Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003) Industry Charters Financial Services  Charter Code Series FS600: The Measurement of the Enterprise Development and/or Empowerment Financing Element of Broad-Based Black Economic Empowerment Statement 602: The Measurement of the Empowerment Financing and Enterprise Development Element for Measured Entities that are not exempted from contributing towards Empowerment Financing 3. Definitions, Key Measurement Principles, Standards and Target 3.1 Empowerment Financing 3.1.1 Targeted Investments (TI)

 

Definition:

 

Targeted Investments means:

 

Debt financing of, or other forms of credit extension to, or equity investments in South African projects, in areas where gaps or backlogs in economic development and job creation have not been adequately addressed by financial institutions. It specifically means financing of, or investment in:

Delivery will be against a combined target with fungibility over the various sub-components as per the individual organisation's business model. Should an organisation not be able to deliver on any of these sub-categories, delivery of the value of Targeted Investments will have to be done under the Enterprise Development element of this Code and the points of that element will then be adjusted accordingly.

 

Targets

 

The overall Banking Sector target for targeted investments will be R48 billion new balances (for Banks including IBA members).

 

Transformational Infrastructure

 

Definition

 

Transformational Infrastructure means:

 

Debt financing of, or other forms of credit extension to, or equity investments in South African projects in areas where gaps or backlogs in economic development and job creation have not been adequately addressed by financial institutions. It specifically means financing of, or investment in:

 

Measurement principles

 

Preamble

 

Tl projects will be measured, based on the Municipal index or as per the specific project rating allocated, based on the target market, submitted for evaluation.

 

Target market

 

Tl will be any infrastructure that will promote the social and equitable economic development of a specific location, community, region or district. This will include but is not limited to:

 

Categories of Tl funding recipients and/or participating in Tl implementation:

 

Products

 

All forms of financing and / or investment. Instruments used to finance Tl vary in nature and term throughout the project cycle, but will, inter alia, include:

 

Measurement

 

 

Targets

 

Due to the fungibility of delivery over the sub categories by the delivering organisation, targets will be set for Targeted Investments (TI) only and not sub categories. Therefore, Transformational Infrastructure as a sub-category of Tl will not have a specific target.

 

Affordable housing

 

Definition

 

Home lending standards for qualifying loans are defined as set out below and seek to define a voluntary:

•        Affordable Housing target market;

•        Product definition guidelines.

 

a)        Types of Lending

 

Affordable Housing constitutes both mortgage and non-mortgage backed lending for housing purposes and includes the following product categories, which may expand in the future:

•        Mortgages;

•        Unsecured personal loans;

•        Personal loans secured by a pension or provident fund;

•        Residential development loans;

•        Wholesale loans.

 

b)        Qualifying Loans / Investment Standards

 

Loans qualifying for inclusion must conform to the following standards:

 

The purpose of the loan should be for housing (as set out under Product Category Definitions);

 

 

Measurement of Loan Activity

 

The target market is defined to be the approximate cost of bonded entry housing in South Africa adjusted annually by the midpoint of the Consumer Price Index (CPI) and the Building Cost Index (BCI). The average annual CPI figure is obtained from published reports from SA Statistics and that of the BCI figure from the Bureau for Economic Research (Stellenbosch University).

 

For 2011, the Affordable Housing market as calculated by the Banking Association, comprises households earning up to R15, 738 per month. (See Note 4 under Affordable Housing for further details).

 

Definitions

 

Household income

 

Monthly household income is the primary criteria used to determine whether the lending activity may count towards the Affordable Housing origination and Targeted Investment targets.

 

Income as defined in terms of the National Credit Act, 34 of 2005:

 

"Household income means the combined gross income of the Applicant/s, which may include the income of any major person who shares their financial means/obligations with the Applicant/s.

 

Gross income includes income or any right to receive income, but excludes monies received that the person receives, has a right to receive or holds in trust for another person."

 

Loans are deemed to have been written by a financial institution when a mortgage bond has been registered or in the case of non-mortgage loans when these loans are disbursed.

 

The gross monthly applicants income is determined when the loan is approved. For target market upper income qualification purposes the date of approval of loans, both mortgages and non-mortgages, is based on the quantum of the applicant/s income as at time of approval of a loan.

 

Business written within the target market

 

The following table contains the various target markets.

 

Note 1

 

Household income is a foreign term to banks as it is the applicant's income that determines affordability and the legal relationship between bank and client. None of the banks record household income on their application forms or systems. There is also a strong view that self-declared household income is not reliable and would be an impractical and costly exercise to validate. In an analysis undertaken by the banks in 2004, it was found that there is a strong correlation between applicant income (comprising both individual and joint applications) and household income. It was therefore felt that applicant income, whether single or joint, is a strong proxy for household income and a reliable and transparent measure.

 

Note 2

 

For unsecured and guaranteed personal loans, the borrower's income and not the joint income will be used for qualification purposes as these loans are granted to individuals based only on their own income and affordability, not joint income. Joint income, on the other hand, is generally recognised for mortgage loan lending purposes.

 

Note 3

 

Residential Development plays the role of an 'enabler' as it increases the supply of housing stock. Lender funding is of a short-term nature.

