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The DBN, Project Loans and the Question of Interest

Sisa Namandje

An English judge once stated that public bodies and individuals are both subject to the rule of law but that their relationship with the law is different.

He also stated that private individuals may do anything they choose, which the law does not prohibit.

But for public bodies the rule is different: Any action a public body takes must be justified or sourced in law.

With this in mind, the legality of interest charged by the Development Bank of Namibia (DBN) on funds it allocates to projects is considered.

The Namibian Constitution authorises the executive to establish economic organisations on behalf of the state, as authorised by law.

In accordance with these provisions, the Development Bank of Namibia Act (2002) was passed by parliament.

THE NUTS AND BOLTS

Section 2 of the DBN Act establishes the bank, while section 4 states that certain laws (including the Banking Institutions Act, with a few exceptions) would not apply to DBN.

Section 5 states that the bank’s object is to contribute to Namibia’s economic growth and social development, and for the sustainable promotion of the welfare of the Namibian people by, among others, mobilising financial and other resources from the private and public sectors.

Section 6 sets out that DBN has the power to appraise, approve or mobilise wholesale funding for and promote implementation of development schemes, export projects and other economic programmes of national importance.

Section 8 creates a Special Development Fund to promote and support development projects and schemes, including small-scale projects, private ventures or other activities, as may be determined in terms of the DBN rules approved by the finance minister.

Section 8 also states that “the allocation” of money to and utilisation of money from this fund, and the nature of projects and schemes “to be funded”, should be dealt with in terms of the rules made by the banks with the approval of the minister of finance.

KEY QUESTIONS

There have been persistent complaints – especially from formerly economically disadvantaged people, including the youth – over the fact that DBN, as if it is a private commercial bank, charges high interest on funds allocated to projects.

The question is: Given the statutory object and power of DBN, does it have the power to commercially raise funds through interest charged on money it allocates to projects meeting its objectives?

This can be easily answered by, for example, looking at the legislation establishing a state agricultural bank – the Agricultural Bank of Namibia Act (2003).  

There are, however, key differences between the Agribank Act and the DBN Act.

One is the fact that, in terms of section 18 of the Agribank Act, Agribank, unlike the DBN, is legally entitled to raise funds – among others, through interest it receives by means or in respect of the repayment of loans advanced in terms of the Agribank Act.

Such provisions on charging interest on funds are conspicuously missing in the DBN Act.

This basically means that DBN, which was established by an act of parliament to contribute to Namibia’s economic growth and social development – with the aim of furthering the sustainable promotion of the welfare of Namibians – has no statutory power to charge interest on funds it allocates to projects.

POWERS

Furthermore, neither the words “lend” nor “loan” are used in the DBN Act, as is the case with the Agribank Act.

On the contrary, Agribank is entitled, as part of its statutory power and an agent of the state in terms of section 6(2), to “advance” loans to people engaged in agriculture or activities related to agriculture, and charge interest thereon. 

Entering into loan contracts (of course with associated interest charged) is not one of the DBN’s statutory powers.

Rather, DBN has the power to appraise, approve or mobilise wholesale funding for and to monitor the implementation of development schemes, export projects and other economic programmes of national importance.

It does this by making an “allocation” from a Special Development Fund established under the act. 

THE DEBATE

Hence, I ask the question (for debate on another day): Is the DBN legally authorised when allocating funds from its Special Development Fund to raise money, on a commercial basis, by charging interest in circumstances where it is an agent of the state to promote socio-economic development and the welfare of the Namibian people?

Is it not that while such allocated funds could perhaps (even this is not clear) be repayable, it has no statutory right – given its objective – to charge interest?

Had it been given the right to charge interest on a commercial basis, parliament would have made that clear, as it did in the Agribank Act.

This fundamental question must be considered so that DBN truly becomes an agent of the state in contributing to economic growth and social development with the aim of achieving sustainable promotion of the welfare of the people of Namibia.

  • – Sisa Namandje is a legal practitioner of both the High Court and Supreme Court of Namibia. He has authored six law books.

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