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Development Bank of Namibia (DBN) CEO Martin Inkumbi has reiterated the Bank’s support for the manufacturing sector. The Bank is currently engaged in a drive to stimulate the sector with finance, and is reaching out to existing manufacturers with expansion plans, and potential manufacturing start-ups.
Inkumbi states that more consumption of locally manufactured goods is required to grow the local manufacturing sector. He adds that charity starts at home, and that to stimulate the sector, both public and private procurement policies and practices should give preference to goods that are produced locally.
This has benefits such as local employment creation and also improving the country’s balance of payments. The cost of a cheaper imported products can be much higher to the Namibian economy than the market price of that product, when lost employment opportunities and drains on the balance of payments are taken into account, he explains. Local value chains must be grown by procuring and consuming locally produced goods wherever possible.
Inkumbi says that the Bank believes that manufacturing can benefit from opportunities through import substitution, in line with NDP5 and the Growth-at-Home strategy. By seeking opportunities, and exploiting them, Namibian manufacturers can make progress towards achieving economies of scale.
This, will also be augmented by the ambitions of manufacturers to penetrate regional markets. Concerning regional markets, Inkumbi states that although South Africa and Angola are experiencing recessionary economic environments, there are opportunities in other countries in the SADC. He says that economic contraction is a cyclical phenomenon, and that the upward trend of growth resumes in the long-term.
He points out that a viable manufacturing enterprise will have the scope to increase its output in future, and encourages entrepreneurs with plans to initiate them now, rather than delay at the expense of future productivity.
In addition to DBN finance applied to local start-ups and expansion, Inkumbi notes that the Bank also makes the offer of trade finance. Regional expansion can be a costly exercise, however with availability of capital for expansion, cross-border ambition should be seen as an investment in long-term returns.
Talking about the Bank’s support to manufacturing, Inkumbi says that the Bank’s lending terms are competitive for manufacturers, however the Bank has expanded its own philosophy to encompass support in the early application phase as well as post borrowing.
In certain instances, where the Bank identifies strong development impact potential, the Bank will make available expertise and financial support for studies and knowledge gathering through its Project Preparation Fund (PPF). The aim of the PPF is to secure the viability of the project and seek means to mitigate risks prior to borrowing.
The Bank also provides access to a network of consultant business professionals who assist with capacity development after lending. This can be used to develop skills or streamline and strengthen operations to the benefit of the borrower.
Talking broadly about access to finance for manufacturers, Inkumbi says that manufacturing enterprises face challenges attaining the optimal financing mix. DBN’s experience indicates that manufacturing enterprises with a higher equity capital in the financing mix tend to do better than those funded solely with debt capital. Manufacturing enterprises require a longer period to achieve break-even, given the complexity of their environments and the need to secure markets for their products.
Inkumbi also points out that the Bank may, at its own discretion, recommend a repayment holiday for manufacturers on interest, capital or both, depending on the requirement of the borrower, the project's cash flow and factors which become apparent in the application assessment.
Talking about indirect benefits to commercial sources of finance, he goes on to say strong manufacturing base will improve the economic ecosystem, and this will also improve long-term prospects for the financial sector, which is a good reason for all financiers to support manufacturing enterprises. He adds that the DBN will consider financial syndication to spread risks.
This however, must be supported by local procurement policies and practices, and financiers should encourage this among their own clients, in effect creating networks of procurement centered on the encouragement and policy of the provider of capital. If local consumers buy more local goods, this will result in higher sales revenues and better profitability for local manufacturers, which will makes it easier for local manufacturers to obtain finance from financiers.
Addressing manufacturers directly, he says that the Bank has a sound track record in financing the manufacturing sector, which includes cement, food processing, manufacturing of plastic goods, printing and agri-processing. Since its inception, the Bank has provided N$1.15 billion in finance to the manufacturing sector.
Manufacturing requires vision and ambition, and the Bank recognises this, and has commenced engaging local manufacturers, to better understand their challenges in raising capital. Manufacturers who have ambition and plans should make use of the Bank’s open door, and expect more, Inkumbi concludes
The Development Bank of Namibia (DBN) has made a donation of N$50,000 to Hope Village in Greenwell Matongo, Windhoek. The amount will be used to erect two Veggietunnels to cultivate vegetables, irrigation for the tunnels and supplies to establish cultivation in the tunnels.
Speaking about the donation, DBN CEO Martin Inkumbi said not all projects are able to benefit from the commercial approach that the Bank takes. To support projects of that do not qualify for traditional loans, the Bank sets aside a portion of its profits for corporate social investment.
The Hope Village Veggietunnels are what the Bank considers an excellent investment. Although DBN will not measure it in terms of financial returns, the Veggietunnels will create significant benefits for the children of Hope Village, the community of Greenwell Matongo and the future of Namibia.
