Sourcefin and FNB referral arrangement: POF for SMEs with confirmed work

Edited for readability. Watch the full episode on YouTube.

The origins of Sourcefin

Joshua Kadish: [...] But there's been a shift. There's been a shift in the narrative. There's been a shift in, I'd say, internationally, how the more traditional collaborators have seen your disruptive fintechs like Sourcefin. The delivery gap I talk of is, I guess it's a basket of all of those skill sets. And that's what we've tried to do at Sourcefin from day one, is build that around the client. So, in the beginning, we thought it was just a finance problem or funding problem.

But as soon as we sat across the table from the clients and said, cool, if we give you the money, you're good to go, right? And they said, no, not at all. When you're a startup with three to five people, no formal process, barely any tech, you've got to walk a journey before you're ready to team up with one of the biggest banks in Africa, one of the biggest brands in Africa. So I guess part of the goal was we want to be ready, that by the time that we turn on the opportunity like we have today, we can honour that and we can be proud of it, and FNB won't feel like they made a mistake.

I understood that for FNB, this was a massive reputational risk to work with the likes of Sourcefin. So, we're going to be under the microscope. Every deal needs to be carefully curated and looked after. Every client needs to be given attention. I still feel a bit of nerves because teaming up with a giant like FNB for a company of 70 people is always going to be one where you really want to show your best foot, always.

Jedd Harris: Joshua Kadish, good to spend some time with you, especially since we're on the back of something very exciting. Very exciting for Sourcefin, very exciting for small businesses and the industry at large. But I suppose before we get into that news, assuming someone's clicked into this watching, has never heard of Sourcefin before, has never heard of Joshua Kadish before, let's start there. Introduce yourself, introduce who you are to the viewers and then who you are to Sourcefin.

Joshua Kadish: So I'm Joshua Kadish. I joined Sourcefin, it was 2021, really got the company started. We had a vision and a problem we were solving. I think what's quite cool is I've played almost every single role in the company, from doing my own deals to doing my own banking, drafting the legals, trying to work out financials. So today I'm the CEO and I manage and run the company. My personal background is that I'm an attorney, practised at one of the big law firms before coming across into an entrepreneurial setting, something I was always passionate about.

Was lucky enough that the people that I used to be their legal professional reached out to me, said they had a problem to solve. It was an idea, a concept, not necessarily yet a business, but I saw there was something to be solved. Became something that I took a big chance on. I'd worked quite long in my legal career through lots of studying, lots of hard late nights before coming to Sourcefin. It's been the best decision of my life, truly. Every day is a challenge, but a learning day, a development day, is something that makes me better. Love what I do, love the company.

To those that don't really know Sourcefin well, we always say we're born to enable the forgotten SME. What we mean by that is that there's so much work that gets provided to small and medium enterprises in South Africa. Unfortunately, the problem comes in, in terms of two big areas. One, naturally, is funding, and the second is service and execution of an opportunity. And our vision was to bridge those two gaps. It was a problem we encountered ourselves. So, through our founders, they grew their own SMEs into big businesses, but realised in the beginning it's so hard. And even ourselves, when we started Sourcefin, raising debt was really hard. We took for granted our network, we took for granted our ability to dip into our own pockets and bootstrap it in the beginning.

So, when I meet a client or when we do a deal, I never forget the problem we're solving, because I went through it, and I think that's what helps a lot. So, really what Sourcefin does is, it's an assembly of professionals. We say that we're open-minded in the sense that we approach the funding gap completely differently. We start with the opportunity, which really is the order or the invoice to be funded. And what we try to do is see where can we add value for an SME. Is it something where it's purely funding? The SME knows what they're doing, this is a repeat order, they really just need us for funding. Or is it something which is more common to us where we provide a full suite of professionals, no extra cost? As I said, I'm a lawyer, probably one of six to eight we've got internally. We've got engineers, we've got accountants, we've got really special people around the table that collaborate with you to perform your work. So if you're somebody listening who has an opportunity, an order, but just either doesn't have the funds, the expertise, come and have a conversation. That's really what Sourcefin's about.

Building the business deal by deal

Jedd Harris: Amazing. I think, take me back to the early days. I know a little bit about you. You're not the only lawyer in your family. I think there's a long line of lawyers, and it must have been a massive decision for you to make to move away from law into something that was a little bit untested. I'm assuming, and the people at home are assuming, when you joined Sourcefin, the processes were defined. There was a lot of money to back us. There was a coffee machine and there were benefits. Obviously, all of those things were included when you moved away from a really nice position at a law firm that you'd built your way up the ladder, and there was obviously a clear route to growth for you there. Big decision, but I'm sure Sourcefin came with all the benefits all the way at the beginning, or was it a little bit different?

