Mpumelelo Mkhabela

Mpumelelo Mkhabela

Government has approved "in principle" a plan to establish Khula Direct, a state-owned retail bank that will lend to small businesses at the lower end of the market.

The Department of Trade and Industry has for the past few years been advocating a plan to transform Khula Enterprise Finance into a fully fledged state-owned retail bank.

Cabinet finally approved the plan this week but rejected proposals that Khula be recapitalised in order to enter the retail sector.

Government chief spokesman Themba Maseko yesterday said Khula would introduce a retail platform to complement its mandate to meet the needs of the lower end of the market.

"The DTI will develop an implementation plan for consideration by government in the new year," he said.

Maseko said research was conducted before the government's decision. "It has taken quite some time because a lot of research had to be done on whether it is a good idea to extend the mandate of Khula, especially because there are many other institutions that provide more or less the similar kind of service."

When the DTI first submitted a case to expand Khula's mandate, Cabinet demanded more information about the viability of the option.

"And as it was presented to Cabinet, the view was that in fact there is an opportunity for Khula to play a key role in this level of the market. It was therefore approved in principle," Maseko said.

"However, a business plan still needs to be prepared to say if this mandate is extended, how will it be implemented, because Cabinet did not support the idea that Khula needs to be recapitalised."

Maseko said Cabinet instructed Khula to devise a plan on how the new mandate would be implemented without additional funding from the state coffers.

South Africa's pending establishment of a state-owned retail bank comes at a time when banks the world over are facing a liquidity squeeze and are tightly guarding their lending practices.