There is a strong argument to be made that one of the most important group of entrepreneurs in South Africa today are the thousands who run the country’s early childhood development centres (ECDs). The socio-economic future of South Africa is in their hands, says David Morobe, Executive General Manager for Impact Investing at Business Partners Limited.
Some are based in mud huts in the deep rural areas, some operate from community halls and churches, many are found at the back of private homes, some are conveniently located for working parents at transport nodes in urban commercial areas, the fortunate ones have state-of-the-art classrooms and playgrounds in leafy suburbs.
Every week, throughout South Africa, more day-care or Edu-care centres, preschools and crèches are added to the already existing 43 000 ECDs by intrepid, community-minded entrepreneurs. They are responding to the enormous gap between state-run formal education which starts at Grade R, and the huge demand from South Africa’s working parents for safe, stimulating and happy places to leave their pre-Grade R children for the day while they earn bread for the family table.
In fact, the demand goes beyond the necessity of work, says David. As the scientific evidence emerged over the past few decades, there has been a general awakening to the fact that time spent at ECDs boosts children’s performance and development at school in later years. Even stay-at-home parents are seeking out ECDs for their children.
With such huge demand, fulfilled by a fast-growing entrepreneurial sector, it is not surprising that Business Partners Ltd finds itself on the forefront of financing this movement.
It is not only the financial opportunity presented by the rise of ECDs, but it falls right in the centre of Business Partners Ltd mission to contribute to social development in South Africa. David says there are strong parallels between Business Partners’ Ltd mandate of economic development through sustainable lending and the approach taken by ECD entrepreneurs.
The demand is so huge that starting and running a well located ECD can be a profitable business. But, says David: “Many of the ECD entrepreneurs we engage with regularly see the work they do as a vocation, rather than just a job or commercial pursuit. These entrepreneurs are important contributors to social development, both in terms of the children whose lives they change as well as the jobs they create.”
Because ECDs are location- and facility-based businesses, much of the expense of starting or upgrading a thriving ECD usually lies in the purchase or the refurbishment of the property, or the purchase of playground and teaching equipment. Working capital is often also sorely needed as it is expensive to build a team of well-qualified pre-school staff.
Business Partners Ltd’s funding model is well suited to support formal ECD entrepreneurs to take the next step in their business growth. Rather than requiring the usual 30% deposit on a property purchase, for example, Business Partners Ltd provides up to 100% finance in return for a minority share in the building or the business. Over time, the entrepreneur can buy back the shares until they achieve full ownership.
Unlike the traditional bank financing model, Business Partners Ltd looks at more than just the collateral that an entrepreneur can offer to cover the loan. Just as important is the track record of the entrepreneur and the potential of the business. Apart from financing, ECD owners gain access to Business Partners Ltd’s vast network of Technical Assistance expertise and other ECD entrepreneurs. This is especially important in the ECD sector which is coming under stricter compliance regulations as the government grapples with setting safety and educational standards for the industry.
When it comes to navigating the regulatory landscape and dealing with the Department of Basic Education, which has recently taken over early childhood education from the Department of Social Development, it can be helpful to work with a financier with a network of experts and similar entrepreneurs such as the Business Partners Ltd.
About the Author: David Morobe