Joshua Kadish: I always laugh. People look at Sourcefin today, 70 employees, we're in a beautiful building, and people think this is what we're about. But I look back often, I've got some videos and photos on my phone that I look back on, and over five years, the journey we took, I'm not going to lie, like you said, came from a really nice background in terms of fourth-generation attorney, did a BCom LLB and my master's in law. So, something I'm super passionate about, studied hard for, worked my way up. But the problem to be solved, and the energy at Sourcefin was so much that it drew me in. I wanted to explore and see the world from an entrepreneur side.

And I look back at where we came from, really humble beginnings. One of our founders funding from his own pocket. We were waiting for money to come back in on a deal so I could disburse out. Didn't always have the funds to execute on all the clientele, but it was great. We learned so much. We really did fake it till we made it in the sense that we didn't have divisions and teams like we do today, departments of experts, external legal counsel, accountants. We didn't have any of that. We were hustling, we were building a business deal by deal. But I think that's the power of what we have today, that knowledge gets shared to every employee. I think my whole office that I used to operate out of as an attorney was probably similar size to the entire team at Sourcefin's office for six months. But we didn't need more than that. We were always out, we were always meeting people.

I think probably the most people I ever met in such a short space of time was the first six months at Sourcefin. We try and meet every client today still. It's a hallmark of what we do, try and really connect and meet the people that we want to provide funding to. But yeah, just was hungry to do deals, hungry to learn about the problem in the space, tried a lot of things, paid school fees with some mistakes, especially on the construction production side. But all of that made us the company we are today. So, for me, super exciting journey. Amazing, and pinch myself that we got here literally in five, five and a half years. FNB, which we'll speak about just now, was a central part of that whole journey.

But really proud of what we've achieved, and also know how much we still have. When I think about it in the next five years, the vision for Sourcefin and where I can see we're going, it's probably going to move just as much as it did in those first five. So, really don't take it for granted. Every day, really grateful and appreciative for the team I've got around me, the deals we've done, the lessons we've learned, the clients that have supported us, the collaborators that have got us here. But love what I do every single day. Wake up out of bed, want to get to the office. There'll be something new that's gone right or gone wrong, or new people that I've got to educate on what we do. But literally love it, have never looked back. Amazing company and really grateful for the journey.

The FNB referral arrangement

Jedd Harris: Agreed. I think if I reflect on the journey as well, a lot of what you said, rewinding back to those early days, it's not something that someone that has a good career developing in a corporate entity would necessarily join unless they were passionate about something bigger. And speaking for myself, when I met you for the first time, met Avi, met Marom, it was very clear that perhaps the how wasn't defined, or the what wasn't necessarily defined yet. But the why was very clear. It was crystal clear. There was a problem, and there was a purpose. And there was the enablement of that forgotten SMME that for so long, the traditional lending space has neglected.

And you mentioned, beautiful office, amazing people that surround us. And sometimes, Joshua Kadish, you're very humble in sharing some of Sourcefin's achievements. It's grown unbelievably well, more than R3 billion deployed, over 2,000 SMEs enabled, one of the fastest growing companies on the African continent, NSBC Funder of the Year last year. The accolades, it's a long list. And you've been central to that. And obviously, at the start, although there was only a purpose, and there was the best way to summarise it is a deal-by-deal testing phase where you were moving through a process over and over again. Some went well, some went not so well, and you learned from it and you refined the process.

And as that was happening, people were taking notice. We didn't realise people were taking notice, but there was someone that was very important at an entity called FNB called Daniella Keet. She happened to come across Sourcefin, happened to see Avi, and I think let's share that news, and then lean into the journey we've taken with FNB over the past few years.

Joshua Kadish: Absolutely. So, I think what's great is, as you say, it was FNB initiated. So, we were doing our thing. And what was great was our relationship banker, and the strategic alliances division, asked if we want to meet. I wasn't sure what it was about. Back then, I don't even think we had a deadline yet. But I thought maybe we could get a loan, 200 grand would be good. But realistically, they saw a bigger picture. They saw the opportunity in terms of the deals we were already funding, the volumes of money going out and in. And the real problem at the heart of it, which was amazing, because not everybody understands the journey that we're on and the problem we're trying to solve. But as a bank, they got it immediately.

And they understood that for whatever reasons, it fell outside the traditional funding model. But there was an opportunity to look at a player like Sourcefin, who was still very young and developing, and take a real interest in it as our transactional bankers, but with a look towards a referral agreement. And I think that's what started the journey. So, like you mentioned, Daniella Keet and the team, as well as our transactional bankers, they really took the time to call the meeting to ask a whole bunch of questions about what we do, with a pure purpose of actually looking to the bigger picture, which would be adding in some way, some sort of cooperation together where we could solve a bigger problem.

