SMEs may lose out if DBN contracts not re-newed

WITH agreements signed between the Development Bank of Namibia (DBN) and two commercial banks – to finance Small and Medium Enterprises (SMEs) – set to end in a few weeks, small business owners may lose one of their most accessible sources of finance.

The agreements, signed with FNB Namibia and Bank Windhoek in July 2008, were part of an initiative to boost the generally underfunded SME industry by providing low-interest loans to entrepreneurs and businesses otherwise unable to access finance.In terms of the agreements, the DBN made available N$50 million to each of the commercial banks to be used to finance SMEs. The contract stipulated that 85 per cent of all loans be made to previously disadvantaged Namibians, with 20 per cent earmarked for previously disadvantaged women, and that loans must be provided across all 13 of the country’s regions.According to the agreements, loans must be made at the Bank of Namibia’s repo rate, the rate at which it lends money to the commercial banks, ‘provided the banks are able to maintain a reasonable margin on the funding extended by the DBN.’A representative from both Bank Windhoek and FNB Namibia confirmed this, but added that their minimum lending rate is 8.5 per cent.The repo rate currently stands at 7 per cent.The DBN reported earlier this year that almost 70 per cent of their non-performing loans were directly linked to the floods that severely damaged the SME sector in the north and northeast regions earlier this year. Joy Sasman, Corporate Communications Manager of the DBN, confirmed last week that the figure had gone up.’The non-performing loans had increased as at the end of June, which is an indication that clients have not yet completed contracts delayed by the floods earlier this year.’She added that monthly statistics did not necessarily constitute bad debts or write-offs as they constantly change as clients complete contracts and repay their loans.’The best indicator of non-performing loans is the audited financial statements at the end of the year,’ she said, explaining that they would give a complete picture of the loan book’s performance.The DBN has a very optimistic attitude concerning the viability of the non-performing loans, despite the recession, and expects that most of the non-performing clients will resume repayments in about two months.’Our experience shows that companies with international trade links are most affected by the recession,’ Sasman said. ‘Most of the (Development) Bank’s loans that are in arrears can be attributed to the floods and other factors, and not to the recession.’Overall, with a 95 per cent repayment rate, the DBN considers most of the clients who received financing through the partnership to be successes, she said.The decision to renew the agreements between the DBN and the commercial banks will be based on the partnership review, which is currently underway.