By growing its own food, Hope Village will reduce its requirement for financing from external sources, and will be able to have greater security by providing sound nutrition for its family in a sustainable manner. Teaching children how to grow their own food, he added, makes them sustainable in later life. With the knowledge that food can be grown at home, the Bank hopes that they can become future producers for themselves, for their families, friends and communities.
Hope Village says that, in addition to food for the children, surplus produce will be sold to the community of Greenwell Matongo, and the project will create employment opportunities.
Inkumbi said a large part of urban Namibians do not have access to agricultural land or the means to produce food, and many lack the skills. Their experience of agriculture is that it is an exchange of cash for bags of fruit and vegetables. If the cash or produce is not available, nutrition is restricted.
He went on to say that DBN has implemented an environmental and social management system that promotes the wellbeing of people and the environment. The donation is informed by the Bank’s concern for both those aspects, now and in the future.
Inkumbi concluded by saying that DBN expects more from the future, and the donation is an expression of that hope.
In the wake of recent reports of lapses in repayment of debt on small and medium enterprise loans issued with the purpose of enhancing Namibia’s development, economic activity and prosperity, DBN Senior Communication Manager Jerome Mutumba has clarified important aspects of mutual responsibility for lending and borrowing, which must be factored into the concept of development finance.
Mutumba says that there is a distinction between finance for development and commercial finance. Finance for development will typically be allocated with the goal of supporting and enhancing economic activity, while commercial finance will have the goal of achieving returns for the lender, without the narrower requirement of producing development. Both, however, will have the prerequisite of returns to capital, in order to sustain their operations. In the event of loans which are not repaid, both development and commercial finance will fail.
In making the choice between sources of commercial or development finance, the borrower will envisage the same outcome, regardless of the source of finance: a viable enterprise that will be a source of personal growth and income. The choice of lender, on the other hand, may influence the terms of the loan in favour of the borrower. A development finance institution (DFI) may, for instance, accept a greater degree of risk, offer capacity development services to borrowers and, under exceptional circumstances, offer flexibility on contracted terms of repayment.
In order to qualify for a DFI loan, the borrower has to recognise the goals of development finance, and ensure that she or he can fulfill those requirements. The first cut decision of development finance will be a clear indication that the borrower can satisfy the terms of the loan. If not, the borrower will not be able to satisfy development goals, such as employment, development of capital, economic activity and other factors.
As a lender, the DFI will have the additional consideration of its own sustainability. It has the moral and economic obligation to preserve its own capital, as well as collect interest, which will be used to sustain and grow its operational capacity, by providing more loans to a greater number of borrowers.
In this way, the agreement between the borrower and the DFI must be mutual, to produce the best possible outcome for both.
Mutumba points out that as the benefits of development finance are allocated from a common resource, such as the national coffers, with the broader goals of development benefits that extend beyond the owner and the DFI, the finance is at the heart of an ubuntu in which the benefit extends beyond the two parties to the loan. Both entities have to be aware of the ubuntu.
Talking about the successful approach of the Development Bank of Namibia (DBN), Mutumba says the Bank not only ensures the integrity of its lending through governance, but also through cooperation with borrowers after the amount has been disbursed.
Governance surrounding the lending process is exercised through a stringent due diligence process prior to approval of loans, which includes factors such as qualification and skills, and willingness to offer collateral, in addition to the standard elements of business planning and development impact.
Mutumba stresses that development finance is a privilege, and that not all applications can succeed, only those that deliver the greatest impact in terms of the Bank’s mandate. Although the Bank may receive many good applications it regretfully has to reject some in favour of those that are the best of the best.
Due to the quality of assessments of applications for finance, the diligence process will identify areas of risk. In these cases, DBN recommends mitigatory measures to applicants, or rejects the application. Where a project is judged to have remarkable development benefits, the Bank may choose at its own discretion to assist the applicant with development of the proposal through its Project Preparation Fund.
Post-lending, Mutumba says that the Bank maintains relationships with borrowers. In addition to monitoring of repayment, visits can be used to ascertain that the application of capital disbursed by the Bank is used for the purpose for which it is intended.
When enterprises do experience difficulty, this is generally, rapidly identified by the Bank, at which stage the Bank will approach the borrower to examine the source of the impairment and try to rectify the situation, rather than proceed to declare the amount a bad debt and recover it through a legal process.
The Bank, he says, does not have the intention to immediately recover its capital, rather to strengthen and improve the enterprise to preserve the development impact that was presented in the successful application.
Mutumba goes on to say that when the Bank has experienced difficulty with loans, it is often as a result of a lack of administrative skills and capacity. The Bank, he says, has taken steps to rectify this with the implementation of a client development function which provides capacity building in the form of mentorship and coaching, through a network of experts in various fields on business management.
Mutumba concludes that the Bank’s track record shows that the partnership between it and its borrowers is sound, and provides developmentally beneficial results. However, he challenges stakeholders to use the Bank’s anti-fraud mechanism, if they believe there are irregularities in transactions.