So, really loved that. It was also during COVID times, we had lockdowns on, lockdowns off, lots of uncertainty. To me, every day felt like a battle to keep the company alive, to be honest. It was hard. Some money had to go out for salaries, that meant money I couldn't fund deals on. So, it wasn't easy. But for somebody so early to see the bigger picture, even before we did, was really refreshing. So, today, looking at this landmark deal that we've brokered with FNB. It's very deserving from their side, from FNB's side. We're proud to work with them, but they've really walked the journey with us. And from that first engagement, I think they've truly cared. We've had hundreds of meetings since then, spent hours and hours getting to today. And the journey is definitely – we're going to make sure it's worth it. Worth it for Sourcefin, worth it for FNB, and worth it for all those SMEs.

Jedd Harris: No, absolutely. And something that has struck me and something I've learned through the process of collaborating with FNB has been that there's this narrative out in the market that the traditional lending space doesn't care or necessarily understand the plight of SMEs. What I've learned, and I think what you've learned, as we've met more and more people at FNB, not saying this is true for all banks, I'm assuming it is. But what I've learned from that interaction is that the bankers and the bank truly cares about SMEs, small businesses. But in some instances, they're not able to support those SMEs with the type of funding or support they need at that point in time.

They come from an old school or traditional way of lending where they are brokering or they're underwriting based on the track record or the collateral or the history of the entrepreneur. And we'll speak about it a bit later, but the opportunity often needs more than that funding, or it needs to stretch beyond the balance sheet. And that's what FNB saw, and credit to them, they saw it and were patient enough to work with us for that period. Three and a half years is a long time. I'm sure people are thinking, what on earth would be done in a collaboration, getting ready for a referral agreement for three and a half years? Tell me a little bit about Sourcefin three and a half years ago. What did it look like? How would it progress from when you first joined? What did FNB find when they met us for the first time?

Preparing for scale and compliance

Joshua Kadish: So, I think FNB believed in the people. And I think that's really what showed us that they were the right team to collaborate with. They believed in our purpose and the people around the table. Back then, there weren't a lot of us. Today, there's over 70. Back then, there were probably between three and five of us. But I think what they saw was a vision and a single-minded goal from our side, which was to bridge that funding gap one day at a time, one deal at a time. But they could see we were so resilient and so driven to get there. Back then, we didn't have fancy systems. And like I mentioned, no credit line. So realistically, I think they saw a group of guys and ladies that really were going to get to where they wanted to through trial and error.

We took every deal, we documented it. When we started the company, there isn't a handbook of the Sourcefin process, the A to Z of how you fund a deal like this. You had to take on a completely different, more open-minded mindset. I think when I look today, we're much more focused, regimented, we built for scale. Back then, I guess we were deal by deal. What was great about it was the lessons that were being learned were the formative years of how we got to our process today. We took an opportunity to do post-mortems after every deal, good or bad. I definitely learned the most from the bad deals. Because those are the deals that you'll never forget, even to this day. And fortunately, they're not that many. But I can still probably recite every bad deal since from 2021 till today, because those are the ones that stay with you.

And I guess what you do is you start learning where you've gone wrong as a company, you educate the team. We've never been a punitive company where we look for fault within our own. We actually rather look for reasons why we can build things into our processes, find out what's gone wrong. Many times it's things that were avoidable, and you build in the process. If it's unavoidable, you learn that lesson, and you cater. But back then, very different. I think, like you say, three and a half years is a long time. But ultimately, when you're a startup with three to five people, no formal process, barely any tech, you've got to walk a journey before you're ready to team up with one of the biggest banks in Africa, one of the biggest brands in Africa.

So, part of the goal was, we want to be ready, that by the time that we turn on the opportunity, like we have today, we can honour that, and we can be proud of it, and FNB won't feel like they made a mistake. So, it took time, but you've got to build systems, you've got to get in the right people, you've got to pass all sorts of different cybersecurity tests and legal tests and things you don't know. I guess when you're at that level, you don't know what you don't know. You're a startup. But what it gave us an opportunity to do was zoom out and build to really scale, build to make Sourcefin a proper enterprise. And I thank FNB for that, because indirectly, they're the reason we scaled so quick. Like you mentioned, one of the fastest-growing companies on the continent, definitely in the financial sector. So, the reason for that is we were sprinting to get to the finish line to really show FNB that we're ready for them.

Jedd Harris: What was also nice about FNB, and it's nice to think about retrospectively, is it gave us the blueprint. They guided us on what a bank or an institution of that size cares about in a small business. And as a result, it accelerated what we focused on. We were able to accelerate our growth, because we knew what to focus on. And since we were a lot more focused, we were able to grow a lot faster. And like you said, it helped us scale. I'll never forget the first conversation I had with Marom about FNB. I think it was our very first version of the website. Marom said to me, Jedd Harris, we've just got to put our best foot forward.

And I remember the first project we called when it was interacting with FNB right at the beginning. I don't know if you remember where we had a stream working on website, there was a stream working on process, stream on cybersecurity. The name of that initiative was Dressed to Impress because we knew FNB wanted to see the absolute best. And sometimes we didn't have those things necessarily ready or thought out yet. But like any good small business, we were going to put our best foot forward, we're going to hustle. Sometimes we were going to fake it till we made it. And what was amazing is all of the pieces came together in the end. And those pieces finally came together, Joshua Kadish, in November last year. I remember you sat in the boardroom next door and you officially signed the referral agreement. Take me back to that moment. How did it feel and what did it mean to you?

