Entities intending making Enterprise – and Supplier Development (“ESD”) contributions towards 51% Black-owned Exempt Micro Enterprises (“EME”) and 51% Black-owned Qualifying Small Enterprise (“QSE”), can do so through loans which are either interest-bearing or interest-free, amongst other forms of contributions. Annex 400(B) of the Amended Generic Codes of Good Practice states that the “Outstanding Loan Amount” as at the measurement date can be recognised to measure the ESD contribution.
A question that often surfaces is if loans that are fully repaid by ESD beneficiaries within the measurement period can still qualify and if so at what amount? The argument is that assistance was provided during the year even though there is no outstanding balance at measurement date. Our view on this issue is to recognise the weighted average amount of the loan outstanding over the 12 months. This would obviously hinder the recognition of loans which were made close to the measurement date, but favour loans repaid during the measurement period to still recognise such although it is only a portion. It is also said that the yet to be published Technical Assistance Guide (TAG) suggests the weighted average method to be applied, in line with our view.
It is important however to note that many Verification Agencies currently apply outstanding loan amounts as at the measurement date to recognise loans and not weighted averages. We suggest that Measured Entities exercise caution when making loans and confirm the interpretation of its Verification Agency on the recognition of outstanding loans prior to granting such loans. It is also advisable to plan future contributions on the apportionment basis.
