilient and inclusive economy, Mboweni said.