Joshua Kadish: Yeah, it was, even though it was three and a half years, it felt in some regards felt really quick and then some it felt like it had taken a decade. I guess the signing was great, but I also felt the pressure of now the real work starts. Like you say, up until then, we were dressing to impress. And I think we did everything in our power to be a small startup SME that can actually play with the big boys. But the second you sign that contract, you're committing and you're saying, I'll look after your clients. And I think that was the key thing is I wanted to take it so seriously. I understood that for FNB, this was a massive reputational risk to work with the likes of a Sourcefin.

So, we're going to be under the microscope. Every deal needs to be carefully curated and looked after. Every client needs to be given attention. So, for me, it was excitement, but also some nerves around what's next for us on this journey. I still feel a bit of nerves, because teaming up with a giant like FNB for a company of 70 people is always going to be one where you really want to show your best foot always. But what I've been surprised by so far is we've been able to handle so far the capacity that's been thrown at us. I think what we've done probably very well in the last 12 months is build around different processes where we're not reliant on one single person for anything, even myself. And to the extent that we do get this big uptick, which we're starting to really see, I think we'll definitely be ready to make ourselves proud. There'll be some lessons along the way, like there always are. But so far, it's been great. So, loving it and just looking forward to serving as many people as we can, as many businesses as we can.

Operating model and systems

Jedd Harris: Absolutely. I'd love you to get into the detail of what it takes to get something like this over the line. It's a huge deal, probably the biggest venture we've entered into. It took three and a half years. Get into some of the details, Joshua Kadish, around you've already spoken to some of them, but specifically in terms of operating model, the process, the people, the systems. And then I also think try and touch a little bit on the referral agreement. What were the two big things that FNB cared about that we needed to work on? Perhaps you can summarise operating model and then those two pieces that FNB were very, very clear that those are the two most important things for them to get this over the line.

Joshua Kadish: I think starting off with what we had and what we had to have ready by the time we teamed up, I think operating model for sure. And to break that down, maybe one extra thing which I was worried about was the funding in place. So, as a funder, you've got to think about the fact that you can never run out of money. Your money is your trading stock, it's your inventory, right? So, we walked a journey where we were working the FNB referral agreement along the way. […]

So, that was something that we did well. I remember there was once a time where I was literally down to rands and cents, probably around 2023. Fortunately, we've really been able to bring on the right shareholders, manage our cash flow well. Today, we've got a full financial team with CAs. Back then, we didn't.

Jedd Harris: So, the famous whiteboard story. Do you want to touch on that? What is the famous whiteboard?

Joshua Kadish: Yeah, so, I remember there was a December where there was a big rush before all the departments closed. And I was in the Chief Commercial Officer's office on his whiteboard. And we were literally writing down each of the deals. And these weren't deals that were in the pipeline. These were deals that were ready to go. And then adding up a tally of, he's an actuary, so his numbers are better than mine. But we were going through the actual numbers we had. And then I was on our banking app and working out, trying to take into account if we get paid early on a deal versus late. And we were legitimately down to rands and cents in terms of the deals that we had to execute on, and we had made a promise to fund, versus those which were in the pipeline, and we needed actual cash in the bank.

So, thankfully, those days are past us. We're now really well capacitated from a funding side. I think the other side of the operating model is bring on the right people. Firstly, I think we're a people business. So, Sourcefin's always been about bringing the best of the best on board, A-team players. I think I've always prided myself on bringing special people into the organisation, special being both capabilities and culture. So, I want this to be the best possible place to work with if you're a client, and also work for if you're an employee. And they've got to really work well together. So, client centricity, if you don't put client above everything else, very often I won't even entertain the person joining. I said in almost every interview at the final stage, because we're still small enough that every single piece of the puzzle needs to align. Every single person is that key to the cog turning.

Processes, I think, have evolved really well. I think really exciting is with the advent of AI, we've been lucky that we had a specialist in AI on our board and got us thinking about tech and data early. And building towards a future where AI became something that we just gradually brought into the business and got the output of. But we've also kept a good grounding in terms of meeting the client and not – we're not an AI lender. We're not a lending-in-your-sleep business from scratch. I think there are elements that we've taken from manual to automation. But core to us is the people we fund. Just like we're a people business for our employees, we're people for who we fund. And I think that's been a big core of what we've done.

So, packaging that process into a way that we can fund as quickly as possible, it's still not as fast as I want it to be, and I feel like that's always going to be something. But yeah, we've come leaps and bounds from where we were. And then I guess the big things for making sure that we can work with FNB. So from a cybersecurity and a protection of information perspective, we had to really make sure that we were up to not just our own standards, but really first-class standards. So going through penetration tests, making sure we've got all the disaster recovery plans in place, compliance framework, all of those different things.

