This, as the agricultural sector is a vital sector that ensures food on millions of South Africans’ tables. 

According to Dave Humphrey, director of Impact Investments Africa, the Section 12J initiative, which was established by National Treasury in 2009, is just one of the ways farmers can get funding to expand their businesses or embark on a new farm project.  

See PODCAST below

Humphrey shares that there is a criterion that farmers need to fill in order to be funded through this initiative.

He explains that farmers do not need to have a very good credit rating or long business track record as Section 12J allows investors to commit their taxes through Impact Empowerment Ventures.

Investors

Humphrey says that the farmer who seeks to be funded needs to bring along 10 or 12 investors into their own project. “So, we call it a closed share class. What [we mean by that] is bring your project that requires capital, bring your business and 10 taxpayers with you,” says Humphrey.

He encourages that farmers should go to their network of people who earn more than R1 million per annum. With that being said, a partnership of two people who together earn R1 million per annum can become an investor into the project together.

Employment

Another criteria that farmers need to fill is employing new people. He adds that people employed by the farmer can be of any race.

The capital that the qualifying business received stays with the company for at least the next five years. However, Humphrey says that after Section 12J comes to an end on 30 June, money will only be injected once into the business.

READ: The end of Section 12J is nearing

Financial merit

The business should have financial merit. “There is no point in making an investment in a business that has no upside for the investor.”

Humphrey says that this means that a business will have to submit a project plan – it does not have to be a full business plan – and what they want to do with the investors’ money to Impact Empowerment Ventures’ investment committee.

People running the project

Other important criteria are the individual who will be running the project they seek funds for. Humphrey adds that they usually make use of qualified farmers who know what they are doing.

Risks involved

“The nice thing about Section 12J - not that we want this to happen, but because it is in venture capital - [is that] the business that is requiring the money, if it does like so many companies that require capital collapse after four years, none of the investors has to pay back the taxes that SARS paid them, as long as they invested for five years.

“Now, that’s a horrible outcome, but it means that the benefit of the receiving business can use that money as proactively as they can for the growth of their business,” explains Humphrey.

He further adds that Section 12J is patient capital into a business so the risks are important to at least be identified and then mitigated as far as possible.

Technology

Humphrey says that technology to improve farming mechanisms is also one of the important boxes to tick when applying for funding.

Furthermore, investors who are interested in investing their money in a venture capital company through Impact Empowerment Ventures, need to sign a commitment to invest document before 29 June for them to take part in this opportunity for the next financial year. This document is available on Impact Empowerment Ventures’ website.

OFM News