Building Futures

Thu, 02 Apr 2009 10:51

Viwe Gqwetha - Nurcha's Chief Operating Officer and all round "go to” guy briefly discusses the company itself, his past, his present and his optimistic view of the horizon.

Nurcha is an innovative construction finance company supporting the national programme to house all South Africans in sustainable settlements. The company provides bridging finance to contractors and developers involved in the construction of subsidy and affordable housing, community facilities as well as infrastructure.

After a recent review of all Developmental Finance Institutions (DFI's), initiated by the Treasury, Nurcha was described as a "relatively successful and clearly innovative small DFI with a unique capital structure that enables it to work very successfully with the private sector financial institutions.' Based on its very impressive success rates, further recommendations in the report suggested that the company should find ways to increase the scale of its operations, and therefore its impact.

Nurcha's success in the industry has set the company quite apart and with that in mind, the company is opening another five branches nationwide, starting with one in the Eastern Cape this April. One of the powerful minds spearheading this expansion is Viwe Gqwetha, a man who has founded the very roads of his career on the concept of development.

The Winding Road

Viwe's role as COO of Nurcha is built upon a deep foundation of experience in both the private and public sector. A Town and Regional Planner by profession, Viwe achieved his Masters Degree in Town and Regional Planning from the University of Kwazulu-Natal. Within the private sector, he is also an accomplished development planning consultant. Providing him with spans of highlights, this time brought Viwe many of his life's tipping points and defining moments.

Between 1996 and 1999, he served on, and led a Presidential Project Team, one established to initiate, fund and manage various multi-sectoral projects in the Eastern Cape. Essentially, the projects were interventions designed to speed-up institutional development and service delivery.

In 2000, Viwe then serviced the Independent Development Trust (IDT) as both a Regional General Manager in the Eastern Cape, and Operations Executive in the corporate centre for some seven years. As those years passed, Viwe distiguished himself in a wide variety of leadership roles, the highlights of which were:

• Raising the profile of the IDT and Eastern Cape provincial office to a brand and partner of choice for Government, communities and international donor agencies.

• Raising the value of the programmes he managed on behalf of the provincial government, municipalities and donor agencies from R15 million to an average of R350 million per year.

• Forging a strong partnership between Government, IDT, private sector and civil society organisations to undertake infrastructure development at scale and rapid pace.

• As the Operations Executive, Viwe was responsible for a staff complement of more than 250 people, creating a high performing and diverse team of development managers and practitioners.

As of 2007, Viwe joined the Nurcha team and is currently Chief Operations Officer.

The Business of Development

Nurcha is a development financing institution, one mandated to widen access to finance for SMEs in the construction industry, and perhaps by definition, it has a higher risk appetite than the private sector. It is a known fact that one of the challenges facing SMEs in general is lack of access to finance, and this is particularly the case in the construction industry as well. As part of widening access to finance, Nurcha has a duty to develop products that respond to the needs of SMEs in the construction industry and to demonstrate the higher risk tolerance, whilst still being prudent in the application of its resources.

• Conventional wisdom has it that contractors are a highly risky segment of the market, hence the banks' reluctance to lend to them. Contractor risk becomes palpable when conventional financial sector instruments of identifying and mitigating risk are applied. Below are some elements that tend to characterise contractors in the SME category:

• Companies tend to have a low asset base and in order to build strong balance sheets, they require a good, consistent flow of profitable contracts.

• Owners tend to have asset bases too weak to be of any value as tangible security, in order to enable access to finance.

• Owners also tend to have poor credit histories, which often result in default and judgement listings in the credit bureaus.

• Lastly, owners and managers tend to have poor bank ratings.

However, at the application assessment stage, where many face disqualification, Nurcha takes all of the above into consideration and evaluates the risk as part of its lending criteria. Once the application is approved and company background is understood, the developmental aspect of the Nurcha model comes into play.

During execution of the project, Nurcha helps the contractor improve his/her status and work towards clearing the records. This could entail a number of things, including building repayments of outstanding debts into the project cashflows. At the centre of Nurcha's model is this developmental approach to risk mitigation and growth of contractors as business entities.

Key Aspects of the Model

The Nurcha model recognises that there are three critical parties to success, and the failure of but one party to fulfill its obligations will cause collapse. These three parties are:

1. The Contractor who has been employed to deliver a project
2. The Employer of the contractor, who becomes the client during the execution of the project. In most cases, the client is Government. The worst area of non-performance is when the client does not pay contractors in time period prescribed in the contracts.
3. The third party is Nurcha, who provides bridging finance, construction guarantees and support services.

Each party has obligations to fulfill and most are contractual in nature and conventional industry practice. Simple as it sounds, all the model requires is for each party to keep to their obligations.

The viability of the project is the key determinant as to whether or not Nurcha funds the project. The Bill of Quantities of the project is re-priced and if there is profit to be made by the contractor, the finance goes ahead. However, if the project is going to make a loss, the project will naturally be declined, and in most instances the contractor will be given strong advice to steer clear of the project.

Contractor Support Services. Once the contractor is approved for funding he/she receives support throughout the life cycle of the project, until it is completed. The support is mostly management based, and includes:

• Cashflow: For example, variation orders and their impact, managing flow of VAT claims, optimal scheduling procurement including terms of credit from suppliers, etc.
• Project Finances: Monthly reconciliation, monthly project income statement and payment of creditors.
• Continuous Advisory Support on technical and contract management matters.

This part is critical to the successful mitigation of risk during the project life cycle. It is a role fulfilled by qualified built environment professionals, with many years of experience in construction itself, and not simply industry related matters.

This is the point where a mutually beneficial, value-adding business relationship forms between a contractor, his key on-site personnel, and Nurcha's supporting manager. The role of the support manager is to help the contractor realise every cent of the profit initially projected, and ideally, a little more as well. Each month, contractors must feel a deep sense of satisfaction with value derived from the relationship because they pay a fee for it.

In short, at the end of the project all the three parties much realise their goals in the project. The client's project must be completed within time, specifications and cost per contract. Nurcha must then be repaid the loan and have the guarantees returned. Most importantly, on an incremental basis the contractor must:

• Make consistent profits on projects, and achieve the incremental growth of the balance sheet,
• Improve his/her credit worthiness with suppliers,
• Improve his/her standing with employers,
• On a periodic basis, apply for upgrades with the cidb,
• Adopt good business and contract management practices.

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