And then some SLAs with how quickly we respond to FNB's clients, because the last thing they want to do is refer a client to us. So, the referral arrangement really is that if you're a client of FNB's, you reach out to your banker, you say you need funding, and it fits our model, they're going to refer you to Sourcefin. But firstly, from a privacy and POPI perspective, they need to become our client. So, there's a little bit of paperwork that the banker does. Today, that's moving from really manual to automated, and hopefully in the next phase, fully on-app. And the next phase is how quickly we can get in touch, we can meet you, we can see if we can find you a deal. If we can do it, we let you know quickly. If we can't, we should also let you know quickly. So, those are things that we had to have in place. They're not just promises on paper, they're actually things that FNB will hold us to. So, we had to build that capacity too. And I think we're doing a good job so far. We could always be quicker and faster, and that's things that we are building. But for now, I think we're doing a good job.

How the FNB referral process works

Jedd Harris: You mentioned we're held accountable for those things that we've made commitments to, not just promises, verbal agreements. Every month, 7th of the month, we're sending a report through tracking how fast we are on those SLAs. And you're right, 100%, we strive to be faster. And we're doing so through a range of things: people, systems, processes. How can we get Sourcefin faster? Because time is money ultimately for the SME. A lot of the times they get to us and they're running out of time because they've tried some of the other avenues. And I suppose that's where I think, let's take the conversation to the SME on the ground listening. They've heard, great, FNB, Sourcefin coming together, some would say, of two giants in the funding space, one within alternative funding, one within traditional funding. What does this mean specifically for an SME on the ground?

Joshua Kadish: Specifically, if I'm an SME, and I've got a purchase order, or an order that I need funding for, how does this FNB relationship – so, firstly, if you're not an FNB transactional bank client, your first thing that you can take away is knowing that you're working with somebody that's gone through these three and a half years of DD. So, the due diligence to get there, to impress the likes of an FNB, for them to actually trust us to refer their clientele. If you don't bank with them, you can take a lot of comfort from knowing that we've gone through that process. […] And when you work with a funder, you really have to trust them.

And we don't take that for granted. It's an audition for the client to us, but it's also an audition for ourselves to the client. When they work with Sourcefin, they put a lot of trust in our hands to help them execute, to make sure we have the funds to actually deliver on what we promised. If we recommend a supplier that they maybe don't have or they need, and we give it to them, they must know that we're behind that. So, I think firstly, for SMMEs in South Africa, it's a little bit of a tick in our box to say we've gone through this due diligence. A lot of funders don't. So, we've done it. […]

And I can tell you, there've been some sketchy ones where things have gone wrong mid-deal, we've lost money, but we still delivered. I can remember we did a deal where we literally built desks ourselves. The contractor had disappeared, and the end buyer was waiting for their desks to be built and delivered. There were kids that were going to need these desks. We took a view that we had to finish what we started, even though it wasn't our contract. We saw the end of it, because we didn't want our name attached to something like that. So, I think you can take a lot of comfort and confidence about the Sourcefin brand, although young, being recognised, going through, you listed some of those achievements. And once again, you don't win awards. And for me, it's not about actually the recognition of the award itself.

It's the process of those entities that award those prizes for you. They actually check and they speak to your clients and they get testimonials. So, it's not just something that we're going to say on our website. We're not going to just say we're the biggest for the sake of it. We've actually funded over R3 billion. We've actually assisted over 2,000 different SMEs. We've made sure every single deal gets done. So, yeah, I think for SMEs, you've got a potential avenue in Sourcefin, something different to a traditional bank. And hopefully, whichever bank you're currently with, we don't do transactional banking. But if you fit the model of what we fund, we'd like you to come through.

Jedd Harris: Amazing. Yeah. FNB specifically, the process. If you're an FNB Bank client, obviously, you know about Sourcefin and more information, sourcefin.co.za/fnb. But let's assume you've got the purchase order, you've got a great relationship banker at an FNB branch. Talk me through the process that an SME in that situation should follow.

Joshua Kadish: So, reach out directly. So, you either have a relationship banker, business banker, what you would do is reach out directly. I think, explain what the funding you're looking for. So, a lot of the bankers have been educated on what we do. They can just cross-check to make sure. But even if you're not sure, like you mentioned, check the link on our website, have a look. And then go through them. So, what they do is they handle the referral process, whether it be completion of forms on their behalf or your behalf. Let them guide you through that full process. They'll get you to us. And as soon as you've gone through that, and you've got that first phone call from one of our people, you're in our hands, we'll run you through the process. But I think first point of contact is your banker. So, reach out, make sure that your funding matches, let them guide you through the journey of what that looks like to get to Sourcefin. And they'll put that through. And as soon as it lands on our desk, we'll reach out, we'll make contact, and then from there on, we'll direct you.

