The Development Bank of Namibia (DBN) Senior Manager: Corporate Communication, Jerome Mutumba, describes the Bank as a model for corporate social enterprise in the financial sector. The Bank he says, transcends stereotypes of financial enterprises, by reapplying profits in the interests of financial service delivery, while delivering growth.
The key distinction, Mutumba says, is that DBN has a core focus on long-term growth of its balance sheet, whereas private sector providers of finance are often constrained by shareholder requirements for short-term returns. He illustrates this point by saying that the Bank’s apportionment of its earnings consists primarily of reapplication of funds to additional lending for infrastructure and enterprises. The Bank also allocates returns to prudent financial reserves, and redemption of its bond.
The application of funds for lending has a multiplier effect on the DBN’s capacity to lend. This can be seen from the Bank’s approvals growth from N$110.7 million reported in 2005, to N$4.42 billion in 2017. The Bank’s balance sheet stood at approximately N$7.82 billion in 2017. Mutumba says that this should not just be seen as financial growth but also a multiplier of the number of projects, scope and size, in the fields of both enterprises and infrastructure.
Taken in total, Mutumba says, the track record of growth and the exercise of social purpose show that social enterprise can flourish in the financial sector. The benefit of this approach is seen in investor confidence, proven by subscribers to the Bank’s bond. Mutumba adds that not only does the bond add to the range of investment mechanisms within Namibia, but it also gives investors an opportunity to harvest returns from social enterprise.
Mutumba highlights several additional valuable applications of the Bank’s earnings. DBN, he says, sets allocates a portion of its earnings for various applications that can be seen as further investment in Namibia. This portion, he says, is set aside with the agreement of the Bank’s shareholder, the Minister of Finance.
The first portion is allocated to DBN’s Project Preparation Fund (PPF). This Fund is applied to projects that have potentially significant development impact, but do not yet meet the Bank’s requirements. Financial resources from the PPF are allocated to further analyse areas of the application to identify risks, and recommend mitigation measures. Through this mechanism, DBN is able to finance projects which might previously posed a threat to its sustainability.
The second portion is allocated to corporate social investment. Mutumba says that the Bank’s core business is to preserve its sustainability and grow through lending, however it took a decision to provide donor finance to projects which would not ordinarily qualify for finance through corporate social investment. Projects financed under this allocation are selected to alleviate poverty, develop education, develop skills, steward the environment, improve community health, and improve the business environment.
A third portion is allocated to the Innovation Award. This initiative provides a solution to Namibia’s need for innovation by identifying the most innovative enterprise entered for consideration by the public, and rewarding the winner with a combination of grant finance and loan finance. Capital provided by the Innovation Award is seen as seed finance.
Finally, DBN also hosts the Good Business Awards. These awards are used to highlight a combination of good business administration and development impact to the public, as a stimulus to administer enterprises well, and / or to apply for DBN finance.
Mutumba concludes by saying that the Bank is a case study, not only for social enterprise in the financial sector, but also for the means in which finance providers can allocate CSI and outreach budgets to secure their operations, and improve their operating environments.
Development Bank of Namibia (DBN) CEO Martin Inkumbi has announced that the Bank has opened its SME Centre in Windhoek, and that the financing function has been extended to its regional offices in Walvis Bay and Ongwediva. The SME Centre, he says, will bridge the gap in financing left by the closure of SME Bank.
Explaining the gap, Inkumbi says that while there is a financing ecosystem for SMEs in the commercial banking sector, there is a national imperative to finance SMEs that have lower levels of collateral availability, but still present a high degree of potential in terms of sustainability of the enterprise in spite of perceived risk. Perceptions of risk, he says, might emanate from lower collateral availability, but also from establishment in centres with lower population figures, rural areas, and in regions with lower economic activities.
Talking about DBN’s SME financing process, Inkumbi states that DBN’s operation bears no relation to SME Bank. Contrary to speculation, the Bank has no intention to operate in the retail banking field, and views itself as a pure development finance institution (DFI).
He continues to say that the Bank has a long track record of governance and due diligence in the field of SME finance, stretching back to shortly after the Bank’s inception, and this is now vested in the DBN SME Centre, to provide DBN with greater control in the form of a siloed operation, which due to its nature and relative risk, has intensive diligence requirements. Previously the Bank processed finance for infrastructure and larger enterprises alongside SMEs.
Talking about the day-to-day operation of the SME Centre, Inkumbi says that although the output can superficially be seen as finance for SMEs, the operation will be underpinned by several layers of support, particularly in the pre- application phase.
In the pre-application phase, the Bank particularly seeks to draw attention to the process of business planning. Without a realistic and achievable business plan, Inkumbi stresses, the applicant places herself / himself in a position of financial risk when borrowing. To this end, the Bank has developed a business plan content guide which will be freely available to potential borrowers. The Bank’s support will also extend to advising on completion of applications, and documents and certification required for the application. We want our borrowers to have the best possible prospect of success, Inkumbi adds.
Inkumbi says that a failed SME is a lost opportunity cost to the Bank, as that capital might have been directed to a different SME which might have flourished. This, he continues, is a matter of the need to preserve the Bank’s sustainability.
Once the complete application, business plan and set of documentation is received, the due diligence can proceed, after which the Bank will give a response to the application. Once the loan agreement has been concluded, Inkumbi says, the Bank will engage in rigorous monitoring to identify borrowers who run into difficulty, and provide corrective support if justified.
In closing, Inkumbi urges applicants to give their best during the planning and application phase. He says, DBN is a Bank that seeks excellence. When borrowers succeed in their enterprise endeavours, the Bank has succeeded in its endeavour to assist them, and to develop the nation.