The Development Bank of Namibia’s Communication Manager, Jerome Mutumba says loan approvals grew to N$840m in the 2013 financial year from N$110m in the 2005 financial year when the bank achieved full operating capacity.
Mutumba said since its inception 10 years ago, the Bank’s annual level of lending had grown consistently with a total of N$3 379b approved.
He added that these amounts translate into prosperity for recipients of loans, infrastructure, employment creation and retention, as well as improved social development, adding that if repayments are not made, the pace of development will be slow, and the pace of the enterprise and infrastructure will be slow.
Mutumba further noted that they have observed three primary causes of impairments and defaults, adding that the first primary impediment is unrealistic business planning.
He added that entrepreneurs are often overoptimistic in the early stages of planning, and may not be able to cope with the operational reality of the plans on which they base their applications for finance.
“This would lead to lower streams of revenue than initially expected, and would have an impact on the enterprise’s ability to keep up with repayment,” said Mutumba.
He added that the administration of enterprise also plays a critical role in the ability of the enterprise to repay. If administration is lax, additional costs may mount up, placing strain on the enterprise’s ability to service its loan repayments.
“Some entrepreneurs do not reinvest earnings, or they are quick to make drawings on profits, this also reduces the ability to repay loans in future. An enterprise must never be seen as an instant source of wealth for owners, but should instead reinvest revenue in operations and in growth. By taking the long-term view, owners would achieve financial stability and subsequent wealth,” said Mutumba.
According to Mutumba, one of the Bank’s dictums is ‘what is given gets given back’; saying the concept of the Bank is having a fair approach to lending that fosters the mandate of development.
He added that the bank also has to ensure that loans are repaid, as it uses the capital and interest that it recovers to make more loans for development of enterprise and infrastructure.
“The contract between DBN and clients is a contract to responsibly use national resources, as DBN was established from national resources. The contract allows clients to start up new enterprises or strengthen existing ones, and we expect our clients to prosper, but at the same time the Bank must prosper as well,” he said.
Mutumba also said that the management of loan terms, particularly the repayment of loans is critical for both DBN and its clients.
Importance of collateral
Mutumba said that despite the bank not basing its credit extension on collateral, the Bank requests a certain level of collateral in some instances as it serves two main purposes.
“It helps align borrower’s interest with that of the Bank, i.e. the borrower shares the risk with the Bank and it ensures the borrowers commitment to the success of the enterprise. Collateral serves as a secondary source of loan repayments in case of the worst case scenario of business failure,” he said.
Mutumba said that the bank perceives an entrepreneur who is collateral-resistant as one who lacks confidence in his or her own business.
However, Mutumba said that the Bank makes provision for reduced collateral for emerging entrepreneurs who have not yet been able to build up a portfolio of assets which can be pledged as collateral.
“The Bank’s acceptance of certain assets acquired with Bank finance serving as collateral.The recovery of capital through collateral was inevitable, if the enterprise defaulted on loan obligations, as the Bank’s duty bound to preserve its capital to apply to the projects of other borrowers,” he said.
He further noted that finance from DBN should be considered a privilege, not an entitlement. The decision to allocate finance is based on what is best for national development, although it envisages growing wealth on the part of the borrower.
“We firmly believe that good business is good for development and, as a part of this, what is given gets given back,” he said.