SMEs' repayment rate plausible - banks
Small to Medium Scale Enterprises are still defaulting on their repayment obligations despite Government’s invigorated calls for banks to up funding.
This comes despite the notion that SMEs have the potential to drive the country’s economy and boost job creation in Namibia and at the back of the establishment of a Small to Medium Enterprise bank.
A survey by the The Villager shows contrasting repayment rates by SMEs with First National Bank of Namibia recording a reasonable repayment rate of 97% while Bank Windhoek acknowledges that SMEs are slightly on the wrong side of debt service recording an average 8%.
However, the Development Bank of Namibia said the most difficult thing when dealing with SMEs is the lack of adequate financial information concerning unavailability of comprehensive information on the intended project.
DBN Corporate Communication, Joy Sasman said; “SMEs face peculiar challenges mainly due to their size. While being small has some advantages, i.e. being more flexible to adapt to changes in the business environment and having little bureaucratic processes, being small also has disadvantages.
“One of these relate to the fact that because SMEs have small balance sheets, they have little financial resources to fall back on in times of need. The result can be an inability to offer collateral when needed to raise finance, or the inability to take on larger business opportunities.”
Sasman also added that most SMEs have failed to have convincing operations and business plans because of skills shortage and sometimes inability to follow business principles.
“Collateral is not a must. The first thing DBN considers is the financial viability of the business. Depending on the risk profile of the business case, DBN may require collateral.
“Whether the required collateral is 20% or 60% of the loan amount will depend on the risk profile of the business concept and also what the applicants have to offer. Collateral can take the form of bonds over properties, cessions of cash investments or even assets that are in the business itself,” she added.
Bank Windhoek Corporate Communications Manager, Riaan Van Rooyen whose organisation deals with SMEs said, “Obviously all defaulters of the SME Branch will be SMEs but the current default rate is lower than 8%.”
He added that Bank Windhoek has been financing small and medium enterprises through a dedicated SME branch since 2000 and that they now accept cession over investments, mortgage bonds, policies with a surrender value as collateral.
“The vision of this branch is to see an increasing number of SMEs grow into sustainable business. The majority of the loan portfolio of the SME branch are concentrated in six regions namely Khomas, Erongo, Omusati, Oshikoto, Oshana and Otjozondjupa regions.
“More than 80% of the SME loans are availed to previously disadvantaged Namibians, with a strong focus on support to female entrepreneurs. The successful partnerships between Bank Windhoek and the Erongo Development Foundation, as well as the National Youth Council’s Credit for Youth in Business scheme, enables small businesses to benefit from affordable finance and mentoring support,” said Van Rooyen.
Head of Small to Medium Scale Enterprises at First National Bank of Namibia, Ali Ipinge said FNB has been engaging with SMEs in Namibia at a pretty convincing level with strict collateral securities and conditions
”Most SMEs that are offered loans by FNB have to meet the required collateral requirements. We also expose SMEs through tough scrutiny and in most cases if they have a bad track record then it is difficult to trust them with our money,” said Ipinge.
Ipinge also revealed that the partnership between FNB and the French Development Agency has pumped in an N$100m.
He added that FNB is also working in conjunction with a French based consultancy firm to help entrepreneurs’ access loans in Namibia. The French partner provides 50% of loan requirement while the rest is shared between FNB and the client in question.
Ipinge also revealed that FNB-SME financing has about 800 people on their books and the bank has been looking for more avenues to increase the number in a bid to help entrepreneurs.
Responding to the challenges faced by SMEs on repayment, Director of SMEs Connect a small business consultancy and mentoring firm, Cladine Mouton said the biggest challenge faced by small business is procrastination.
“Although most SMEs know how to deal with their financial problems most continue to buy time hoping a certain problem will go away but that does not really help. SMEs should always value good business principles and these are constituted by good business management and discipline,” said Mouton.
Mouton added that the major driver of defaulting by SMEs is poor business planning.
SMEs Connect works directly with both FNB and DBN in mentoring and confidence building plans.
Mouton also said that sometimes dealing with SMEs can prove difficult if they do not implement recommendations given to them by the banks.
“Some SMEs are very good but others are very difficult to deal with, It is a situation where you take a horse to the river and you can never force it to drink the water. The other problem is that the some of the these people have to go under serious scrutiny because we have to differentiate between entrepreneurs and tenderprenuers because the former do it for business sustenance and long term earning while the later are only concerned with survival tactics,” said Mouton.
She added that “tenderprenuers cannot be classified as genuine SMEs because they do not work with comprehensive business plans”.