Determinants of credit risk mitigation in lending to Black Economic Empowerment (BEE) companies, from a banker's perspective

The previous political dispensation limited black people’s participation in the SouthAfrican economy. Poor credit records, lack of training, resulting in skills and capacitygaps further limited entry into the lending market. These aspects are considered themain limitations in obtaining finance for the Small, Medium and Micro Enterprises(SMMEs).This research report focuses on how credit risk can be mitigated by commercial banksin lending to Black Economic Empowerment (BEE) companies in the medium to largemarket. Exploratory research was conducted using various methods to achievemethodological triangulation. These methods consisted of a literature review,interviewing experts in the field and case studies. A qualitative research approach wasfollowed. It was found that the lack of own contribution and security were still prevalentin the medium to large market, but the quality of management (little training and skills)was deemed not to be a limitation as suitable credit risk mitigants were identified. Nocredit risk mitigants were identified to mitigate poor credit records. It is postulated thatby adopting and applying the identified credit risk mitigants, commercial banks canincrease their success rate in lending to BEE companies. It will further assist in thetransformation of black people and compliance with the Financial Services Charter.It is recommended that a similar study be conducted in the agriculture, hunting,forestry and fishing industry. The reasons why BEE companies applications aredeclined could also be investigated. Further studies could also explore other externalfactors such as economical, legal and social that could have an influence on thefunding of BEE companies.