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A multi-million dollar loan guarantee plan announced by President Cyril Ramaphosa last month will begin operating Tuesday, with the assistance of the country’s leading banks, including FNB, Investec, Standard Bank and Absa.
According to a joint statement issued by the National Treasury, the Reserve Bank of South Africa and the South African Banking Association, the legal details have been finalized, allowing the scheme to kick in.
Ramaphosa announced the plan in April as a measure to soften the onslaught of the coronavirus pandemic and the subsequent national blockade on banks, as well as its individual and business customers.
The loan guarantee scheme is intended to help companies with an annual turnover of less than R300 million to cover operating expenses. South African Reserve Bank loans to commercial banks will be guaranteed by the National Treasury.
The Treasury initially provided a guarantee of R100 billion to the scheme, with the option of increasing it to R200 billion if the scheme is deemed successful.
“The loan guarantee scheme is an initiative to grant loans, guaranteed by the government, to companies with an annual turnover of less than R300 million to cover some of their operating expenses,” said the Treasury, adding that the government was sharing the risk of loans with commercial banks.
The Treasury said that the funds loaned through the scheme could be used to cover the banks’ operating expenses, pay wages, and cover rental and leasing contracts.
Economist Dr. Francois Stofberg said the amount was enough to help consumers, but that the survival of big business and SMEs was at stake depending on how quickly the government could end aid.
He added that there was a “significant” need among the companies.
Stofberg credited the government, saying they have done a lot to keep the ship afloat for consumers.
He said that while about 1.2 million people have applied for a stop payment, this was still only 8% of the tax base and there was room for the government to focus on helping businesses.
