What role should the financial planners of ABSA Brokers play when ABSA Business Bank extends credit facilities to its SME customers?

ENGLISH ABSTRACT: Small and medium enterprises have an important role to play in the South Africaneconomy. The success of SME’s will lead to economic growth, that will play a major rolein reducing unemployment in South Africa. It will also be the main driver for blackeconomic empowerment.As elsewhere in the world one of the main problems that SME’s face is the need forfinance and access to finance. Banks play a major role in providing finance to SME’s byproviding different forms of finance to SME’s.The finance that the shareholders / directors can access in their personal capacity plays acritical role in the provision of finance to SME’s. Banks will require security whenadvancing credit facilities and the security that is offered by the shareholders / directorsplay an important role in the decision of banks to advance credit.The risk that the banks carry when granting credit facilities to SME’s is reduced whenpersonal suretyships of the directors / shareholders are required. The personal assets ofthe shareholders / directors are used as security to obtain credit facilities for the SME’s. Ifthe SME’s should fail, the banks will liquidate the personal assets of the directors /shareholders to settle the credit facilities that were granted to the SME’s.Customers are not aware of the dangers when signing surety. Banks have fiduciaryduties towards their customers to inform them of any risks and what possible solutionsmight exist that will minimize the adverse financial effect of such risk consequences.If the surety should die, the bank will have the option to liquidate the assets of thesureties to settle the debts of the entities for which the surety has signed personal surety.Life cover can be affected on the lives of the sureties that will provide the necessaryliquidity to settle the debts of the entities without the bank having to liquidate thepersonal assets of the sureties.Consumer protection has become widespread where the phrase caveat emptor has beenreplaced by caveat vendor – let the seller be aware. In addition to this the South AfricanGovernment has also enacted legislation that banks have to adhere to that will lead tocustomers making informed decisions. The National Credit and the Financial Advisoryand Intermediary Services Acts have been introduced to afford the customer moreprotection. The banking industry has adopted the Code of Banking Practice which placesresponsibility on the banks to fully disclose all risks to their customers.It is especially the surety, the person that provides security for the debts of others thatnow enjoys increased protection. The National Credit Act affords a surety the sameprotection as the principal debtor and the Code of Banking Practice also contains veryspecific references with regards to sureties.Banks have become a business and the traditional notion that holds that business ethicsand absolute adherence to legislation, industry codes and its own code of ethics will havean adverse effect on business, no longer holds.Many reasons have been given by ABSA Bank as to why the financial planners of ABSABrokers should not be part and parcel of each transaction where credit facilities areextended to their customers. The reality however is that the Financial Planners must bemade part of the process when credit facilities are extended. The Financial Planners mustprovide a financial needs analysis to the customer that will enable the customer to makean informed decision as to whether to implement life cover or not.By making the financial planners part of the process ABSA Business Bank will ensureadherence to legislation, industry codes and most importantly, it will fulfill the fiduciaryduty that it has towards its customers.