 

Note 4

 

The average cost of a primary market bonded entry home was deemed to be approximately R 250 000 based on member market experience, coupled with research undertaken by The Banking Association with both developers and an external research company (Finmark Trust). In addition, this upper income definition is aligned to that of the draft "lnclusionary Housing" draft policy document as was produced by the Department of Human Settlements. An upper income limit of R15, 142 was therefore deemed to be appropriate by The Banking Association in 2009.

 

For 2011, the upper income limit is calculated as follows:

•        CPI: average CPI for 2010, 4.3%

•        BCI: average BCI for 2010, -1.2%

•        The midpoint for CPI and BCI for 2010 was 1.55%

The upper income limit for 2011 is R15, 738                (R15,498 + (R15,498 x 1.55%)

 

Going forward, on an annualised basis, The Banking Association will continue to provide members with written confirmation of the target market definition for Affordable Housing as defined in Note 4 above.

 

Targets

 

Due to the fungibility of delivery over the sub categories by the delivering organisation, targets will be set for Targeted Investments (TI) only and not sub categories. Therefore, Affordable Housing as a sub-category of Tl will not have a specific target.

 

Additional Notes relating to Affordable Housing

 

There is general acknowledgement that there is a lack of "stock" of housing units available to finance for the "Gap Market" segment (R10,000 and less monthly income) of the target market due to a multitude of challenges in our country. To this end Trade Associations shall, together with Government, Community and Labour representatives, establish a working committee post gazetting of this Code, to develop a coherent strategy/strategies that will seek to address this problem. Solutions may include Public Private Partnerships between financiers, developers, Government and community-based organisations and could include co-operative housing schemes and/or development rebates, etc.

 

Black SME financing

 

Definition

 

Black SME financing means:

 

 

Black SME means:

 

Measurement principles

 

Preamble

 

The basis of measuring the qualifying funding for Black SME's will be the stock measure. This is effectively a measure of the amount (or 'stock') of financing shown on the balance sheet of an affected entity at the measurement date. A weighted average of the monthly balances over the 12 months prior to the measurement date is to be used to smooth out seasonal and other distortions.

 

Target market

 

Any EME or QSE having 50% black ownership or more, being

 

Includes but are not limited to:

•        Indemnity backed loans such as Khula, Enablis, USAID, UY Fund, etc.

 

Measurement

 

A Black SME must meet the legal definition of a "business" and therefore must be a company ((Pty) Ltd) close corporation (cc) partnership, sole proprietorship, or co-operative.

 

Will be a "stock" target, i.e. it will be measured as incremental growth in balance sheet exposure. An average exposure method to be used based on monthly balances as submitted to the South African Reserve Bank (SARB).

 

Overdraft facilities: overdrafts to be measured based on utilisation, rather than limit authorised. The metric for overdraft financing will be the average overdraft utilised over the reporting period.

 

Equity investments: will be valued at cost.

 

Property finance: will EXCLUDE personal property finance. Commercial property finance will be measured only if it meets the following criteria:

 

Invoice discounting will be subject to the same rules as overdraft facilities. Therefore, discounting as at the end of the measurement period will be the average monthly utilisation of the invoice discounting facility over the measurement period.

 

•        In all instances scoring will be based on actual exposures, not authorised limits.

 

Graduation rules

 

Turnover rule: for Black SMEs who move outside the upper end turnover definition, a maximum exposure limit be set beyond which any finance provided will not be scored. The maximum exposure limit will be R5m subject to any adjustment allowed.

 

Targets:

 

Due to the fungibility of delivery over the sub categories by the delivering organisation, targets will be set for Targeted Investments (TI) only and not sub categories. Therefore, Black SME financing as a sub-category of Tl will not have a specific target.

 

Black Agriculture Financing

 

Definition

 

Black Agriculture Financing is the financing of Agricultural Development involving integrated support for Black farmers, which is 25% black owned or more and / or at least a Level 4 B-BBEE contributor, through enabling access to and sustainable use of resources.

 

Agricultural Development funding relates to the funding of farming production requirements and the necessary infrastructure to enable farmers to deliver products to market, but excludes industrial processing of agricultural products unless it can be defined as pre-production. That means inputs to production are included as well as cooperatives as providers of both finance assistance and goods / services.

 

Measurement principles

 

Preamble

 

The aim is to encourage financial institutions to design and distribute products for existing and new entrants into the agricultural sector.

 

Target market

 

Any enterprise that comprises:

 

Products

 

Includes but are not limited to:

•        Overdraft facilities

•        Agriculture Production Loans

•        Term loans

•        Asset finance

•        Lease agreements

•        Commodity finance

•        Silo certificate finance

•        Insurance products and services .

 

Measurement

 

•        If 25% black owned or more -claim 100% funding

•        The principle of "see through" financing / credit to be upheld.

 

Targets:

 

Due to the fungibility of delivery over the sub categories by the delivering organisation, targets will be set for Targeted Investments (TI) only and not sub categories. Therefore, Black Agriculture financing a sub-category of Tl will not have a specific target.