DBN Finances sound for bigger project funding

By Honorine Kaze
November - December 2015
Prime Business

The Development Bank of Namibia (DBN)’s Chief Executive Officer (CEO) Martin Inkumbi has reiterated that the development finance institution is adequately capitalized to tackle big projects in the country without courting outside partnerships.

The new lending revisions instituted by the DBN are such that the financial institution will only be accepting applications for funding from larger enterprises with an annual turnover ranging from N$ 10m, and which demonstrate substantive development impacts such as employment-creation, strong management and operating under good governance.

This decision also means that the DBN will not be considering any applications from Micro, Small and Medium Enterprises (MSMEs) anymore.

In an interview with Prime Focus, Inkumbi noted that this decision, which took effect from 1 November 2015, was taken after full consideration of the state of MSMEs and other funding institutions’ prospects.

“The move is not a unilateral decision made by the bank alone. It has been carefully considered, and in consultation with the Bank’s shareholder represented by the Minister of Finance and also of the SME Bank. Furthermore, the decision was taken after a good scan of the SME lending environment, and we believe ample lending capacity has developed in the local market to finance MSMEs”, he noted.

He further emphasized that the DBN understands and appreciates the importance of SMEs (currently known as MSMES) in the economy.

“We are aware that SMEs provide employment, and are a source of income and livelihood for many Namibian citizens. It is because of that understanding and appreciation that the DBN has, for the past 10 years, financed and supported SMEs, and the DBN will continue promoting and supporting access for finance for SMEs in future, although not through direct lending to SMEs”, he added.

Inkumbi, nonetheless, gave the assurance that they will continue funding those SMEs already receiving funds under the DBN’s auspices until their loan terms end, and for those whose applications were received by the institution before the 1st of November. The remainder of SMEs’ applications will be directed to financial institutions such as the SME Bank.

“Public institutions, like the DBN, are created for a specific purpose, and are given specific mandates. I think it is prudent for public institutions not to duplicate efforts, but to focus and deliver on the specific mandates for which they were established.

It is also my view that an organization which preoccupies itself with delivering SME loans needs a different set-up in terms of human capacity, systems, branch networks and even credit processes and risk management as opposed to one which focuses on providing finance for infrastructure and large-scale business projects.

Between the two lending institutions with the same shareholder, we believe it is prudent to realign their roles and focus in the market, and not compete,” he explained. He stressed that SME lending is not restricted to the SME Bank only, as all commercial banks in Namibia do lend to SMEs, including other market players. Between 2005 and 2014, the DBN had approved N$1.509b in loans to SMEs.

SME Bank CEO Tawanda Mumvuma, who will have to fill the void created by the DBN’s latest manoeuvres, believes his institution is ready to service the growing number of SMEs.

“The SME Bank is indeed ready to service the SME sector. There will be no different measures to put in place, besides increasing the bank’s capacity to deal with the likely increase in numbers.

Besides the bank’s normal capitalization plans, the only new capitalization will probably be the Special Development Funds (SDF), which the DBN was receiving from the Government and will now have to be made available to the SME Bank, given the SDF’s intended purpose of promoting and supporting development projects, including SMEs”, he continued.

Since its inception, the SME Bank’s current portfolio (loans and advances) is at N$354m, inclusive of guarantees to SME businesses.

On a cumulative basis, the bank has approved an excess of N$500m. The Bank’s clientele (SMEs, corporates and individuals) is now over 10 000, of which SMEs are in the majority.

Talking about the challenges the bank still faces in lending to SMEs, Mumvuma talked of “poorly-prepared business plans; sometimes the lack of business plans; a lack of financial statements or records; a lack of the owner’s capital contribution, resulting in high and excessive borrowings; unsecured borrowings, exposing the bank to high risks in the event of defaults; and poor business management skills, which calls for the strict monitoring of loans, again exposing the bank to possible high rates of default.”

Talking about the growth of the bank’s branches, he stated that the bank is already in the process of implementing its branch roll-out plans and installing ATMs throughout the country.

By the end of 2015, the SME Bank will be having branches in Windhoek, Ongwediva, Rundu and Walvis Bay, which will be followed by more branches in other regions.

This comes just after the Ministry of Industrialization, Trade and SME Development reviewed the National Small to Medium Entreprises’ (SME) policy and program - which was adopted by the government in 1997 - to an updated National Policy on Micro, Small and Medium Enterprises (MSME) aligned with Vision 2030, the National Development Plans (NDPs) as well as the industrial policy and its recently-adopted implementation framework and strategy (Growth at Home).

For MSMEs, it proposes an updated definition, addresses challenges which arise, offers responses aligned to the new paradigms with respect to MSMES and its finances, and provides business advisory support services.

Therefore, the new policy defines MSMEs according to two criteria: the number of employees, and annual turnover. A micro-business is defined as having up to 10 employees, with an annual turnover of up to N$300 000; a small business has between 11-30 employees, with an annual turnover of up N$ 3 000 000; while a medium enterprise employs between 31 to 100 employees, with an annual turnover of up N$ 10 000 000.