The Economic Association of Namibia has welcomed the launch of the Development Bank of Namibia’s (DBN) second recovery scheme.
DBN stated on Monday that it would be taking part in the Bank of Namibia’s (BoN) SME Economic Recovery Loans programme.
According to DBN, participation increases the number of schemes offered by DBN from one to two, with the KfW Bankengruppe scheme serving as the bank’s first scheme.
“It is a good initiative and it is much needed,” said the association’s Vice-chairperson Jesaya Hano-Oshike.
The question, according to Hano-Oshike, would then be whether or not that kind of instrument is appropriate for the nation’s SMEs.
He argued that it is advantageous for existing SMEs, particularly those that required loan restructuring, and added that the financing for SMEs must be appropriately structured.
“I think that is a good development but in general I think when we look at supporting SMEs with financing, there needs to be a proper structure for the financing to assist especially those that are starting out, who might not have collateral or need a bit of patience before they start paying cash,” Hano-Oshike explained.
The SME Economic Recovery Loan Scheme was reinstituted on 2 February 2023 by BoN and the Ministry of Finance and Public Enterprises with a share capital of N$500 million.
The first programme was introduced in November 2020.
The newly announced SME Economic Recovery Loan Scheme is an update to the previous loan programme and is intended to give small and medium-sized firms access to government-guaranteed loans to aid in a variety of ways, including helping those businesses recover from the effects of Covid-19 pandemic.
Hano-Oshike continued by saying that in order to ensure that they lend to rich SMEs, DBN must take specific mitigating measures as a bank.
“Unfortunately, if you are not able to write a business plan which is convincing enough, or you don’t have certain documentation then unfortunately you won’t be able to access that loan. All those hindered the uptake to a certain extent.”
When asked about whether the repayment period is sufficient, Hano-Oshike said it depends as every business is different.
“For some it will be enough while others it won’t be. It depends on business to business, especially if they need time to set up and earn revenue to be able to start paying up, money might not be recovered,” he said.
In a statement on Monday, DBN Head of Marketing and Corporate Communication, Jerome Mutumba said the scheme has a longer term of seven years and a floating interest rate of prime -0.5%.
According to Mutumba, the KfW programme has a short lifespan. Repayment must be completed by 31 October 2025 and it has a fixed interest rate of 5.925% with the first 12 months being interest-free.
When discussing the conditions of the programmes, Mutumba advises firms that are eligible to participate to be explicit about how long they will need to return the loan.
“In the event of loans not being repaid in the periods specified in terms of the respective schemes, loans will be restructured to adhere to DBN’s terms of lending.”
Regarding eligibility for the schemes, Mutumba emphasised that the bank’s decision to finance applicants rested entirely within its discretion and was subject to the criteria and guidelines outlined in the funding application form, which was made available at the bank’s branches or online.
He continued by stating that only current DBN borrowers will be eligible for the BoN plan and that each applicant for the programme should communicate with their specific portfolio manager. He said, however, that new borrowers with a track record in the company are eligible for the KfW Scheme.
He advised businesses to consider if they really needed the assistance programmes. He claimed that because the schemes impose new financial obligations on borrowers, it is crucial for each borrower to evaluate the advantages and benefits of participating. It is crucial that businesses can utilise the programmes to recover and expand.
To support both SMEs and larger businesses, Mutumba concluded, the implemented with a demonstrable development benefit.
“Beneficiaries of the loans must make sure they advance their objectives and extend their sustainability over the medium to long term in order for these schemes to be implemented successfully.”