Bridging the delivery gap

Jedd Harris: Now, there's a lot being said about the funding gap. We hear it often. It's a number you and I could quote it backwards, R300 billion to R350 billion funding gap. That's the difference between the demand and supply funding, apparently across South Africa, which is huge. This, though, is less about the funding gap and more about the delivery gap. I've heard you speak a lot about delivery gap. That's what we feel this referral agreement is all about. It's about bridging opportunity and delivery. Tell us a little bit more about what is that delivery gap in your own words? How do you interpret it? And an SME that's finding themselves in a delivery gap, what are they typically going through?

Joshua Kadish: So, when I think of delivery gap, it's bigger than just funding. So, funding for me is just money, an EFT will solve the problem. Delivery gap is much more. It does contemplate a whole bunch of different things. One of them is funding, but I guess it's bigger than that. It's all the different components needed to execute on an order, deliver on an order. So, when we think of it from our perspective, like a purchase order financing deal, you've got the order itself, but that's the start. So, you bid for it, you've got your RFQ, you found a supplier, you passed it, but now your inbox is there with a proper order, binding, stamped, signed, with a delivery date.

For me, solving that problem are all the steps to get from there until you're repaid. So, what do you need to do that if we talk practically? First and foremost, I think, and why we call it Sourcefin, is your sourcing of the product. Very often, you need to source, whether it's a third party, whether it's a contractor, whether it's a subcontractor, however you do it, you need to source a reliable supplier to help you. The other thing that you need to do is get all your logistics right, your project management right. There might be legals you might be required. From an accounting perspective, you might need your taxes to be in order. There might be SARS filings. There may be CSD if you're with the government and their Central Supplier Database, or the equivalent in private sector.

So, for me, funding alone isn't going to solve all of that. The delivery gap I talk of is a basket of all of those skill sets. And that's what we've tried to do at Sourcefin from day one, is build that around the client. So, in the beginning, we thought it was just a finance problem or funding problem. But as soon as we sat across the table from the client and said, cool, if we give you the money, you're good to go, right? And they said, no, not at all. We need you to help on the supply side. Great. We need you to help with deliveries. We've got a deal now where literally all nine provinces are taking stock of what we need. A client is a one or two person company. They're amazing at what they do, but this order's a lot bigger than what they've had before.

So, how do you go and deliver to nine provinces, have someone on the ground at every single order, make sure that it runs smoothly. We've seen what happens with different things you can't plan for, whether it's strikes, whether it's weather, whether it's shutdowns, lockdowns, we've been through it. We've lived through COVID. We ran the company through COVID, we actually invented and created during that time. So, we're quite resilient. So, we know what needs to happen. We do imports. It's not even as simple as just local, we actually help clients with imports as well. And as soon as there's importation, you need permits, you need currency fluctuation insurance. There's a whole bunch of things. And the good thing is, because we've seen so many deals, we've almost become experts on what could go wrong.

So if we sit you through our process, although it might seem like there are a lot of things and a lot of questions we'll give you to think of, we're literally trying to make your business bulletproof from all these problems. And that's why we've got this 100% track record, because we know that at the end of the day, you've got to deliver. Service delivery is so important. You've got to make sure you deliver. If we just give you a deposit in your account and give you a repayment date, we're not really solving the underlying problem in this sector of the market. This isn't a cash problem. Funding is one element, and it's not even just having cash. It's not even just having revenue for a company. It's actually structuring a type of funding that works around the opportunity.

So, just to go into that, we like structuring on a profit share basis. The reason we do that is, we know that there's not always certainty. The uncertainty is what really creates the problem. But there's not always certainty with your repayment date, with your profits, with everything like that. What we do is try come in and make it more concrete. We try and, even like I mentioned, with currency fluctuation, there could be fluctuations with diesel, for example, we've seen recently, very topical, there can be a 10% plus swing from a Wednesday to a Wednesday. We'll think of that, we'll try team up with you, we'll give you the funds to maybe front-load and buy some stock on day one, we'll help you negotiate. So, when we structure our finance model, we go on a profit share basis. We try and align our repayment date with your repayment date with your client, because we know you can't make cash appear out of thin air. You need it from your contract. So, that's part of the delivery gap. Could chat about it for a lot longer, but those are all the different elements we look at to try and bridge.

The shift in SME funding

Jedd Harris: Yeah, I mean, so well put, Joshua Kadish. And I'm sure viewers have spotted the table full of chilli, weirdly enough. We eventually entered into a relationship with the manufacturers of this chilli. But I think to make practical what you've just spoken about, Joshua Kadish, there's a name on this chilli called Chuck Chilli. And I suppose to define the delivery gap in their terms, they are – I mean, it's the fairytale story of chilli being manufactured in a garage. They were a hit wherever they went. They got a life-changing order from Food Lover's Market, they managed to pull it together through bootstrapping. But eventually, they got a R35,000 order from Pick n Pay.

