In the wake of recent reports of lapses in repayment of debt on small and medium enterprise loans issued with the purpose of enhancing Namibia’s development, economic activity and prosperity, DBN Senior Communication Manager Jerome Mutumba has clari?ed important aspects of mutual responsibility for lending and borrowing, which must be factored into the concept of development ?nance.
Mutumba says that there is a distinction between ?nance for development and commercial ?nance. Finance for development will typically be allocated with the goal of supporting and enhancing economic activity, while commercial ?nance will have the goal of achieving returns for the lender, without the narrower requirement of producing development. Both, however, will have the prerequisite of returns to capital, in order to sustain their operations.
In the event of loans which are not repaid, both development and commercial ?nance will fail. In making the choice between sources of commercial or development ?nance, the borrower will envisage the same outcome, regardless of the source of ?nance: a viable enterprise that will be a source of personal growth and income. The choice of the lender, on the other hand, may in?uence the terms of the loan in favour of the borrower.
A development ?nance institution (DFI) may, for instance, accept a greater degree of risk, offer capacity development services to borrowers and, under exceptional circumstances, offer ?exibility on contracted terms of repayment.
In order to qualify for a DFI loan, the borrower has to recognise the goals of development ?nance, and ensure that she or he can ful?ll those requirements. The ?rst cut decision of development ?nance will be a clear indication that the borrower can satisfy the terms of the loan.
If not, the borrower will not be able to satisfy development goals, such as employment, development of capital, economic activity and other factors. As a lender, the DFI will have the additional consideration of its own sustainability.
It has the moral and economic obligation to preserve its own capital, as well as collect interest, which will be used to sustain and grow its operational capacity, by providing more loans to a greater number of borrowers. In this way, the agreement between the borrower and the DFI must be mutual, to produce the best possible outcome for both.
Mutumba points out that as the bene?ts of development ?nance are allocated from a common resource, such as the national coffers, with the broader goals of development bene?ts that extend beyond the owner and the DFI, the ?nance is at the heart of an ubuntu in which the bene?t extends beyond the two parties to the loan. Both entities have to be aware of the ubuntu.
Talking about the successful approach of the Development Bank of Namibia (DBN), Mutumba says the Bank not only ensures the integrity of its lending through governance, but also through cooperation with borrowers after the amount has been disbursed.
Governance surrounding the lending process is exercised through a stringent due diligence process prior to approval of loans, which includes factors such as quali?cations and skills, and a willingness to offer collateral, in addition to the standard elements of business planning and development impact.
Mutumba stresses that development ?nance is a privilege, and that not all applications can succeed, only those that deliver the greatest impact in terms of the Bank’s mandate. Although the Bank may receive many good applications it regretfully has to reject some in favour of those that are the best of the best.
Due to the quality of assessments of applications for ?nance, the diligence process will identify areas of risk. In these cases, DBN recommends mitigatory measures to applicants, or rejects the application. Where a project is judged to have remarkable development bene?ts, the Bank may choose at its own discretion to assist the applicant with development of the proposal through its Project Preparation Fund.
Post-lending, Mutumba says that the Bank maintains relationships with borrowers. In addition to monitoring of repayment, visits can be used to ascertain that the application of capital disbursed by the Bank is used for the purpose for which it is intended. When enterprises do experience dif?culties, this is generally rapidly identi?ed by the Bank, at which stage the Bank will approach the borrower to examine the source of the impairment and try to rectify the situation, rather than proceed to declare the amount a bad debt and recover it through a legal process.
The Bank, he says, does not have the intention to immediately recover its capital, rather to strengthen and improve the enterprise to preserve the development impact that was presented in the successful application.
Mutumba goes on to say that when the Bank has experienced a dif?culty with loans; it is often as a result of a lack of administrative skills and capacity. The Bank, he says, has taken steps to rectify this with the implementation of a client development function which provides capacity building in the form of mentorship and coaching, through a network of experts in various ?elds on business management.
Mutumba concludes that the Bank’s track record shows that the partnership between it and its borrowers is sound, and provides developmentally bene?cial results. However, he challenges stakeholders to use the Bank’s anti-fraud mechanism, if they believe there are irregularities in transactions.