PART 2: The Credibility Gap
By: Baronice (Raschida) Hans CA(NAM),| Strategy and Financial Advisor | Former Bank Windhoek MD
So, here’s where it gets real. Institutions aren’t lacking funding because they don’t have good ideas.
They just haven’t contained uncertainty!
Equity can tolerate ambiguity. Debt? Not so much. Debt needs to see cash flows, repayment paths, and protection if things go wrong. If you walk into debt markets carrying equity-like risk, they don’t just “price it in,” they decline altogether.
Collateral might sound like a solution, but if the structure’s weak, collateral is just a band-aid.
In my experience:
- Quite a few institutions are not underfunded. They are under-structured or attempting to raise the wrong type of capital for the structure that they have.
- Investors are not rejecting opportunity. They are rejecting uncertainty.
- Equity investors can live with ambiguity.
- Debt providers cannot.
Debt demands three things, without compromise:
- Cash flow visibility,
- A defined path to repayment, and
- Credible downside protection.
So, what are these structures?
Structures provide mechanisms that transform ideas into fundable opportunities by establishing:
- A defined path to repayment, such as existing cash flows, an established client base, or strong offtake agreements,
- Proper allocation of risk and return,
- Demonstrated execution history or minimal performance risk.
When institutions approach debt markets carrying equity-type risk, the market does not misprice that risk; it simply does not accept it.
That is the credibility gap!
Collateral is often brought in as a solution, but collateral does not fix a weak structure. At best, it masks it. At worst, it delays the inevitable.
Capital withdraws from the imbalance.
Baronice (Raschida) Hans CA(NAM),| Strategy and Financial Advisor | Former Bank Windhoek MD