And as any good business does, they built a relationship with FNB. They went to their business banker at FNB, and they said, listen, guys, we have an R80,000 overdraft facility, we need R850,000 on that overdraft. And FNB – as much as they wanted to help, they said, guys, debit orders are bouncing. Sometimes you're not able to service your overdraft facility, you're maxing it out every month. And your margins are unstable, unsteady, then try Sourcefin. And I think that's what this referral arrangement is all about. It's about sending a business, an eligible business that's got an unbelievable opportunity to a specialist funder. And that's all I heard when you were speaking, Joshua Kadish, is fit-for-purpose specialist funding.

You can go to a traditional lender, you can increase your overdraft facility. But the reality is, every month on the 30th, whether the government department has paid you or not, they're going to expect you to settle whatever that bare minimum amount is in that month. They're not going to help you pack trucks, they're not going to help you source supplies. And I think that's what working with an alternative funder, specialist funder like Sourcefin, gets you when it comes to bridging that delivery gap. It's that delivery and that sourcing expertise that hopefully unlocks the opportunity for the business. So, Joshua Kadish, bringing it back to SME funding at large, there's a lot been said about SMEs. They're the backbone of the economy. Again, some stats: 35% to 40% of GDP, they employ most of the population. What does a relationship, an announcement like this, a big bank and an alternative funder coming together to solve for SMEs. What does it state or say to SMEs out in the market about access to funding and access to opportunity?

Joshua Kadish: I think it's a massive statement from, firstly, the traditional funding and bank systems are often under a lot of pressure because there's a feeling or sentiment that they're not helping those on the ground, they're not helping the true SMEs. But the reality is they're highly regulated. The people have to understand the banking world is not a simple one in South Africa. The positive is, it's why our banks are so resilient. So, in other jurisdictions and countries way bigger than South Africa, you see massive banks going under. But South African traditional banks have really held firm through COVID, through financial crisis in 2008, even more recently.

The reason is there's a lot of regulation around them, which is great, because it keeps them there, but also for the people on the ground, it makes them feel like they're disconnected. They feel like from a transactional perspective, they're looked after, but not necessarily from a funding one. And I think what this collaboration between Sourcefin and FNB signifies, it's a 1 1 3. It's a saying I have, which is, when you take two different counterparts, you put them together, the result is more than just the two together. It services a wider audience. And for me, that's where it really comes in is, it's a bank looking at an alternative funder like Sourcefin. And maybe 10 years ago, 20 years ago, this type of thing would've never been realistic. [...]

But there's been a shift. There's been a shift in the narrative. There's been a shift in, I'd say, internationally, how the more traditional collaborators have seen your disruptive fintechs like Sourcefin. And what it means is you're getting a greater reach. So, for an SME on the ground, by this type of collaboration coming together, we're looking at a bigger reach of clientele. At the moment, Sourcefin doesn't have the infrastructure to reach out and get the distribution that FNB does. They're absolutely massive in that sector. We aren't. But what we can do is we can reach more people through this referral agreement. And for FNB, it helps them understand that their clients have an avenue to go to.

I think as a bank, they want to help as many of their clientele as they can. I think for them, it's probably frustrating because they are regulated. They do have archaic systems that they have to look after, more legacy controls. And it's what keeps them up to date every single year. But we've got more of an open-minded differential type of view. So, I think for the SME on the ground, it's something that's exciting. It probably is long awaited. But I think it signals a shift in the South African market where you're seeing more of these different collaborations, payment gateways, a whole bunch of different things. You've seen crypto collaborations. So, I think it's exciting. I think it means that there's an acknowledgement that there's a big gap that needs to be bridged. And instead of competition, there's more of a collaboration type of approach.

The future of Sourcefin and SME opportunities

Jedd Harris: And I suppose SMEs are seen as an engine of economic growth. I think you've got your public-private collaborations that are also starting to gather some steam. And then it's nice to see within the lending space, traditional funders, alternative funders coming together. We like to call it open-minded funding meets trusted banking. And I think you've done such a lovely job bringing that together in describing how we're never going to have that distribution network like a bank like FNB has built over the last couple of decades. We're five years in. So, leveraging that trusted banking infrastructure, you and I both know an SME looks to their banker as almost a point of advice.

They've built a relationship, they've built trust. And if that trusted advisor is saying, try Sourcefin, they're likely going to try Sourcefin. And hopefully we can earn that trust, maintain the trust, and build onto that trust and a relationship with them. Where to from here? Where to from here specifically for Sourcefin? Where do you see Sourcefin going with FNB, but also just as an entity? What does the future hold in the next year, three years, five years? Whatever you can share, Joshua Kadish. And where to from here for SMEs?

Joshua Kadish: I think in terms of where we started versus now, I think we've added a few additional financial services to our book. I think we've been very deliberate in terms of depth. We want to really do our best to perfect our funding model, as opposed to go out and try and fund you no matter what you have. We know we specialise in certain areas. We're not specialists in vehicle finance or property finance. That's not our game. But what we have started noticing is that they're complementary products in terms of the skill sets we have. So, we've already started with additional core offerings that we've added. We started as being known as purchase order funders, predominantly just government.

We then started branching out, we looked at the private sector, we added invoice funding to our resume. And now import finance, trade finance, which we're really proud of, I think we can make a big difference there. It's also about taking skills of what we have, but also matching it with what we're seeing on the ground in terms of the need. So, we're getting massive amounts of applications. And although we can never service all of them, we're trying to look at what would fit into what we can do. So, we're doing that carefully. I'm happy with where we've grown. The moment we're still confined to the South African context, I think we can definitely look to grow throughout the continent as we get bigger.

But we also don't want to branch out too quickly. A lot of businesses do that. They open too many branches, too many locations. We've still got a head office in Joburg. We're looking at additional offices in two or three other provinces. But we also want to do it the right way. We want the client to feel that when they're meeting with somebody in the team, they've met somebody with experience to look after their business. And I think in terms of the referral agreement, this will go a long way to being able to do that. So, with the distribution of FNB behind us, it gives us more SMEs, more business people, more South African entrepreneurs that we can look at, listen to, try and build products for.

So, I think it's a great start for us. I think we've got a great platform in what we have. We've been able to deploy over R3 billion in a very short space of time. But this can really hopefully springboard that into something bigger. So, we've got the right collaborators around us, we've got the right people, and I'm excited for where it goes. I think there's a lot of exciting opportunities, some of which I've shared, some of which I can't yet share, but I think will be seen in the next coming months. But really exciting to be part of Sourcefin, part of this project, part of the collaboration. And I think from an FNB side, there's still so much that we want to do. I think this is really the beginning. And I'm hoping we can really, with tech, get to as many people as we want.

Jedd Harris: Honestly inspiring, Joshua Kadish. Inspiring your journey at Sourcefin, inspiring just the Sourcefin journey. […] It's impact funding that we're really passionate about. It's service delivery. It's housing for communities that didn't have housing before. It's a new road for a community that didn't have a road. […] I think to close off, final message to SMEs, perhaps an SME with the type of funding that Sourcefin can support them with, or an SMME that perhaps isn't there yet, they've got an idea, or they think there's an opportunity they can go for. What is some advice from you to them? You were an entrepreneur once upon a time, and you've built something unbelievably successful. What's some advice for an SME that's looking to do the same?

Joshua Kadish: I guess I'm hoping that through learning what we do, it gives you courage to go out and look for as many opportunities as you can. I know a lot of our clientele in the early stages we would chat to would bid for one deal at a time, government or private. And when I spoke to them about why they were doing it, they were delivering really well. I remember it was water tankers, they were installing water tankers, bringing water to different communities. And I said, you're doing so well, why are you taking one contract at a time? And their biggest reason was just capital. They didn't want to let the end user down. They felt that if they went out and bid for three or four, their risk was actually winning all four.

Because they didn't know what they would do if that would happen. And what started happening was we gained the trust to say, we'll help you, we're here to team up with you. So, it's your deal, you make the decisions, you know exactly what you're doing. But you've got us as your backroom office. And the client would come in almost every day, meet with our team, even our banker would pull statements for him, help him. And I think the idea I'd have is, be courageous, go out and try and bid for the work. Everybody in South Africa has this dream about building something and building an opportunity for themselves and for their families. We all want to do that.

And if this type of funding exists, and you didn't know about it before, I'm hoping the messaging is Sourcefin is here. If you want to learn more about us, read a bit about us, see if your opportunity would fall into that. If you want to call one of our agents and just bounce the idea off, go for it. But I think be courageous, go for it. And with a very small team complement, I had zero experience in the business world. But I knew that we were solving a real problem. And I knew that if we had the grit and really worked hard on it, we would get to where we're going to be. And for me, that was something like working with an FNB.

And I think lots of entrepreneurs don't necessarily have the opportunity on day one. And one of the biggest factors for not going to the next level is really funding. And I'm hoping that hearing this, you can learn not just on the funding side, but all the extra areas of expertise we can help on. Whatever it is that you need, you can reach out to Sourcefin. And if not Sourcefin, other like-minded funders. But I think we've got a lot to offer for the market. I think we've been relatively unknown. Our type of funding also is one that wasn't commonplace in South Africa. So, I guess the message is, Sourcefin are here. Sourcefin are born to serve. We want to serve. We really mean that. So, reach out, give us a call, come walk in, come and meet one of our team, and bid for those different orders, those tenders, those opportunities, government, private, whatever it is, even if you're an importer. Let us look if we can help you. And as soon as you've won that order, we're the collaborator you should think of.

Jedd Harris: Amazing. Joshua Kadish, thanks so much for spending the time.

Joshua Kadish: Thank you.

Jedd Harris: It's been great learning or hearing you speak about the FNB relationship. And hopefully it does exactly what we hope it to do, enable more SMEs.

Joshua Kadish: Absolutely. Thank you.